At City Journal, Josh Barro crunches the numbers of the economic plan that Tim Pawlenty sketched out in his speech on Tuesday. He finds that the plan, which the Wall Street Journal and others praised for setting rapid, 5 percent economic growth as a goal, is over-optimistic:
…Pawlenty’s speech reflects what Republican primary voters are demanding: detachment from reality on fiscal issues. In case anybody has forgotten, the federal budget deficit is massive — dangerously, destabilizingly massive. A huge reduction in federal tax revenues overall, the inevitable outcome of Pawlenty’s budget proposal, would obviously not improve our worsening deficit crisis.
We do need economic growth to secure our future, but we shouldn’t overestimate our ability to foster growth through tax and fiscal policy. Ultimately, we need a fiscal policy that involves figuring out what we can’t afford to do or don’t want to do, and levying sufficient taxes to pay for the rest.
Politicians on the campaign trail are going to pander, but Pawlenty’s overpromising on fiscal issues is a bit of a letdown for two reasons. The first is that he has a record of real fiscal stewardship, as a conservative governor in a blue state. The second is that so far he’s been upfront about tough choices to be made, in other contexts. For example, the best part of that same speech was when he summed up his “truth-telling” campaign:
I promised to level with the American people. To look them in the eye. And tell them the truth.
I went to Iowa. And said we need to phase out federal ethanol subsidies. I went to Florida. And said we need to raise the retirement age for the next generation. And means-test cost-of-living adjustments for Social Security. I went to New York City. And told Wall Street that the era of bailouts — carve-outs — and handouts had to end.
The worst part of the speech was this:
5% economic growth over 10 years would generate 3.8 trillion dollars in new tax revenues. With that — we would reduce projected deficits by 40%. All before we made a single budget cut.
The next part of my plan deals with that other 60%.
As Barro demonstrates, 5 percent economic growth over 10 years is simply wildly optimistic. Even if President Pawlenty were freed of the constraints of the legislative process, 10 years of record growth would be a huge stretch. Pawlenty’s plan relies on more rosy scenarios than the Obama budget plan that was defeated 0-97 in the Senate.
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