Thompson Tax Cuts Big Enough?

Fred Thompson has become the first Republican Presidential candidate this year to actually talk tax cut in any meaningful way. (Except, of course, for He Who Shall Not Be Named, who is still advocating eliminating the personal income tax altogether.) Bloomberg News is touting the “cost,” which Thompson hasn’t addressed, at $3 trillion over 10 years and $400 billion by 2012. James Pethokoukis notes that Bloomberg is committing the sin of static analysis:

That sort of “static” analysis assumes taxes have no impact on economic growth. If the tax cut boosts growth, then the so-called lost revenue won’t be anywhere near $400 billion a year. Plus, as the Thompson campaign notes, the candidate has also proposed a fix to Social Security, a far larger fiscal issue than the annual budget deficit.

With the budget on track to be in balance sometime in 2009, my question is whether a “cost” of $400 billion a year is enough. $400 billion in 2012 will be roughly, by my back of the cocktail napkin economic forecast, 2% of GDP, assuming the kind of growth that a serious round of tax cuts should bring. While a two percentage point cut in the tax burden is a good thing, a big chunk of that isn’t really a new cut at all, it’s just extending the by then 9-year old Bush tax cuts beyond 2010.

Fred Thompson has thrown down the tax cut gauntlet. If the other candidates are as serious about courting the “economic conservative” vote as they are about pandering to fundamentalist Christians, they have to pick it up and that means at least matching him.

[tags]Fred Thompson,taxes,tax cut,tax reform[/tags]

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