Now that Newt Gingrich is leading the polls, it’s time he gets the scrutiny he deserves.
Although Gingrich is famous for having proposed a constitutional amendment mandating a balanced budget, Gingrich’s tax plan would make achieving a balanced budget almost impossible to achieve–especially because his plans for spending, while “repackaging” major programs like healthcare, aren’t aggressive or specific about actual cuts to be made.
Republicans like to call Gingrich an “intellectual,” but it doesn’t look like his internal logic is very robust. For a man so committed on paper to resolving the fiscal crisis, the fact that he hasn’t released a proposed budget is inexcusable. Voters deserve to know how he intends his numbers on working out.
Let’s take a look at how his tax proposals (as outlined on his website) would influence the federal deficit on a yearly basis:
Eliminating the capital gains tax: Capital gains tax receipts are projected to be $77 billion in 2011. This represents a substantial downtick from pre-recession levels, and from the CBO projections in upcoming years, but we’ll use this conservative figure nevertheless and estimate a running total: $77 billion increase to the annual deficit
Eliminating the “death” (aka estate) tax: Critics of this tax think it is somehow unfair that Paris Hilton be asked to pay taxes on the money she inherits, something that the WSJ has pointed out is a pretty absurd proposition. The joint committee on taxation, a nonpartisan committee of Congress estimates that repealing the estate tax would result in $670 billion in lost revenue over a ten-year time period. Some of this results from people simply not paying the estate tax, other of it results from decreases to income, capital gains and other taxes that result when people have an incentive to leave as much money as they can to their heirs, rather than using the money while they’re still alive. The $670 billion isn’t spread out equally over all ten years, but we’ll use an average figure of lost revenue of $67 billion per year, to create a new running total: $144 billion increase to the annual deficit
Flat tax of 15%: This is of course the biggest whopper to the national deficit. Newt Gingrich wants anyone to be able to opt-in to a flat tax of 15% (while perversely keeping things like the mortgage-interest deduction). What is the best way of estimating, with publicly available data, how much lost revenue this would result in? The most recent year for which the IRS has released detailed data for is 2008, and despite the fact that tax receipts were comparatively low that year, I’ll use it anyways. Their table called: “Table 1: Tax Classified by Marginal Tax Rate“ is particularly helpful as we make this calculation.
We start with a pretty ugly table with a lot of not very useful data [note that all values are in thousands of dollars]….
Keep in mind Newt Gingrich’s plan is opt-in, meaning that if the current system of taxation benefits you (e.g. if you pay less than 15% of your income in taxes) you’re allowed to stick with the old system.
Therefore, to calculate revenue losses, all we have to do is figure out the difference, for taxpayers who pay a top marginal rate of greater than 15%, between how much they currently pay in taxes and how much they would pay if all of their income was taxed at 15%.
For the sake of transparency, that means for rows “15” “17” “19” and “33,” taking the following formula [formula=(Column H-(Column D * .15)], and summing across rows. This gives us a figure of $267 billion added to the national deficit each year. This is of course an imperfect estimate. It is too conservative to the extent that it doesn’t consider the fact that Gingrich wants to keep non-profit deductions and the mortgage interest deduction. It also doesn’t take into account the many, many ways in which the world would change if taxes were so dramatically reduced, (which would obviously result in either a massive increase in the deficit or truly enormous spending cuts).
Our running total: An increase to the federal deficit of $411 billion per year as a result of Newt Gingrich’s tax plan.
How does this compare to the current deficit? Using the projected 2012 deficit at $1.7 trillion as our baseline, adopting the Newt Gingrich taxplan would increase the deficit by 24%.
What would we have to cut to make up to maintain our deficit at its current size (to speak nothing of actually reducing the deficit) if we implement the “Newt plan”? Here are some options:
- 91% of Medicare
- 58% of all defense spending
- 58% of Social Security
- All federal education spending, all federal spending on transportation infrastructure, all scientific and medical research, put together, plus some
That would not be so easy, now would it?
This is not to say “a Newt Gingrich presidency would inevitably destroy our country and throw it into a fiscal black hole that it would never be able to pull itself out off.” If you wanted to radically cut the size of the government, it is hypothetically possible that you might be able to run a balanced budget with his tax plan, but the fact is, the fairly modest proposals for spending decreases explained on the rest of his website are not commensurate with such drastic revenue decreases.
If Newt wants to be considered fiscally responsible, its time that he release a budget. Instead, he’s put together a patchwork quilt of quixotic policies and is asking us to jump into bed without asking questions.