Tim Pawlenty’s economic plan

GOP presidential candidate Tim Pawlenty, the former governor of Minnesota, laid out an ambitious and unusually specific plan to get the economy going again:

“Growing at 5 percent a year rather than the current level of 1.8 percent would net us millions of new jobs, trillions of dollars in new wealth, put us on a path to saving our entitlement programs,” Pawlenty said in his first detailed speech on economic policy since he formally declared his White House ambitions a little over two weeks ago.

The economy averaged 4.9 percent growth between 1983 and 1987, and grew at a 4.7 percent rate between 1996 and 1999. A sustained annual growth of 5 percent for a decade would be unprecedented in modern times. . . .

Pawlenty said such growth eventually would translate to $3.8 trillion in new tax revenue that would reduce the deficit by 40 percent.

Pawlenty’s plan also would simplify individual tax rates to just three options and cut taxes on business by more than half. His cuts go further than House Republicans’ recent proposal, which the Tax Policy Center said would cost about $2.9 trillion over the next decade. . . .

In a speech heavy on specifics, Pawlenty proposed a three-tier income tax system:

• The estimated 45 percent of U.S. households that did not pay income taxes in 2010 would see no change in their tax rates.

• Individuals would pay 10 percent tax on the first $50,000 of income. Couples earning $100,000 would also pay that rate.

• “Everything above that would be taxed at 25 percent,” Pawlenty said.

He said he wants to cut business taxes from the current rate from 35 percent to 15 percent, and he called for dismantling vast pieces of the government.

“We can start by applying what I call the Google Test,” he said. “If you can find a service or a good on Google or the Internet then the federal government probably doesn’t need to be doing that good or service. The post office, the government printing office, Amtrak, Fannie Mae and Freddie Mac were all built for a different time in our country and a different chapter in our economy when the private sector did not adequately provide those services. That’s no longer the case.”

via Pawlenty’s economic plan aims for 5 pct. growth – Yahoo! News.

Democrats are savaging the plan, calling it “ridiculous.”  But what do you think?

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • http://castingoutnines.wordpress.com Robert Talbert

    The more that Democrats “savage” anything, the better it probably is in reality. Perhaps Pawlenty is onto something.

  • http://castingoutnines.wordpress.com Robert Talbert

    The more that Democrats “savage” anything, the better it probably is in reality. Perhaps Pawlenty is onto something.

  • SKPeterson

    First off – tax cuts don’t “cost” anything. They simply allow the people to retain control of how those dollars are spent or saved, not Congress. The “costs” are to the power of the elected, appointed and bureaucratized over their fellow citizens.

    25% as a top rate is too high, although as a start it might be good. Then it can be cut to 20 or, even better, 15% and the 10% rate can be extended to $75K and $150K per couple. I’d also exempt the first $25K from any income taxes whatsoever (we’d probably have to wait for medicare/ss reform to eliminate those taxes).

    Then just impose cuts of 5 to 10% across the board on all government programs and hold that level for 4 years or so as a start.

  • SKPeterson

    First off – tax cuts don’t “cost” anything. They simply allow the people to retain control of how those dollars are spent or saved, not Congress. The “costs” are to the power of the elected, appointed and bureaucratized over their fellow citizens.

    25% as a top rate is too high, although as a start it might be good. Then it can be cut to 20 or, even better, 15% and the 10% rate can be extended to $75K and $150K per couple. I’d also exempt the first $25K from any income taxes whatsoever (we’d probably have to wait for medicare/ss reform to eliminate those taxes).

    Then just impose cuts of 5 to 10% across the board on all government programs and hold that level for 4 years or so as a start.

  • WebMonk

    I haven’t read his original speech, but I’ve read several articles discussing the speech, and based on this it sounds like a basic flat tax plan that doesn’t have deductions. (this particular story epically fails to get that across)

    I’m immensely in favor of that aspect of the plan.

    A couple of the other parts are a bit … overly simplistic. But, it’s a politician’s speech, I don’t really expect anything else.

  • WebMonk

    I haven’t read his original speech, but I’ve read several articles discussing the speech, and based on this it sounds like a basic flat tax plan that doesn’t have deductions. (this particular story epically fails to get that across)

    I’m immensely in favor of that aspect of the plan.

    A couple of the other parts are a bit … overly simplistic. But, it’s a politician’s speech, I don’t really expect anything else.

  • Jeremy

    I’ve got a much better plan. How about a 0% tax for income up to $10000, a 1% tax on income up to $200000, and a 2% tax on income above $200000. Oh, I’m only willing to cut 1% of the federal budget, and won’t touch the major expenditures which are defense, medicare, medicaid, and education. I’ll cut some very minor programs only. Seriously does Pawlenty just think his supporters are stupid?

