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Thursday, June 16, 2011

And You Thought The Bush Tax Cuts Were Bad?

Jun 16th, 2011

You may have heard about Republican Presidential hopeful Tim Pawlenty's recent tax proposals. Most analysts have focused their attention on Pawlenty's insistence that his plan would spur an annual growth rate of 5%. Such a claim is, as economist Michael Ettlinger of the Center For American Progress put it, "patently ridiculous."

As TPM reported, withering criticism is coming from the right as well:
"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."

While a brief spurt of high growth is not uncommon coming out of a deep recession, sustained 5% growth appears a bridge too far. Pawlenty cited expansion periods under Reagan and Clinton as models, but neither president achieved comparable numbers -- in fact from 1980-2000 there was only one time in which growth surpassed 5% at all, a 7.2% boom in 1984 that immediately leveled off the next year.

"It's impossible" Robert Reischauer, former CBO director under Presidents Bush Sr. and Clinton and current president of the Urban Institute, told TPM. "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."

While a critique of so stunning a claim is necessary, it is perhaps more valuable to look at T-Paw's numbers next to the disastrous Bush cuts of 2001 and 2003. The crippling expansion of the deficit that would result from these policies is not hard to estimate... merely to fathom. If we are ever going to grapple with the U.S. debt in an adult manner, we have to reject this devotion to the provably false supply-side mantra of the tax-cut as "cure-all."

From Chuck Marr at The Center For Budget and Policy Priorities

Kevin Drum sums it up perfectly:
"As usual, a bone is thrown to us schmoes making 50 grand or so: our after-tax incomes would go up about 5%. Let's all go to Disneyland! But the real action is at the high end: income increases of 15-20% for the wealthy. Party time! And the super-rich millionaire class? It's Katy bar the door: they'll see their after-tax income go up by a walloping 33%. Time to buy that second yacht!

Say what you want about how boring Pawlenty is, but he knows his audience: scraps for the middle class who aren't in on the con while the wealthy who understand exactly what's going on rake in billions. Is that cynical behavior from this son of a milk truck driver? Sure. But hardly a surprise from anyone who knows the Republican Party's real power base. Pawlenty obviously knows it better than most."

Indeed. This proposal seems to have a lot less to do with organizing the country's finances than expanding the former Governor's campaign chest. But there are plenty of reasons to believe that the rest of the Republican field will embrace the plan generally. And this is dangerous.


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