Tim Pawlenty made his big economic speech Tuesday morning, outlining his economic plan and showing the angle he's going to be taking against Obama on this issue. There is a lot of substance to it, and some of it is fairly commonsensical - like cutting out corporate income tax loopholes so we can lower the overall rate, and cutting one percent of the overall federal budget each year until the deficit is gone and we start to pay off debt - but the section where he talks about individual income taxes is a complete farce.
What it most reminds me of is Paul Ryan’s budget, in that it actually takes the conservative perspective to it's logical conclusions. Not very many politicians are willing to go this far, presenting a plan that puts their political capital where their ideological mouths have been. I’ll give him credit for that, but the plan itself is a work of fiction.
As usual, for both parties, it weaves a magical tale where government can take less from the American people, and ignores how much doing so will dig us into a deeper debt hole. The Democrats pretend we can spend a lot more without taxing a lot more, and Pawlenty’s fairy tale plan is a brazen example of the Republican myth that we can slash taxes and our budgets will magically shrink as a result.
Here is what candidate Pawlenty had to say on the subject:
On the individual rates we need a simpler — fairer — and flatter tax system overall. I propose just two rates — 10 percent - and 25 percent.
Under my plan — those who currently pay no income tax would stay at a zero rate. After that — the first fifty-thousand dollars of income or one-hundred thousand for married couples — would be taxed at 10 percent.
Everything above that would be taxed at 25 percent. That’s it.
A one-third cut in the bottom rate. To allow younger — middle — and lower-income families to save and build wealth. And a 28 percent cut in the top rate — to spur investment and job creation.
In addition — we should eliminate altogether the capital gains tax — interest income tax — dividends tax — and the death tax. Government has no moral or economic basis to claim a second share of the same income.
A quick summary of this would say that he wants to trim taxes for the middle class a bit, cut taxes for the well off and almost entirely do away with taxes for the very wealthy, who make most of their money from capital gains. It’s classic trickle-down economics, writ large.
I don’t have a team of economists who can tell me how many hundreds of billions this would add to the deficit the year it takes effect, but I do know that federal income taxes make up about 45 percent of the federal government’s revenue. I also know that, a few sentences later in his speech, Pawlenty starts saying how his changes would multiply the growth rate of our economy by more than two and a half times, up to five percent, and that would cut the deficit by 40 percent.
Even looking beyond that wishful thinking that we can spur our growth rate that much, there is no mention of the huge increase in the deficit that would come as a result of slashing a revenue stream that amounts to nearly half of the money coming into the federal government’s coffers.
This is just the latest version of the sales pitch politicians have been making for generations. They want to give people a pile of money out of that bottomless pot of gold at the end of the rainbow, more commonly known as the next generations’ pocket, so they can promise more than they’re willing to take now. You could call it taking candy from a baby, but most of the people who would pay the tab if this fairy tale plan was enacted haven’t even been born yet.