  • Jeremy

    I’ve got a much better plan. How about a 0% tax for income up to $10000, a 1% tax on income up to $200000, and a 2% tax on income above $200000. Oh, I’m only willing to cut 1% of the federal budget, and won’t touch the major expenditures which are defense, medicare, medicaid, and education. I’ll cut some very minor programs only. Seriously does Pawlenty just think his supporters are stupid?

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “The economy averaged 4.9 percent growth between 1983 and 1987, and grew at a 4.7 percent rate between 1996 and 1999. A sustained annual growth of 5 percent for a decade would be unprecedented in modern times. . . .”

    Ugh, another plan based on growth. We are not an undeveloped country. People here are overfed, over educated and their garages over flowing with junk. Growth in the financial sector is not growth! Maybe Pawlenty sees the vast potential in nursing homes or some other nonsense.

  • http://www.biblegateway.com/versions/Contemporary-English-Version-CEV-Bible/ sg

    “The economy averaged 4.9 percent growth between 1983 and 1987, and grew at a 4.7 percent rate between 1996 and 1999. A sustained annual growth of 5 percent for a decade would be unprecedented in modern times. . . .”

    Ugh, another plan based on growth. We are not an undeveloped country. People here are overfed, over educated and their garages over flowing with junk. Growth in the financial sector is not growth! Maybe Pawlenty sees the vast potential in nursing homes or some other nonsense.

  • http://www.christlutheran.net Jeff Samelson

    I’d like to see that bottom figure of $50,000 remain unindexed for inflation. As nice as it is for so many people to not have to pay income taxes, it’s not good in a representative democracy for 45% of the voters to not be taxpayers, i.e. to be voting for people and programs they themselves are not paying for at all.

    Suddenly imposing taxes on that group would be a non-starter, but slowly encompassing more of them as inflation (and economic growth) increased their incomes to the point where they had to pay might work, though slowly.

  • http://www.christlutheran.net Jeff Samelson

    I’d like to see that bottom figure of $50,000 remain unindexed for inflation. As nice as it is for so many people to not have to pay income taxes, it’s not good in a representative democracy for 45% of the voters to not be taxpayers, i.e. to be voting for people and programs they themselves are not paying for at all.

    Suddenly imposing taxes on that group would be a non-starter, but slowly encompassing more of them as inflation (and economic growth) increased their incomes to the point where they had to pay might work, though slowly.

  • George

    It all sounds good, except that the 45% of households should pay an income tax commensurate with the all the rest earning under 100,000. People who are not taxed have no incentive to conserve taxpayer money. Rather, they tend to be the recipient of others money, so they will generally vote to increase taxes on others to gain more for themselves. Such a system foments animosity between the classes and rent-seeking behavior.

  • George

    It all sounds good, except that the 45% of households should pay an income tax commensurate with the all the rest earning under 100,000. People who are not taxed have no incentive to conserve taxpayer money. Rather, they tend to be the recipient of others money, so they will generally vote to increase taxes on others to gain more for themselves. Such a system foments animosity between the classes and rent-seeking behavior.

  • LAJ

    But how could Pawlenty possible get elected after telling the poor that he is going to tax them? After all, Dayton most likely won in MN because of the poor who liked his plan to tax the rich.

  • LAJ

    But how could Pawlenty possible get elected after telling the poor that he is going to tax them? After all, Dayton most likely won in MN because of the poor who liked his plan to tax the rich.

  • http://www.redeemedrambling.blogspot.com/ John

    I think the weakness in this plan is that it is based upon growth. There is room for growth in America, but not much. This would be like Walmart budgeting their business based upon American growth – not a good idea.

  • http://www.redeemedrambling.blogspot.com/ John

    I think the weakness in this plan is that it is based upon growth. There is room for growth in America, but not much. This would be like Walmart budgeting their business based upon American growth – not a good idea.

  • http://www.bikebubba.blogspot.com bike bubba

    Pawlenty is more or less assuming that a simplification of taxation would yield better economic growth than Reagan saw, and at a time when we don’t have a lot of disruptive new technologies to spur that growth, as Reagan enjoyed. I think he’s being optimistic.

    I like a flat tax–almost as much as I like the idea of a national sales tax–but I think he’s being optimistic here.

  • http://www.bikebubba.blogspot.com bike bubba

    Pawlenty is more or less assuming that a simplification of taxation would yield better economic growth than Reagan saw, and at a time when we don’t have a lot of disruptive new technologies to spur that growth, as Reagan enjoyed. I think he’s being optimistic.

