Tim Pawlenty's Tax Plan: Not Boring

Ambitious.

Mr. Pawlenty would extricate the economy from this government cul de sac by enhancing the incentives to work, invest and create jobs. He sketched out yesterday a Reagan-like tax reform of lower rates for individuals and businesses. The first $50,000 in individual income ($100,000 for couples) would be taxed at 10% and after that a top marginal rate of 25%. This would give a big lift to the small and medium-sized businesses that file under the individual tax code and create most new jobs. He’d also zero out taxes on capital gains, dividends and estates.

Mr. Pawlenty says that families earning under $50,000 would pay an effective income tax rate of 0%, because he would maintain tax benefits like those for mortgage interest or the child credit that use the tax code as social policy. Mr. Pawlenty is right not to buy into the liberal objection that tax reform must be revenue neutral according to scoring rules that assume no growth dividend, but minimizing tax credit carve-outs would raise revenue by making the tax code more efficient.

The Minnesotan is on firmer ground with his corporate tax overhaul, which would reduce the rate to 15% from the current 35% in return for cleaning out the warren of loopholes and special favors. Businesses will expand, enlarge their payrolls and repatriate overseas earnings. The added benefit is that most corporate welfare is dispensed through the tax code—so a flatter, simpler system will reduce political mediation of the economy and the resulting misallocation of capital. It is both a pro-growth tax policy and government reform.

Hit the link to watch Larry Kudlow calling the plan "blockbuster." T-Paw also seems to be gaining a little swagger.

I'm actually skeptical, because right now I guess I'm in an anti-deficit frame of mind more than a pro-growth one. I realize the objection to that is "pro-growth is anti-deficit," and I buy into that to some extent, but I am worried about the revenue side of things too. I imagine T-Paw's plan is more of a reform than a cut -- by eliminating the various feudal-system-of-special-rewards our legislators are always stuffing into the code, you bring up revenue even while cutting actual rates, as well as making the government less ever-interventionist -- but I do worry that revenues won't be quite neutral.

There's a more skeptical take on this at MarketWatch, also a WSJ organ; but that skeptical take is still... pretty positive.

The four grades assigned for the four major parts of the plan are:

Corporate tax reform: A-

Personal tax reform/reduction: Incomplete, requires more detail

Exempting certain growth-fueling items from taxation, like interest and dividends: B-

Repealing the Death Tax: C, because the writer is against outright repeal, as Pawlenty proposes, and on that score I think I might be on the same page as him

So, there you go. A skeptical look at the plan is still, on average, something like a B- overall (with more information needed on one part of the plan).

Privatize The Post Office and Sell Off Amtrak? Later in the interview. T-Paw's for it.

Kudlow asks how much money that would raise, and T-Paw suggests not much, and he's right, you'd make no money on these things. They're like Newsweek -- how much do you pay for a money-losing headache?

But that's not the point, really, is it?

posted by Ace at 11:32 AM

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