JONATHAN CHAIT JUNE 8, 2011
One thing that Tim Pawlenty's economic plan demonstrates is that the response to public rejection of the Paul Ryan approach -- big regressive tax cuts plus eviscerating the social safety net -- isn't to move back toward the center. It's simply to get really vague about spending cuts.
The party's approach under George W. Bush was to push for huge, regressive tax cuts that implied future cuts to entitlement programs, but refusing to acknowledge the trade-offs. Ryan's plan carries out those trade-offs, though Ryan furiously soft-peddles the impact of the cuts. That's proven wildly unpopular.
So we have Pawlenty reverting to the Bush approach. He's fairly specific about the tax goodies -- he plans to lower rates and eliminate all taxation of capital income and estates, narrowing the tax base to a pure wage tax. He deals with the spending problem with hilariously vague hand-waving about Google, ignoring entirely the rising health care issue, and promising wildly implausible economic growth. (Think about it -- if lowering rates and eliminating taxes on estates, capital gains and dividends would produce massive growth benefits, why didn't Bush's lower rates on all income plus estate gifts, capital gains and dividends produce at least somewhat impressive results? Bush implemented a weaker version of Pawlenty's plan and the result was much slower growth than under Bill Clinton.)
Pawlenty's plan revolves around gargantuan tax cuts for the very rich. (Even if he eliminated every deduction in the tax code, Pawlenty would cut the tax rate for the most affluent close to in half.) The operating theory here is that the entire key to the economy lays in the hands of the tiny "entrepreneurial class" to whose genius we all owe our prosperity. Pawlenty also echoes the Bush method of finding a candidate with conspicuous working-class mannerisms to sell the plutocratic policy.
Alarmingly, Pawlenty's plan is being greeted by conservatives not as some nee plus ultra supply-side vision but as an opening bid. The Wall Street Journal editorial page asks, at the end of a glowing editorial, "Now that Mr. Pawlenty has laid down his marker, what do his competitors have to offer?" Once you've eliminated all tax on capital income and slashed the rates, how much further can you go? Romney hasn't come out with his plan yet, but he can't let Pawlenty outflank him. I hesitate to even think of where the bidding will stand by the time Michelle Bachmann unveils her proposal. Perhaps a negative tax rate on capital gains and estate transfers over a million dollars, financed by a tax on the unproductive poor?