    I like a flat tax–almost as much as I like the idea of a national sales tax–but I think he’s being optimistic here.

  • Joe

    I think it is also naive to suggest that growth is over. Here is what I hear, “our economy is done growing because I can’t fathom any new technologies that could develop or industries that could be born/reborn if capital were left in the market instead of being sequestered by the gov’t.”

    Sounds a lot like Charles Duell’s pronouncement that the Patent Office could be shut down because “All imaginable inventions have already been invented.” Of course, he made this famous pronouncement in 1899.

    Now we can discuss whether 5% growth realistically sustainable over a decade …

  • Joe

    I think it is also naive to suggest that growth is over. Here is what I hear, “our economy is done growing because I can’t fathom any new technologies that could develop or industries that could be born/reborn if capital were left in the market instead of being sequestered by the gov’t.”

    Sounds a lot like Charles Duell’s pronouncement that the Patent Office could be shut down because “All imaginable inventions have already been invented.” Of course, he made this famous pronouncement in 1899.

    Now we can discuss whether 5% growth realistically sustainable over a decade …

  • Jonathan

    http://tpmdc.talkingpointsmemo.com/2011/06/gop-economists-slam-tim-pawlentys-economic-plan-impossible.php?ref=fpblg

    Among the few Republicans left who understand economics, the plan is getting panned.

  • Jonathan

    http://tpmdc.talkingpointsmemo.com/2011/06/gop-economists-slam-tim-pawlentys-economic-plan-impossible.php?ref=fpblg

    Among the few Republicans left who understand economics, the plan is getting panned.

  • DonS

    The tax system he is proposing, simplified rates and eliminating deductions and credits, is definitely a step in the right direction, though I would prefer to eliminate the income tax, and the IRS, in favor of consumption taxes. Simplifying the tax system would spur economic growth, as the cost of compliance with our present system, riddled with credits and deductions designed to favor certain politically desirable groups of taxpayers, is immense. But it wouldn’t guarantee 5% real growth per year. To even begin to reach that level of growth, we would need to have a government that wanted growth, and was willing to de-regulate in order to achieve it, particularly in our domestic energy production and mix. Currently, we are going in the exact opposite direction, by drastically increasing energy costs and scarcity, and environmental and business regulation to the point where we are choking and reducing future economic growth.

    If we can fully and responsibly exploit our domestic supplies of shale oil and gas, and eliminate senseless mandates for uneconomic and unreliable renewable energy, then we have a chance of achieving real economic growth.

  • DonS

    The tax system he is proposing, simplified rates and eliminating deductions and credits, is definitely a step in the right direction, though I would prefer to eliminate the income tax, and the IRS, in favor of consumption taxes. Simplifying the tax system would spur economic growth, as the cost of compliance with our present system, riddled with credits and deductions designed to favor certain politically desirable groups of taxpayers, is immense. But it wouldn’t guarantee 5% real growth per year. To even begin to reach that level of growth, we would need to have a government that wanted growth, and was willing to de-regulate in order to achieve it, particularly in our domestic energy production and mix. Currently, we are going in the exact opposite direction, by drastically increasing energy costs and scarcity, and environmental and business regulation to the point where we are choking and reducing future economic growth.

    If we can fully and responsibly exploit our domestic supplies of shale oil and gas, and eliminate senseless mandates for uneconomic and unreliable renewable energy, then we have a chance of achieving real economic growth.

  • The Jones

    One potential shortfall of his tax plan: If a couple makes 100,000 dollars a year, they pay 10,000 in taxes. If they make 100,001 dollars a year, they pay 25,000 in taxes.

    That’s a big jump in taxes just for selling your refrigerator to your neighbor one year.

  • The Jones

    One potential shortfall of his tax plan: If a couple makes 100,000 dollars a year, they pay 10,000 in taxes. If they make 100,001 dollars a year, they pay 25,000 in taxes.

    That’s a big jump in taxes just for selling your refrigerator to your neighbor one year.

  • The Jones

    oh wait, nevermind. On everything ABOVE 100,000. I take that comment back.

  • The Jones

    oh wait, nevermind. On everything ABOVE 100,000. I take that comment back.

  • http://www.bikebubba.blogspot.com bike bubba

    OK, Jonathan, who in politics does understand economics? I would agree that Pawlenty’s plan is overly optimistic, but it’s nowhere near as optimistic as, say, the Obama projections justifying Obamacare or the projections justifying his stimulus (oops, “spendumore”) plan.

