Five budget realities no politician will talk about (not even Ron Paul)

4. Low taxes: Is the boon overstated?

Brian Snyder/Reuters/File
Former US Senator and future Republican presidential candidate Rick Santorum (R) of Pennsylvania listens to the US National Anthem at a Tax Payer Tea Party Rally in Concord, New Hampshire, last April. Every Republican candidate is promising lower tax rates, but predicting how much higher growth will be because of them is tricky.

Federal tax revenue today as a percentage of gross domestic product (GDP) is 20 percent below the post-World War II average, while spending is 27 percent above the postwar average. Low taxes certainly boost the economy, but the time will come when bills need to be paid. Every Republican candidate for president proposes lower tax rates. Some, including Romney, have made vague promises to “broaden the base,” meaning that they would close loopholes. At the same time, they propose new tax rules that could open up more loopholes. New plans always carry the risk that clever lawyers and accountants will find ways to use the new rules to pay far less tax than is expected.

Lowering tax rates and closing loopholes might promote long-term growth, but closing loopholes will cause short-term pain to formerly protected industries. These industries will fight back, and history suggests that many loopholes will quietly find their way back into the tax code. The result could be a combination of tax preferences and lower rates, meaning much lower revenue.

The key to each candidate’s tax plan is what is called “dynamic scoring”: the idea that a streamlined tax code will promote economic growth, which will bring in more revenue. Paul, for example, assumes that revenue under his tax plan will grow at a rate of 7 percent per year. It is certainly true that high tax rates discourage investment, reducing future growth, but the size of this effect is unknown. Economic growth is unpredictable, and if candidates’ rosy assumptions turn out to be wrong, their tax plans will result in much bigger deficits.

4 of 5

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

You've read  of  free articles. Subscribe to continue.