Scattered Thoughts On Gingrich And The Budget

1.  So I was driving home today and heard Newt Gingrich on a local conservative radio talk show.  I was intrigued (not really in a good way) by Gingrich’s proposals so I went over to his website.   He wants to eliminate the capital gains tax, and cut the corporate income tax from 35% to 12.5%.  He also wants to create an optional flat tax (though it would continue to include deductions for charity and home ownership) with a rate of 15%. So if the “flat” tax works for you (basically if you are a high earner) you go with that and get a tax cut.  If you are a lower earner things stay the same.  If you are on the margin, you get to do your taxes twice to see which way works better for you.  It should go without saying that these tax cuts will reduce overall federal revenue.  So what?

2.  The revenue neutral Ryan budget cuts federal spending by over 5 trillion dollars over the next ten years.  Even with all those spending cuts, the Ryan budget still includes deficits of over 5 trillion dollars over the same period.    But so what? Gingrich is a real conservative budget cutter who will make the real cuts we need.  Right?

3.  Yeah . . . about that.  When he was pressed about Paul Ryan’s Medicare reform plan, he called it right-wing social engineering.  He proposed an alternative plan that would supposedly save tens of billions a year by virtually eliminating fraud in Medicare (of course it’s gonna happen - he has a plan.)  So when it comes to spending cutting, the 2011-model Gingrich might not be your guy. 

4.  When I was watching the Cain/Gingrich thing on CSPAN, Gingrich railed against the Congressional Budget Office because of how it estimates budget changes from proposed policies.  Just eyeballing the CBO revenue projections and assuming the Bush tax cuts are not repealed, Gingrich’s proposal to eliminate the capital gains tax would reduce federal revenue by $560 billion over the next ten years.  This is a very generous estimate.  I’m just taking the estimated capital gains tax revenue for 2010 and multiplying by 10.  Now let’s get even more generous.  Cutting capital gains will have some positive impact on economic growth.  Kevin Williamson argues that the high end effect of higher growth would be to get back 30% of the lost revenue. That means the Gingrich’s capital gains tax proposal adds at least (under extremely generous assumptions) $392 billion to the deficit over the next ten years.  That means he would have to find another $392 billion to cut over and above the Ryan cuts that he dodged on earlier in the year.  If it was Ron Paul, then sure, I’d figure the spending cuts would be found.  But this is the guy who turned away from real Medicare cuts to talk about waste and fraud.  And this only deals with one part of the Gingrich tax cuts.  I’d love to see an analysis of the revenue loses under his optional flat tax.  I can see why Gingrich isn’t a fan of the CBO, but getting rid of the CBO doesn’t solve Gingrich’s reality problem.  He needs a constitutional amendment to ban calling bs on Gingrich-generated proposals.