The Heritage Foundation’s Michael Franc, who I had the pleasure of debating last weekend on C-SPAN, can barely contain his enthusiasm over Jim DeMint’s plan to save the economy by extending Bush’s policies:
DeMint plans to offer a pro-growth alternative plan, one that generates so many new jobs it practically short-circuited Heritage’s econometric model when we analyzed it. It already boasts the support of two key Senate Republicans — Sens. Mitch McConnell (R., Ky.), the Minority Leader, and Thad Cochran (R., Miss.), the senior Republican appropriator. His plan would drop the top marginal tax rate to 25% on wage earners, mom-and-pop business owners, and other employers, maintain the top rate on investment income at 15%, keep the children’s tax credit at $1,000, and impose a modest 15% tax on estates valued over $5 million.
Once our model cooled down, we learned the DeMint plan would lead to the creation of 1.3 million new jobs in 2010, 7.5 million by 2013, and an astounding 18 million within ten years. Residential and commercial real estate activity would also soar, by almost $300 billion over 5 years.
DeMint says his plan was actually just based on the Heritage stimulus proposal, so it’s not really clear why Franc would be surprised that it did so well on Heritage’s own model. Or, rather, it’s clear that Franc is just screwing around with people and not offering serious commentary. Meanwhile, “1.3 million” sounds like a large number, but it’s actually ridiculously low. Call it the Doctor Evil stimulus:
The trouble is that for job growth to keep pace with population growth, we need to add 1.5–1.6 million new jobs every year. To get a labor market recovery off the ground after well over a year of job losses, we need the pace of job growth to be considerably faster than that. DeMint’s promise of 1.3 million jobs is a promise to keep recessionary conditions going through 2010. Meanwhile, even the Bush administration Treasury Department has conceded that large, unfunded, permanent tax cuts of the sort DeMint is proposing result in slower long-run growth. Because DeMint’s plan is so generous to the richest Americans, they may well wind up better off under his slow-growth scenario than they would be under more balanced policies. But middle class Americans would be much better served by a policy that brings about more rapid recovery—the Romer-Bernstein number for the Obama plan is 3.7 million jobs instead of DeMint’s 1.3 million—and that lays the foundation for long-term growth by avoiding the sort of huge long-run deficits that DeMint’s plan would guarantee.