As we get ever closer to the 2012 primary season, I’m watching the GOP Presidential campaign with a growing sense of amusement. The announced candidates and the unofficial contenders are so profoundly unserious that I have a hard time believing they mean half of the things coming out of their mouths.
Still, words have consequences, and it looks like the GOP Presidential hopefuls are now in a mad dash to the Right in order to win over the Tea Party crowd. This leaves little hope for a moderate candidate in this race.
The most recent example is T-Paw and his jaw-droppingly unrealistic economic recovery plan he spoke about in Chicago on Tuesday (June 7th). Pawlenty is either in full-blown pander mode here, or he’s a huge believer in magical thinking. His proposals:
- Grow GDP at 5% per year instead of the current %2 per year
- Cut the corporate tax rate from 35% to 15%
- Flatten income tax brackets to just two: 10% and 25%
- Eliminate the capital gains, interest income, dividend, and estate taxes
- Pass a Constitutional amendment to cap federal spending to 18% of GDP
- Eliminate Medicare as we know it by turning it into a block grant program for the states (i.e., the Ryan Plan)
- Raise the Social Security retirement age
- Slow growth in defense spending
- Apply his “Google Test” for government programs
- Apply Six Sigma techniques to eliminate waste in all federal agencies
- Repeal the Affordable Care Act
- Repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act
- Drastically limit the scope of the EPA
- Expand free-trade agreements
- Limit the Fed’s role to managing inflation
- Maintain a strong U.S. dollar
Where to begin? How about Tim’s overall goal to more than double our annual growth rate for 10 years? Ezra Klein:
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.
To buy into Pawlenty’s plan, you have to accept the widely-held Republican belief that cutting taxes and decreasing regulations will increase revenue – something that isn’t supported by facts and that supply-side economists don’t even believe anymore. Kevin Drum:
[A]fter a few years of skirting dangerously close to reality, I guess it’s once again official Republican dogma that tax cuts pay for themselves and then some. Glad to see they can still kick it old school.
T-Paw’s tax changes would translate into a tax cut of $7.8 trillion above and beyond the $2.5 trillion cost of extending all of the Bush tax cuts. The Citizens for Tax Justice estimates this would result in a 73% tax cut for the 400 richest Americans and a 41% reduction for millionaires in general.
On the spending side of the equation, Pawlenty manages to be even more radical. His 18% spending cap is lower than the budget House Republicans proposed, which effectively eliminates Medicare and Medicaid. Additionally, the Center of Budget and Policy Priorities explains that such a cap would make the economy less stable (emphasis mine):
Imposing an arbitrary limit on federal spending would risk tipping faltering economies into recession, make recessions deeper, and make recovery from a recession more difficult. Spending for some important federal programs — including unemployment insurance, food stamps, and Social Security — increases automatically during a recession, when the need for assistance grows. Since GDP [Gross Domestic Product] also shrinks during a recession and remains below its trend level during the early stages of recovery, federal spending increases significantly as a share of GDP during periods of economic weakness. This automatic response softens the recession’s blow not only for the programs’ beneficiaries but also for the economy as a whole by maintaining total purchasing power.
Also note that Pawlenty says he’d slow the growth of defense spending, not make any real cuts to it. In May he said that “everything would be on the table” for spending reductions and that “there are no sacred cows”, but then later at the same event added that “the rate of [defense spending] growth can be slowed down, but it should not shrink in absolute terms.” As a reference, in the latest federal budget, defense spending made up 20% of the overall budget and 50% of discretionary spending.
- Any millionaire with a halfway decent tax attorney will have a maximum tax rate of 15%, not 25%, by creating a corporation and paying themselves a dividend instead of a salary.
- Pawlenty claims our health care system is “more expensive and less efficient” due to “Obamacare”. The ACA isn’t taking effect until 2014.
- His deficit reduction proposals cannot even be met by eliminating all nondefense discretionary spending.
- The goal of increasing exports and maintaining a strong dollar are in direct conflict with each other. A weak dollar makes U.S. goods cheaper overseas.
Tim Pawlenty claims authority on fiscal policy because he balanced each biennial budget while he was govenor of Minnesota. This is true, but it was done on the backs of local governments using short-term funding tricks. Minnesota now faces a government shutdown starting in July, and has a projected $5 billion budget deficit for the 2012-2013 biennium.
Wrapping this up, The Economist put Pawlenty’s economic plan into perspective and leaves me feeling slightly depressed (emphasis mine):
The purpose of Mr Pawlenty’s speech was not to lay out a rational economic policy fit for a president. The purpose was to lay out an irrational economic policy fit for Republican primary voters. And, just as important, to lay down a marker for Mitt Romney, Mr Pawlenty’s main Hunt Mitchman rival and the current frontrunner. By staking out ground so far to the right, he now forces Mr Romney to forge an even zanier economic scheme, lest he be accused of dishonouring the legacy of Reagan (as defined by people far to the right of Reagan). It’s a canny political strategy.
And it’s awful for America. As the candidates try to out-tea-party one another, they push the Overton window of acceptable economic policy to the absurd right. This makes it much more difficult for a reasonable Republican candidate to win office, and for any Republican politician to support reasonable economic policy. And no matter what party you belong to, you should find it troubling that Mr Pawlenty’s ridiculous economic plan could ever be considered acceptable by a large portion of the population.