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Scot Lehigh

Pawlenty’s fiscal foolishness

By Scot Lehigh
June 10, 2011

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IF ONLY the man had lived up to the marquee.

“I’m willing to tell Americans the hard truth,’’ Republican presidential hopeful Tim Pawlenty said this week. “And I believe Americans are ready to hear it.’’

So why, in his first big policy speech, did Pawlenty seem like a political prestidigitator trying to gull the credulous with supply-side sleight of hand?

Laying out his economic plan at the University of Chicago, the former Minnesota governor proposed a simple two-rate income tax system: 10 percent on the first $50,000 of individual — $100,000 of family — income, and 25 percent on earnings above that. He also called for cutting the corporate income tax from 35 percent to 15 percent, eliminating the estate tax, and ending taxes on capital gains, dividends, and interest.

That’s music to tax-cutters’ ears, certainly, but let’s put Pawlenty’s ideas to the hard-truth test. One such truth is that another big round of tax cuts would spell either a large increase in our long-term deficit or even deeper spending reductions than those already required to solve our fiscal problems.

So how did Pawlenty deal with that reality? Through some, well, legerdemain. No, he didn’t repeat the thoroughly debunked assertion that income tax cuts pay for themselves — but he trafficked in the kind of assumptions that underlie that fiscal flimflammery.

Under his plan, Pawlenty asserted, we could well see 5 percent average annual economic growth for a decade.

What, exactly, is that assumption based on?, I asked Pawlenty spokesman Alex Conant.

“Based on history,’’ he replied.

Not modern economic history, certainly. All told, in the past half-century, we’ve had a total of nine years when the rate of real economic growth reached 5 percent or more. Which puts in proper perspective Pawlenty’s assertion that we could average such annual growth for 10 years.

“It would be awesome if we could get 10 years of 5 percent average annual growth, but there is no precedent for that and there is no reason to think that even the most enlightened economic policy could produce that kind of growth in a mature country like the United States,’’ said Len Burman, professor of public administration and economics at Syracuse University. “On average, it comes to about 3 percent a year, and it is really hard to do better than that.’’

The best that Team T-Paw can do is to cite two conveniently culled recession-recovery periods when average annual growth ran in the 4.7 to 4.9 percent range for several years. (Interestingly, one of those periods — 1996 to 1999 — came a couple of years after the Clinton tax hike conservatives claimed would devastate the economy.)

“It is pretty standard supply-side stuff, but it just doesn’t bear out empirically,’’ Diane Lim Rogers, chief economist at the Concord Coalition, a nonpartisan deficit watchdog, says of Pawlenty’s economic assumptions.

Here’s how shaky the plan’s underpinnings are. The Wall Street Journal editorial page struck a skeptical tone about his growth target, noting that “such long booms are rare in developed economies and we can’t recall one that lasted 10 years.’’ When even the true believers are skeptical, you know you’ve got problems.

Pawlenty’s performance was almost as underwhelming on the spending side. He did offer a few ideas for program cuts, things like turning Medicaid into a capped block grant and raising the Social Security retirement age for the next generation. And he suggested doing away with Amtrak, the Postal Service, and Fannie and Freddie.

But for the most part, Pawlenty sidestepped budget-cutting choices by focusing instead on budget-cutting tools. He called for a balanced budget amendment that caps federal spending at about 18 percent of GDP, plus emergency presidential power to freeze and impound federal spending.

That’s all so unlikely it’s better described as flourish than substance. But if that fiscal template ever was imposed, it would mean sharp cuts to scores of programs voters care deeply about. That’s precisely why they’ve come to look askance at House Budget Committee Chairman Paul Ryan’s plan.

Given our pressing fiscal problems, an intrepid truth-teller might just find a receptive audience in this campaign. But in trying to stake out prime tax-cutting turf, Pawlenty flubbed his audition for the straight shooter’s role.

Scot Lehigh can be reached at lehigh@globe.com.