  • http://www.bikebubba.blogspot.com bike bubba

    OK, Jonathan, who in politics does understand economics? I would agree that Pawlenty’s plan is overly optimistic, but it’s nowhere near as optimistic as, say, the Obama projections justifying Obamacare or the projections justifying his stimulus (oops, “spendumore”) plan.

  • http://www.toddstadler.com/ tODD

    Is it me, or does Pawlenty’s plan go like this:

    1. Cut taxes
    2. ?????
    3. Millions of new jobs, trillions of dollars in new wealth, and a path to saving our entitlement programs

    If so, that reminds me of this other Internet meme.

  • http://www.toddstadler.com/ tODD

    Is it me, or does Pawlenty’s plan go like this:

    1. Cut taxes
    2. ?????
    3. Millions of new jobs, trillions of dollars in new wealth, and a path to saving our entitlement programs

    If so, that reminds me of this other Internet meme.

  • Jimmy Veith

    Sounds like the same failed economic policies of the Bush administration. Lower tax rates, and it will magically increase revenue, the budget will be balanced and the benefits given to the rich people will eventually trickle down to the middle class. Everyone wins! It didn’t work then, it won’t work now.

    This is the same “voodoo economics” that got us into this deficit mess in the first place. Why would we want to continue doing the same thing? I am in favor of reasonable tax reform, but it can’t be revenue neutral. The wealthy in this country are currently paying the lowest rates in modern history. This can’t continue if we are going to reduce the national debt.

  • Jimmy Veith

    Sounds like the same failed economic policies of the Bush administration. Lower tax rates, and it will magically increase revenue, the budget will be balanced and the benefits given to the rich people will eventually trickle down to the middle class. Everyone wins! It didn’t work then, it won’t work now.

    This is the same “voodoo economics” that got us into this deficit mess in the first place. Why would we want to continue doing the same thing? I am in favor of reasonable tax reform, but it can’t be revenue neutral. The wealthy in this country are currently paying the lowest rates in modern history. This can’t continue if we are going to reduce the national debt.

  • http://www.bikebubba.blogspot.com bike bubba

    Jimmy, it’s better than Bush’s, because it simplifies the tax code, and there is evidently about a $340 billion annual cost to tax code compliance. Cut that even significantly, and you’re talking about a lot of people with a lot of time and money to do other things. Would your family like an annual $1000 reduction in the cost of tax compliance per person? Mine would!

    Bush’s problem, beyond complicating the tax code, is mostly that he didn’t have the guts to say no until he lost Congress. Hence there was a lot of spending that blew up the deficits.

  • http://www.bikebubba.blogspot.com bike bubba

    Jimmy, it’s better than Bush’s, because it simplifies the tax code, and there is evidently about a $340 billion annual cost to tax code compliance. Cut that even significantly, and you’re talking about a lot of people with a lot of time and money to do other things. Would your family like an annual $1000 reduction in the cost of tax compliance per person? Mine would!

    Bush’s problem, beyond complicating the tax code, is mostly that he didn’t have the guts to say no until he lost Congress. Hence there was a lot of spending that blew up the deficits.

  • Joe

    There is also the difference in what taxes you cut – cutting the marginal tax rates have historically produced greater revenue. But other tax cuts historically have not. So, I give the plan credit for cutting taxes the correct way.

    tODD – your criticism assumes that step 2 is supposed to be a governmental step. The question marks are this – additional capital left on the market will enable corporations to hire more people and make capital investments in their businesses. Why do we think this will happen? Because it almost always does. Will some companies chose to pull more profits out of their companies instead of hiring or investing in the business – maybe, but they will have other incentives not to, such as remaining competitive.

    What I find lacking is the spending reduction part. I think he needs to flesh this out in more detail – and I think he will over time. We need to reduce spending even if we don’t do anything with the tax code.

    I don’t know if I could support Pawlenty, but so far he is exceeding my expectations.

  • Joe

    There is also the difference in what taxes you cut – cutting the marginal tax rates have historically produced greater revenue. But other tax cuts historically have not. So, I give the plan credit for cutting taxes the correct way.

    tODD – your criticism assumes that step 2 is supposed to be a governmental step. The question marks are this – additional capital left on the market will enable corporations to hire more people and make capital investments in their businesses. Why do we think this will happen? Because it almost always does. Will some companies chose to pull more profits out of their companies instead of hiring or investing in the business – maybe, but they will have other incentives not to, such as remaining competitive.

    What I find lacking is the spending reduction part. I think he needs to flesh this out in more detail – and I think he will over time. We need to reduce spending even if we don’t do anything with the tax code.

    I don’t know if I could support Pawlenty, but so far he is exceeding my expectations.


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