JONATHAN CHAIT JUNE 9, 2011
The rotting carcass that is the intellectual justification for Tim Pawlenty's economic plan hasn't yet been picked totally clean. Leonard Burman points out that Pawlenty's wage tax concept would open up gaping loopholes:
Worst of all, that estimate is wildly over-optimistic because it ignores the giant, enormous, egregious tax shelters that would allow all moderately clever millionaires to slash their tax liabilities. Here’s a simple one. Create a corporation and pay yourself no salary but a healthy dividend. Dividends are tax-free! So your maximum tax rate falls from 25% to 15%. And that assumes you’re paying the full 15% corporate rate on your income. Any tax lawyer worth her salt could cut that substantially.
And Bruce Bartlett points out the extreme optimism of his growth assumptions:
Two points I haven't seen mentioned elsewhere: (1) According to the OECD, no county in its database has ever achieved 10 continuous years of +5% growth except Korea; a few had compounded growth rates above 5% annually for 10 year periods, but none have done so for many years and the U.S. has never done so in its history. (2) The U.S. has only once in its history gone 10 years without a recession -- the George H.W. Bush/Bill Clinton expansion that ran exactly 10 years from March 1991 to March 2001; the average postwar expansion only lasted 5 years.
I'm pretty sure Pawlenty's answer to the first one involves American Exceptionalism.
As for the second, well, keep in mind that it happened following two successive increases in the top marginal tax rate that supply-siders declared would destroy economic growth.