Right-wing media figures have been hyping the economic plan that GOP presidential contender Tim Pawlenty presented in a June 7 speech. But economic experts, including prominent conservative economists, have called Pawlenty's plan unrealistic, "a joke," and "patently ridiculous."
Pawlenty Presents Economic Plan In Op-Ed, U. Chicago Speech
Pawlenty: "A Tim Pawlenty Plan For Recovery." In a June 7 op-ed in The Chicago Tribune, Republican presidential candidate Tim Pawlenty outlined his plan for economic growth. From the Tribune:
Let's start with a big, positive goal. Let's grow the economy by 5 percent, instead of an anemic 2 percent.
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.
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.
The next part of my plan deals with that other 60 percent.
A balanced federal budget should not just be a political sound bite. As one of 49 governors operating with balanced budget requirements, I balanced every budget in my two terms as governor of Minnesota. I know the only reason the Minnesota legislature ever gave me a balanced budget was because, under Minnesota's Constitution, it had to.
That's why I support a constitutional amendment that not only requires a balanced federal budget, but also caps federal spending as a percentage of our economy, around 18 percent of gross domestic product.
But passing a constitutional amendment will take awhile. The crisis that we face requires immediate action. That's why I have proposed capping and block-granting Medicaid to the states, raising the Social Security retirement age for the next generation and slowing the rate of growth in defense spending.
I will also call for Congress to grant the president the temporary and extraordinary authority to freeze spending at current levels, and impound up to 5 percent of federal spending until the budget is balanced.
"Excellent," "Bold," "Reaganesque": Right-Wing Media Praise Pawlenty's Plan
Hewitt: "Pawlenty's Core Message Ought To Be Adopted By Every GOP Candidate And Repeated By Every Advocate For Every Campaign." In a June 7 post to his blog, conservative radio host Hugh Hewitt said of Pawlenty's economic plan as outlined in The Chicago Tribune: "It is an excellent piece, emphasizing as it does the need for economic growth ...The pro-growth agenda contrasts sharply with the agenda of ever-increasing, creeping state control and higher taxes pushed by President Obama. Pawlenty's core message ought to be adopted by every GOP candidate and repeated by every advocate for every campaign." [Hugh Hewitt, 6/7/11]
Fox Nation: "Pawlenty Outlines Bold Reaganesque Supply-Side Tax Cut Plan." In a June 8 post to Fox Nation, a headline linking to a Washington Post article about Pawlenty's speech read, "Pawlenty Outlines Bold Reaganesque Supply-Side Tax Cut Plan." [Fox Nation, 6/8/11]
But Experts, Economists Say Pawlenty's Plan Is "A Joke"
Holtz-Eakin: "Growth Rate Is Not Going To Be 5%...The Market Just Doesn't Support That." In a statement to Talking Points Memo, Douglas Holtz-Eakin, former Congressional Budget Office (CBO) director under George W. Bush, said of Pawlenty's plan:
"The trend growth rate is not going to be 5% in the United States," Douglas Holtz-Eakin, director of the CBO under President Bush and a top GOP advisor, told TPM. "The market just doesn't support that. It just doesn't." [Talking Points Memo, 6/8/11]
Reischauer: "It's Impossible." Robert Reischauer, former CBO director under Presidents George H. W. Bush and Clinton said: "It's impossible ... You get growth because of investment, an increased labor force, a rise in human capital, and innovation. Add all those components together and they don't sum up to 5% given what the labor force is going to be and the investment possibilities are." [Talking Points Memo, 6/8/11]
Klein: "This Plan Isn't Optimistic. ... It's A Joke." From a June 7 post by Washington Post economic and political blogger Ezra Klein:
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 [sic] 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.
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.
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. [The Washington Post, 6/7/11]
Linden: "Pawlenty's Tax Proposal Would Cost $7.8 Trillion Over Ten Years, Triple The Size Of Bush Tax Cuts." From a June 7 post on ThinkProgress by Michael Linden, Director of Tax and Budget Policy at the Center for American Progress Action Fund:
Earlier today, presidential candidate and former governor Tim Pawlenty (R-MN) outlined his economic policy "vision," which included several major proposals to cut taxes.
These proposals, taken together would bestow a massive tax cut on the wealthiest people in the country. They would also reduce overall federal revenues to a such a low level that even if Pawlenty's draconian, radical spending targets were achieved, deficits and debt would still soar out of control.
All together, Pawlenty's tax proposal would generate an average revenue level of just 13.6 percent of GDP from 2013-2021. That translates to a tax cut of $7.8 trillion, and that's on top of $2.5 trillion cost of extending all of the Bush tax cuts (see below for details on how this estimate was calculated).
