Tim Pawlenty presents himself as the brave truth-teller in the Republican presidential field. He compliments himself for attacking ethanol subsidies in Iowa and proposing, in Florida no less, an increase in the Social Security retirement age.
So when the former Minnesota governor outlined his economic plan the other day, you might have hoped for more of the same sobriety, on a grander scale.
You would have been disappointed. His economic policy runs the gamut from delusional to reckless.
The delusional part is obvious. “Let’s grow the economy by 5 percent — instead of the anemic 2 percent currently envisioned,” he urges. “Such a national economic growth target will set our sights on a positive future.”
But why think so small? Why not 7 percent? Why not 10? If we can send a man to the moon . . .
Pawlenty, play-acting at responsibility, tells us that 5 percent is “not some pie-in-the-sky number. We’ve done it before.”
Yes — very occasionally. Once in the past 30 years, with GDP growth of 7.2 percent in 1984. Pawlenty conveniently cherry-picks years (1983 to 1987, 1996 to 1999) that come close to his 5 percent target — but those periods followed stretches of economic slowdown.
It’s certainly never grown at a 5 percent clip for 10 years straight, as Pawlenty imagines in conjuring a mythical world in which tax cuts get the economy roaring so quickly that it would generate an extra $3.8 trillion over the decade.
Which gets to the reckless part. The centerpiece of Pawlenty’s plan — the magic wand he waves to produce this growth — is massive new tax cuts. The corporate tax would be slashed from 35 percent to 15 percent. Capital gains taxes, taxes on dividends and interest, the estate tax — all would disappear. Families would pay a 10 percent tax rate on the first $100,000 of income, 25 percent on everything above that.
If you’re thinking — oh good, flatter, fairer tax system, think again. Pawlenty is lowering individual income tax rates and keeping the existing hodgepodge of deductions and credits. This is the worst of all possible worlds (lower revenue and a complex tax code).
And at what cost? The Pawlenty campaign told me that — even assuming his outlandish 5 percent growth projections come true — the tax cut would bring in $2 trillion less in revenue over 10 years than currently projected. If growth remains at the expected level and does not soar in the wake of the Pawlenty tax cut, the cost would be a whopping $5.8 trillion. The nonpartisan Tax Policy Center puts the number even higher: at $11.6 trillion compared to current law, as the Pawlenty campaign also assumes. The top 1 percent of taxpayers would receive an average annual tax cut of $261,000. It is beyond irresponsible to consider another huge tax cut at a time of looming fiscal crisis. At a moment when Democrats and Republicans agree that painful spending cuts will have to be part of the solution, Pawlenty’s tax cuts would eventually require an additional $2 trillion in pain. And that’s if things go well.
The way to understand the craziness of the Pawlenty plan is to compare it to the Paul Ryan budget that passed the House. Ryan proposes lowering individual income tax rates — but only along with broadening the tax base (in other words, eliminating deductions) so that the same amount of revenue is generated. Ryan makes clear that he would do what is necessary to keep taxes in the 18 percent of GDP range. Pawlenty’s tax plan is all dessert, no spinach.
And his spending-cut plan is more spinach than anyone could imagine digesting. During Ronald Reagan’s tenure, before the retirement of the baby boomers and the accompanying rise in Social Security and Medicare costs, federal spending averaged 22 percent of GDP. Ryan’s draconian cuts, according to the Congressional Budget Office, would bring spending to just over 20 percent of GDP by 2020.
Pawlenty would cut spending to 18 percent of GDP — and enforce that with a constitutional amendment. So Pawlenty imagines slicing another 2 percent of GDP on top of Ryan’s trims. In a $14 trillion economy, that’s another $280 billion a year, roughly equivalent to half the defense budget. From where? The campaign says it will get more specific later, but it plans to go where the money is: entitlement spending. The details are going to make the Ryan cuts look mild.
One risky fallout from Pawlenty’s proposal is that it could set off a political arms race of tax-cutting in the presidential field. Will Mitt Romney outbid Pawlenty — or will he play the grown-up in the Republican room? There may have been a less responsible economic speech by a serious presidential contender than Pawlenty’s, but I can’t think of one.