Zany Republican Candidates - Part 1 - Bachmann and TPaw's Tax Ideas

 Tim Pawlenty, Former Governor of Minnesota and Presidential Candidate




The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institute, has analysed the announced federal tax proposals of Presidential candidates Michele Bachmann and Tim ("If you can Google it, cut it.") Pawlenty and found some interesting impacts:

Pawlenty's proposal would lead to almost $12 trillion dollars in reduced federal tax revenues over the next ten years, or an average of $1 trillion dollars per year.  That would require cutting an awful lot of federal programs for a government whose annual budget is $3.82 trillion dollars.  The Tax Policy Center analyses who the big winners are among taxpayer groups in the proposed tax cuts offered by the former Minnesota governor:

1.  A taxpayer making more than $1,000,000 per year would see her tax rate cut almost in half, and save on average (for all taxpayers making more than $1,000,000 in income per year) $490,000 in annual federal tax liability.

2.  A taxpayer making between $30,000 and $40,000 per year would see his tax rate cut by about ten percent and save, on average, some $400 in tax liability.

3.  A taxpayer making between $50,000 and $75,000 per year would see a tax rate cut of about fifteen percent, and save on average about $1,600 in tax liability.

TPaw's proposal would be very close to a flat tax for taxpayers earning above $75,000.  Those in the $75,000 to $100,000 earning range would pay 16% of income, while those earning more than $500,000 and up would pay on average about 16.5% of income.

TPC's Howard Gleckman summarized Michele Bachmann's tax proposal to eliminate capital gains taxes in a blog post entitled:  "How Michele Bachmann would knock 20,000 millionaires off the taxrolls."  Gleckman:

This got me wondering: What would happen to the number of non-payers if the GOP presidential hopeful got her wish and Congress did abolish taxes on [capital] gains. My Tax Policy Center colleague Dan Baneman ran the numbers: Such a step would remove 23,000 millionaires from the income tax rolls, and cut their annual tax liability by an average of a half-a-million dollars. If all investment income (including interest, dividends, and gains) were made tax free—an idea backed by Tim Pawlenty, another GOP presidential aspirant– 57,000 households making $1 million or more would avoid paying any income tax, about 50,000 more than today. 

But for now, just look at this through Bachmann’s prism: When it comes to the income tax, she told Moore, “I think everybody should have to pay something.”

Fair enough. But how does that square with a plan that would eliminate tax liability for tens of thousands of those with the highest incomes?

In a regressive sort of way, Bachmann’s plan does succeed.  While making gains tax-free would eliminate all income tax liability for 23,000 filers making a million or more, it would add about 250,000 others to the rolls. Nearly all, however, would be low- and moderate-income. It is likely that many would become payers because they’d lose the ability to write off losses on the sale of assets.

In a far more bodacious way, these tax proposals represent the same kind of thinking underlying the new Wisconsin biennial budget:  reward "job-creators" (i.e., the richest citizens of Wisconsin) with tax cuts, and you will quickly have a "trickle down" effect that will significantly boost jobs, boost average wage-earner income, and ultimately increase government revenue.  

The guy who helped Ronald Reagan introduce "supply-side" or "trickle-down" economic policy to the nation was his director of the Office of Management and Budget (OMB), David Stockman.  In an August 2010 op-ed piece in the New York Times, Stockman described the 1980's as having "hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts."

The American economist John Kenneth Galbraith wrote of "trickle-down economics" in 1982:

"Mr. David Stockman has said that supply-side economics was merely a cover for the trickle-down approach to economic policy—what an older and less elegant generation called the horse-and-sparrow theory: 'If you feed the horse enough oats, some will pass through to the road for the sparrows.'"

So now Wisconsin is embarked on a great experiment, at the cost of public education, to see if the sparrows can thrive as well as the horses do.