Pawlenty also says that he will balance the budget, and cap spending at 18 percent of GDP. Unfortunately for Pawlenty, his tax plan leaves him about $8.4 trillion short. Given that reality, he can either embrace a huge middle-class tax increase, or give up his claims to a balanced budget. If he doesn't make up that revenue, deficits and debt will skyrocket, even if he does slash spending back to levels not seen in half a century. [Think Progress, 6/7/11, emphasis in the original]
Crowley: "[Pawlenty] Doesn't Mention ... That Both Those Periods Of Growth [He Cites] Followed Substantial Tax Increases." In a June 7 post on Time magazine's politics blog, Swampland, senior correspondent Michael Crowley wrote:
Pawlenty's plan, which he calls "A Better Deal," centers around tax reform -- similar to that proposed by Paul Ryan -- that would close tax loopholes and lower rates on individuals and corporations. His changes would overwhelmingly benefit the wealthiest taxpayers and corporations. Pawlenty would lower the corporate tax rate from 35% to 15%, and create two new income tax brackets at 10% and 25%. He would also completely eliminate taxes on capital gains, interest income and dividends -- a huge boon to wealthy investors -- as well as the estate tax, which currently applies only to the most valuable fraction of estates.
In what is essentially a supply-side argument, Pawlenty simply assumes that these changes will unleash dramatic economic growth of up to a 5% annualized rate, generating enough new tax revenue to cut the deficit by 40%.
But I suspect that economists who don't share his assumptions about the effect tax cuts for the wealthy will have on economic growth will find that this is not a realistic plan for paring down the national debt. What's more, you don't need to slash taxes to enjoy an economic boom. Pawlenty notes two recent periods when the U.S. economy grew at a 5% clip -- from 1983 and 1987 and from 1996 to 1999. What he doesn't mention is that both those periods of growth followed substantial tax increases. Bill Clinton's 1993 budget plan was derided as the biggest tax hike in history, but preceded an economic boom (also fueled by a tech explosion); and Ronald Reagan raised taxes three times during the early-middle 1980s. [Time, 6/7/11]
Former Boehner Staffer Galupo: "Tim Pawlenty Proposes Insane Economic Plan." In a June 7 U.S. News and World Report op-ed, titled "Tim Pawlenty Proposes Insane Economic Plan," Scott Galupo, who formerly worked for House Speaker John Boehner, wrote:
When consuming Gov. Tim Pawlenty's economic plan, be sure to take extra time to chew--it's gag-inducing.
He matches McCain's 10 percent reduction in corporate income taxes--and ups the ante another 10 percent. And he's just getting started. The capital gains tax--gone. The estate tax--gone. On top of that, individual rates would be flattened into two brackets: 10 percent on $50,000 for individuals and $100,000 for married couples. Anything, and everything, above that would be taxed at 25 percent.
I haven't seen an estimate yet of how much these cuts would cost. I'm sure one will be forthcoming in days, if not hours. More importantly, I didn't hear one from Pawlenty himself.
He simply offered the same old mythical claptrap: "Once we unleash the creative energy of America's businesses, families, and individuals, as we did in the '80s and '90s, a booming job market will reduce demand for government assistance. And rising incomes will increase federal revenues."
"Five-percent economic growth over 10 years would generate $3.8 trillion dollars in new tax revenues," he said. "With that, we would reduce projected deficits by 40 percent."
And the remaining 60 percent would be eliminated through ... what? Entitlement cuts? Troop drawdowns?
Of course not!
Pawlenty favors--you guessed it--a Constitutional amendment requiring a balanced budget.
This, from a candidate who promised "to level with the American people. To look them in the eye. And tell them the truth."
I can hardly get over the sting of Pawlenty's hard truths: more and deeper tax cuts, no painful budget cuts, and the sunlit uplands of 5 percent annual growth. Please--spare me more of such hard truths! I surrender! [U.S. News and World Report, 6/7/11]
CAP: Pawlenty's Plan Is "Patently Ridiculous." From a June 7 post on MSNBC.com:
The Democratic-leaning Center for American Progress today denounce Tim Pawlenty's economic plan as "patently ridiculous," saying there is absolutely no way the former Minnesota governor's plans would cure the country's economic woes.
Both Linden and Ettlinger say Pawlenty's remedies are inadequeate [sic], because his revenue projections overestimate how much the economy can grow. Pawlenty projected that the economy, under his leadership, would be able to by 5%. But during the economic expansions of 1983-1987 and 1996-1999, the economy never grew above 5% annually -- let alone over 10 years.
"Historically, it's never happened," Ettinger said. "But if pigs had wings, they'd fly. If we had 20% economic growth a year, we'd be done with the deficit in six weeks." [MSNBC.com, 6/7/11]