Our guest blogger is Seth Hanlon, Director of Fiscal Reform at the Center for American Progress Action Fund.
2012 GOP presidential frontrunner Newt Gingrich is outdoing his Republican rivals in promising enormous tax cuts for the very wealthiest Americans. According to an independent analysis by the Tax Policy Center, Gingrich’s plan would violate basic notions of fairness by requiring middle-class families to pay higher tax rates than millionaires.
But that’s not all that’s wrong with it. Gingrich’s plan is by far the most fiscally reckless plan to be released by a major 2012 contender. The magnitude of the tax cuts he is proposing to the wealthy and corporations would drive the debt to unprecedented and dangerous levels even if federal spending is cut drastically.
Gingrich has not proposed specific levels for federal spending, so to analyze the effect of his plan on the debt, we assumed that he adopts all of the draconian spending cuts in House Budget Committee Paul Ryan’s (R-WI) budget. Gingrich originally dismissed the Ryan budget as “right-wing social engineering,” but later said he would vote for it.
The spending levels in the Ryan budget are unrealistically and irresponsibly low. And yet Gingrich’s tax giveaways are so enormous that there wouldn’t be nearly enough revenue to fund even this extreme conservative vision of government.
The Gingrich plan would reduce federal revenues by $1.28 trillion below CBO’s baseline, according to the nonpartisan Tax Policy Center, resulting in revenues of about 13.2 percent of GDP. That is an absurdly low level. Unsurprisingly, therefore Gingrich’s plan would pile up debt shockingly fast. Ultimately, Gingrich’s plan would:
– Result in perpetual trillion-dollar deficits: The budget deficit is expected to be 6.2 percent of GDP in the current fiscal year, but projected to decline in the coming years. With Gingrich’s tax plan in place, however, deficits would be even higher in perpetuity. In the best year under his plan, fiscal year 2015, the deficit would be $1.2 trillion, or 6.6 percent of GDP. Annual deficits would continue to mount, reaching $2 trillion in just over a decade. Again, this assumes that drastic spending cuts also take place.
– Explode the debt to historic levels: Under the Gingrich plan, the publicly-held debt would double by 2019, and triple by 2024. By the end of a second Gingrich term as president, the debt would reach $25 trillion, or more than 100 percent of GDP. The United States will have added about $12.5 trillion in debt during that period, with no end in sight.
– Commit the United States to trillion dollar interest payments on the debt: By enacting a tax plan with grossly inadequate revenues, the U.S. would be committing to pay ever-increasing sums of money to creditors like China. Under Gingrich’s plan, by 2021 the United States would be paying more than $1 trillion every year just in interest on the debt. Interest on the debt would represent nearly a quarter of all government spending.
Of course, if Gingrich can’t get spending down to the Ryan level, his deficits would be larger and his debt higher. In short, Gingrich’s tax plan simply cannot be taken seriously. As fiscal policy goes, it is every bit as ridiculous as his nutty proposals to replace school janitors with child laborers or colonize the moon.