Just watched Tim Pawlenty outline his approach to reinvigorating the American economy during a speech at the University of Chicago. A few initial thoughts:
1) I would love for some candidate to endorse a flat consumption tax, but Pawlenty’s plan is pretty strong:
· Cut the corporate tax rate from 35% to 15% to spur investment and American competitiveness in the global economy
· End the era of crony capitalism by eliminating corporate tax loopholes, subsidies and giveaways to level the playing field
· Providing the option for small and medium sized businesses to pay the corporate rate
· Replace the individual tax system with two brackets creating a flatter and fairer tax structure
o Individuals making $50,000 or higher will be taxed at 25%
o Individuals making $50,000 or lower will be taxed at 10%
o Married couples making $50,000 or lower will have an effective 0% tax rate
· Eliminate capital gains tax and dividend tax to encourage investment and saving
· Eliminate estate tax and interest income tax
Good stuff all around, boosting both investment and possibly family formation. Also recognizes how the current code encourages an unholy alliance between Big Business and Big Government. But I would like some more specifics on what tax breaks and loopholes he wants to eliminate.
2) Pawlenty posits a goals of growing the economy by 5% a year for the next decade, generating an additional $4 trillion in tax revenue. Now keep in mind, I don’t think the American economy ever managed that in the 20th century. Indeed, the only examples Pawlenty gave were over a shorter period of time:
Between 1983 and 1987 — the Reagan recovery grew at 4.9%. Between 1996 and 1999 —- under President Bill Clinton and a Republican Congress. The economy grew at more than 4.7%. In each case millions of new jobs were created — incomes rose — and unemployment fell to historic lows. The same can happen again.
The economy also grew awfully fast in the mid-1960s after the JFK tax cuts. I am glad he set a high goal, but in terms of getting the debt under control, I would prefer a more conservative forecast. But I am glad T-Paw rejects the declinist attitude that sees the U.S. only growing between 2-2.5%. We can certainly do better than that.
3) On cutting spending, more good ideas, especially the bits on reforming the federal government. But I can’t take spending caps too seriously without a specific plan on making them work. During the Q&A afterward, his answer on Medicare — about changing payment incentives for healthcare providers — shows his approach is still a work in progress. It seems unlikely he will be adopting the Ryan plan, but we’ll see.
· Pass a Constitutional amendment that requires a balanced federal budget and caps federal spending as a percentage of our economy around the historic average of 18% of GDP
· Propose that Congress grant the President temporary and emergency authority to freeze spending at current levels, and impound up to 5% of Federal spending until the budget is balanced if Congress fails to cut spending
· Apply the “Google Test” to government agencies. If you can find a good or service on the Internet, then the federal government probably doesn’t need to be doing it.
· Employ Lean Six Sigma throughout all federal agencies saving up to 20%
4) I should also note that Pawlenty said he wants to eliminate the Fed’s dual mandate and have the central bank focus only controlling inflation.