Economy

ANALYSIS: Pawlenty’s Tax Plan Would Cost $7.8 Trillion Over Ten Years, Triple The Size Of Bush Tax Cuts

Our guest blogger is Michael Linden, Director of Tax and Budget Policy at the Center for American Progress Action Fund.

Earlier today, presidential candidate and former governor Tim Pawlenty (R-MN) outlined his economic policy “vision,” which included several major proposals to cut taxes. Pawlenty called for:

— Cutting the top individual income tax rate down to 25 percent;

— Having just two income tax brackets, 10 percent and 25 percent;

— Eliminating all taxation on capital gains, dividends, and estates;

— Cutting the corporate tax rate down to 15 percent

These proposals, taken together would bestow a massive tax cut on the wealthiest people in the country. They would also reduce overall federal revenues to a such a low level that even if Pawlenty’s draconian, radical spending targets were achieved, deficits and debt would still soar out of control.

All together, Pawlenty’s tax proposal would generate an average revenue level of just 13.6 percent of GDP from 2013-2021. That translates to a tax cut of $7.8 trillion, and that’s on top of $2.5 trillion cost of extending all of the Bush tax cuts (see below for details on how this estimate was calculated).

Pawlenty also says that he will balance the budget, and cap spending at 18 percent of GDP. Unfortunately for Pawlenty, his tax plan leaves him about $8.4 trillion short. Given that reality, he can either embrace a huge middle-class tax increase, or give up his claims to a balanced budget. If he doesn’t make up that revenue, deficits and debt will skyrocket, even if he does slash spending back to levels not seen in half a century.

Read how we got our numbers after the jump.

The Tax Policy Center estimated the revenue effect of the certain revenue proposals in the House passed budget plan, including reducing the top rate to 25 percent, and cutting the corporate rate to 25 percent. To get the additional cost of reducing the corporate rate further to 15 percent, we simply doubled the TPC estimate of this provision.

The Congressional Budget Office estimates how much revenue the government is expected to collect from capital gains and from estate and gift taxes.

We estimated the revenue effect of removing the 15 percent bracket based on data from the Internal Revenue Service for 2007 and extrapolating forward.