James Pethokoukis

Politics and policy from inside Washington

Boosting the U.S. economy isn’t all that hard

Jun 7, 2011 19:51 UTC

John Tamny of Forbes speaks Truth to Power:

An economy is not a living, breathing blob, rather it’s a collection of individuals acting in their individual self interest. In that case, to stimulate ours or any economy, it’s really quite simple. Remove the roadblocks to economic activity which are taxes, regulation, barriers to trade, and cheap, unstable money.

Right now Washington is violating all four basics, thus making our limp economic outlook a present and future inevitability. Government spending is rising and it’s a tax like any other for every dollar consumed by government one less dollar meant to fund real productivity. Tax rates, though not historically high in the 20th century sense, are uncertain, and with them uncertain, the economy’s vital few must produce with the future possibility that the fruits of their efforts will be penalized at much higher rates. Beyond that, regulations are increasing at a horrifying pace, trade agreements that would foster the work specialization necessary for economic advancement are on hold, and the dollar, as mentioned, continues to decline.

The answer to all of this is a very simple one. An economy is once again just a collection of individuals, and when the barriers to production are removed, the individuals that drive our advancement will start producing again. Of course until the aforementioned roadblocks to growth are reduced, productive activity will decline, and what we call an economy will continue to crawl.

Lovely.

Pawlenty’s big economic speech

Jun 7, 2011 16:23 UTC

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.

 

 

COMMENT

Mr. Pethokoukis, Sir.What exactly in Mr. Pawlenty’s plan do you find so wonderful, other than the tax cuts?
The only actual “facts” that T-Paw uses is the fact that growth was very high during the latter part of the Reagan and Clinton administrations, AFTER taxes had been RAISED!
Growth during the Bush II years was extremely anaemic, and such growth as there was was financed by a massive increase in deficit spending and increased private debt as well. There was actually a net LOSS of jobs in the private sector during those tax cut years, so I fail to see how lowering the tax rates provides any evidence at all for private sector growth.
This “plan” is, of course, total economic nonsense, and although it might sound delightful to those whose economic theories start and end with Ayn Rand, it is both a non-starter politically as well as totally indefensible when rigorous economic analysis is applied to it.
The saddest aspect of this though is when respected news organizations like yours allow for opinion pieces like this to be written that have absolutely no relationship with reality as we know it.

Posted by jimmywitz | Report as abusive

Club for Growth slaps Romney economic record

Jun 7, 2011 15:25 UTC

Very tough Club for Growth analysis of Mitt Romney’s economic policy record as governors of Massachusetts. Here is the group’s conclusion:

Because of his long tenure in public life, especially his presidential run in 2008, Mitt Romney is considered a well-vetted candidate by now. Perhaps to his consternation, he has developed an unshakeable reputation as a flip-flopper. He has changed his position on several economic issues, including taxes, education, political free speech, and climate change. And yet the one issue that he doesn’t flip on – RomneyCare – is the one that is causing him the most problems with conservative voters. Nevertheless, he labels himself as a pro-growth fiscal conservative, and we have no doubt that Romney would move the country in a pro-growth direction. He would promote the unwinding of Obama’s bad economic policies, but we also think that Romney is somewhat of a technocrat. After a career in business, quickly finding a “solution” seems to be his goal, even if it means more government intrusion as a means to an end. To this day, Romney supports big government solutions to health care and opposes pro-growth tax code reform – positions that are simply opposite to those supported by true economic conservatives. How much Romney’s philosophy of governance will affect his policy goals if elected, we leave for the voters to decide.

Look, Romney was never going to be the favorite of the Club for Growth. But I didn’t know about this:

In 2003, the Governor refused to endorse the Bush tax cuts, earning the praise of Massachusetts liberal congressman Barney Frank, and was even open to a federal gas tax hike. His strident opposition to the flat tax is most curious and difficult to explain since Romney wasn’t a political candidate at the time. In 1996, he ran a series of newspaper ads in Boston, New Hampshire, and Iowa denouncing the 17% flat tax proposed by then presidential candidate Steve Forbes as a “tax cut for fat cats.” In 2007, Romney continued to oppose the flat tax with harsh language, calling the tax “unfair.”

But the polls today have some great new for Romney (via the WaPo): “Among all Americans, Obama and Romney are knotted at 47 percent each, and among registered voters, the former governor is numerically ahead, 49 percent to 46 percent.”

 

 

 

 

COMMENT

All I know is this—-Clinton raised taxes, and we had the best Economy in decades, surplus instead of deficit, JOBS, JOBS, JOBS !

As for Romney—How do you look at his taking his State down to #47 in the Nation in Job Creation, and the fact that he raised FEES on everything in the State as to a good Economic Record???? You don’t ! Romney sucked at Economics, and he will do so with the National one.

Posted by sasha1 | Report as abusive

Romer-Bernstein unemployment chart — updated

Jun 7, 2011 12:58 UTC

The good folks at e21 have updated the wildly optimistic chart from January 2009 prepared by incoming White House economists Jared Bernstein and Christina Romer. You know, the one that show the Obama stimulus plan would keep unemployment from hitting 8 percent.

COMMENT

There’s a missing line on the updated chart – an estimate of where unemployment would be without the recovery plan.

The top line of the chart (actual unemployment with the stimulus) is offset from the bottom line (forecast unemployment without the stimulus) by a margin of error. The additional line (estimated unemployment without the stimulus with the benefit of actual data) should be offset from the middle line (estimated unemployment without the stimulus without the benefit of actual data).

Whether this 4th line should be offset above or below the forecast line is open to debate and much more interesting than discussing how good of a job the forecasters did. Do people believe unemployment today would be higher, lower, or the same if the stimulus had not been implemented?

Posted by jeffme | Report as abusive
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