PoliGraph: Pawlenty’s tax plan complicates budget claim

Republican presidential hopeful Tim Pawlenty recently laid out his plan to grow the economy, which relies heavily on tax and spending cuts.

"Cutting just 1 percent of overall federal spending for 6 consecutive years would balance the federal budget by 2017."

Pawlenty is right on the spending side of the equation. Cutting spending would help balance the budget. But his plan to cut taxes makes a balanced budget unlikely.

The Evidence

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Pawlenty spokesman Alex Conant says cuts would be made starting with a "base year" and spending would be reduced 1 percent each year going forward. During that time, spending would be frozen.

In the current fiscal year, the nation spent about $3.6 trillion, according to the Congressional Budget Office (CBO). One percent of that is $36 billion, leaving a fiscal year 2012 budget of roughly 3.59 trillion.

If the 1 percent spending cuts continued, by 2017 total federal spending would be around $3.4 trillion - about $1.26 trillion less than what the federal government would spend without the cuts. Assuming the Congressional Budget Office's 2017 revenue projection of about $4.07 trillion is in the ballpark, the nation would have a surplus of about $670 billion.

The math works out, but it doesn't tell the whole story of Pawlenty's vision for the budget. Along with the 1 percent cuts, Pawlenty is proposing big tax cuts, which would make it much harder to balance the budget in the future.

Specifically, he wants to lower the corporate tax rate from 15 percent to 35 percent and create only two individual income tax rates of 10 percent for the first $50,000 of income and 25 percent for the rest. Further, he wants to ax the capital gains tax, interest income tax, dividends tax and the estate tax.

In his speech, Pawlenty suggested that 5 percent economic growth over the next 10 years and the elimination of tax loopholes would help offset the tax cuts. But many economists have said that the goal is unrealistic; 5 percent economic growth is difficult to achieve even in good years.

Based on current law and CBO growth projections, Pawlenty's plan could cost upwards of $11.6 trillion over the next 10 years, according to an analysis done by the Tax Policy Center.

In 2017, that could mean nearly $1.3 trillion in revenue lost to the federal budget, according to a separate analysis conducted by Michael Linden, director of budget and tax policy for the left-leaning Center for American Progress. If so that means the 1 percent cuts wouldn't balance the budget after all.

Furthermore, budget experts are quick to point out that, while 1 percent may seem small, Pawlenty's cuts would be difficult to achieve without cuts to Medicare, Social Security and military spending, which dominate federal spending and account for much of the nation's projected spending increases.

The Verdict

Pawlenty's claim is correct: cutting 1 percent of spending annually would balance the budget by 2017.

But that assumes no changes in the tax code, and that's an unlikely scenario. While it's difficult to say precisely how Pawlenty's tax changes will affect the nation's coffers, initial estimates show that it could result in significant revenue losses.

So, Pawlenty's claim that a 1 percent cut in federal spending would balance the budget is accurate - but only if the government does not enact the tax cuts he proposes. Otherwise, it is unlikely.

SOURCES

Tim Pawlenty, A Better Deal: Governor Tim Pawlenty's Economic Policy Remarks, June 7, 2011

The Congressional Budget Office, An Analysis of the President's Budgetary Proposals for Fiscal Year 2012, accessed June 9, 2011

The Congressional Budget Office, Budget Projections, January 2011

The Washington Post, Tim Pawlenty's Dubious Economic Assertions, June 8, 2011

The Washington Post, Pawlenty's magical economic plan, by Ruth Marcus, June 9, 2011

Interview, Alex Conant, spokesman, Gov. Tim Pawlenty, June 9, 2011

Interview, Michael Linden, Director of Tax and Budget Policy, The Center for American Progress, June 9, 2011

Interview, Gene Steuerle, the Urban Institute, June 9, 2011

Interview, Isabel Sawhill, The Brookings Institution, June 9, 2011

Interview, Eric Toder, the Urban Institute, June 10, 2011