Worst economic idea of the year?
As my colleague Monique Morrissey highlights, Jeff Madrick has a terrific (albeit somewhat depressing) list of the 10 worst economic ideas of 2011. Doubling down on the failed supply-side experiment and making taxes more regressive is honored as the fallacious economic policy coup de grâce of the year:
“At the top of the list for sheer scandalous insensitivity are Herman Cain’s and Newt Gingrich’s tax plans for America… Gingrich’s plan wins the gold medal: his plan is both regressive and a gigantic revenue loser.”
Spot on. Cain’s plan is wildly regressive. Gingrich’s plan is grossly unaffordable and irresponsible. Cain’s “9-9-9” plan would swing the average tax rate for households in the lowest income quintile (those earning under $18,000 annually) by 18.3 percentage points, from 1.8 percent to 20.2 percent. The swing at the top end of the earnings distribution is almost as wild, with rates plunging 17.2 percentage points to 17.9 percent for the top 0.1 percent of earners (those making roughly $2.7 million or more), an average tax cut valued above $1.3 million. (See this Tax Policy Center current policy baseline table.)
As for Gingrich, Madrick notes his optional flat tax would blow a gaping hole in the federal budget: $850 billion relative to current policy and $1.28 trillion relative to current policy in 2015 alone. The price tag has (extremely misguided) purpose: The highest income 0.1 percent would see their average tax rate cut by two-thirds and fall to only 10.8 percent, a giveaway averaging $1.9 million per household.
But this is more than a two-pronged onslaught of voodoo economic practitioners. Remember Rick Perry’s tax plan? Eerily similar nostrum: Gut the central tenant of a progressive tax code that effective tax rates are supposed to rise with income, give the highest income 0.1 percent a tax cut of $1.5 million, and drain the Treasury of $995 billion relative to current law ($570 billion relative to current policy) in 2015 alone. The presidential campaign trail has been inundated with plans to slash corporate tax rates, cut capital gains and dividends taxes, and eliminate the estate tax. (See this great comparison table detailing and contrasting all the GOP presidential candidates’ tax plans, produced by the good folks at TPC.)
It’s also worth noting that House Budget Committee Chairman Paul Ryan was paving this path in 2010 when he released his Roadmap for America’s Future, which proposed shifting the distribution of taxes from upper-income households to the middle class by replacing the corporate income tax with a regressive subtraction-method value added tax that forces up middle-class tax rates. (Ryan would end all taxation of corporate profits by also eliminating taxes on capital gains and dividends.)
This is the bedrock of conservative economic policy. It’s even politically enshrined in Grover Norquist’s Taxpayer Protection Pledge. Never mind that it hasn’t improved economic performance, it has and continues to defund government, and it would continue to exacerbate income inequality. Unfortunately, with the election looming, it’s a safe bet that sweeping regressive tax cuts will be a top contender for 2012’s worst economic policy ideas.
The whole list is worth a read. Other highlights include the fallacy of expansionary austerity and arbitrarily capping federal expenditures as a share of the economy (somewhere between 16.6 percent to 21 percent, none of which would be tenable levels).