Economic plans are often disappointing and underpowered. They’re occasionally radical and even inspiring. They’re frequently dull. They’re rarely hilarious. But Tim Pawlenty’s proposal is the exception. I’m going to quote from it extensively, because I don’t want you to think I’m unfairly simplifying his ideas. Here’s the big one:
Let’s start with a big, positive goal. Let’s grow the economy by 5 percent, instead of an anemic 2 percent.
Yes, let’s! One small problem, though: There is no economist anywhere who knows how to add three percentage points to the country’s growth. Goosing economic growth over any long period is is hard enough when you’re talking about a tenth or two of a percent. Three percentage points? I’ve never seen anyone make that sort of a claim. But perhaps Pawlenty has stumbled upon something new:
It’s been done before: Between 1983 and 1987, the Reagan recovery grew at 4.9 percent annually. Between 1996 and 1999, under President Bill Clinton and a Republican Congress, the economy grew at around 4.7 percent annually.
Read that sentence carefully: Pawlenty says he wants “5 percent growth.” Later in his piece, he specifies “five percent economic growth over 10 years.” And his evidence that “it’s been done before”? Two periods in which growth was under five percent and held there for less than five years. So even in his handpicked examples, Pawlenty can’t come anywhere close to his target.
That said, he has a plan that his predecessors didn’t. Let’s hear it:
How do we do it? Our economy will never grow at 5 percent laboring under a federal tax code that is hostile to business.
American businesses pay the second highest tax rates in the world. That’s a recipe for failure, not adding jobs and economic growth. We should cut the corporate tax rate by more than half. I propose reducing the rate to 15 percent from 35 percent, recognizing that the tax code is littered with special interest handouts, carve-outs, subsidies and loopholes that should be eliminated.
But just changing business tax rates is not enough. That’s because we know most job growth will come from small and medium-size businesses, and their owners are taxed under individual tax rates, not corporate rates. So, pro-job and pro-growth tax reform must include individual tax reform as well
Let’s stop here to note a couple of things: Members of both parties have already proposed closing loopholes and lowering rates. Until Pawlenty, no one from either party, at least to my knowledge, predicted that doing so would lead to 10 years of 5 percent growth. And it’s not as if politicians are known for being particularly pessimistic about the effects of their policies.
As for today’s anti-growth tax rates? As a share of GDP, taxes are currently lower than they were at any time during the Reagan or Clinton years.
Finally, you might wonder what’s going to happen to the budget deficit as Pawlenty finished with handing out his massive tax cuts. Not to worry!
Five percent economic growth over 10 years would generate $3.8 trillion dollars in new tax revenues. With that, we would reduce projected deficits by 40 percent — all before we made a single budget cut.
Because, as you remember, cutting taxes in the Bush years wiped out deficits forevermore.
This plan isn’t optimistic. It isn’t a bit vague. It’s a joke. And I don’t know which is worse: The thought that Pawlenty knows that and went forward with this pandering, fantasy-based proposal anyway, or the thought that he doesn’t know it, and he really thinks this could work.