Debt would swell under Republican candidates' tax plans: study
WASHINGTON (Reuters) - The U.S. national debt will swell further under tax-cut plans floated by three of the top four Republican presidential candidates, according to an independent analysis of their fiscal policy proposals released on Thursday.
Plans put forth by Newt Gingrich and Rick Santorum would pile up the largest increases in debt, while Mitt Romney's initial plan, since revised with bigger proposed tax cuts, would increase it by a smaller amount over the next decade.
Only Ron Paul's plan to drastically shrink government and cut taxes would produce a reduction in debt levels through 2021.
The report from U.S. Budget Watch, a project of the Washington-based Committee for a Responsible Federal Budget, benchmarked the candidates' proposals against a baseline that assumes tax policies implemented by President George W. Bush are kept from expiring at year-end.
But the bipartisan group, made up of former White House and Congressional Budget Office officials and other fiscal policy veterans, said it will need to revise its analysis of Romney's results to take into account his call on Wednesday for a new 20 percent cut in all individual tax rates.
Romney's new tax plan, which matches the 28 percent top rate proposed by Santorum, promises to be revenue neutral, but does not offer any specifics on how to make up for lost revenues.
All the Republican candidates jockeying for their party's nomination for the November 6 election have promised tax cuts will spark an explosion in economic growth that will fill federal coffers with sufficient revenues to shrink deficits when paired with deep spending cuts.
Their assertions that tax cuts can pay for themselves is often met with skepticism by economists. The study's authors came to similar conclusions in a report that aims to impose a reality check on claims being made on the campaign trail.
"Are they making proposals that risk making the debt problem worse?" said Alice Rivlin, a former head of the Congressional Budget Office and Federal Reserve vice chairman who now serves on the group's board. "On that score, all of these candidates fail. They all reduce the revenue that is available to the government over time."
The group offered three scenarios for each candidate's proposals - the most optimistic gives them credit for all vague, non-specific spending cut percentage goals they have put forth. The most pessimistic excludes non-specific and politically doubtful proposals, while a middle scenario puts a dollar value on unspecified percentage goals for discretionary spending cuts.
ANALYZING THE PLANS
The group said the middle path for Gingrich would add $7 trillion to the national debt by 2021 versus the baseline, largely because he has proposed deep tax cuts for individuals and corporations, including an alternative 15 percent "flat tax."
This would boost debt as a share of the overall economy to 114 percent in 2021 from the current level of about 70 percent, compared with an anticipated 2021 baseline level of 85 percent.
The middle scenario for Santorum's plan would add $4.5 trillion to the debt, also due to tax cuts. The scenario excludes a pledge by Santorum "to commit to cut $5 trillion in federal spending within five years" because these cuts were not specified. The debt-to-gross domestic product ratio would rise to 104 percent under Santorum's plan.
The middle-path analysis of Romney's plan, before his pledge for deeper individual tax cuts, would have seen a modest $250 billion increase in debt by 2021 as more of his spending cuts were specified. These included deep cuts to the federal workforce and the Medicaid health care program for the poor. The debt-to-GDP ratio would have ended up at 86 percent under this plan, 1 percentage point above the baseline.
The middle scenario for Paul was the only one to reduce debt below the baseline - by $2.2 trillion - largely due to spending cuts on healthcare programs and Social Security and elimination of five federal departments and many State Department programs. This would cut debt to 76 percent of GDP by 2021.
The debt trajectory under Paul's plan is actually similar to that of President Barack Obama's fiscal 2013 budget plan as analyzed under a separate report by the group.
But instead of cutting government to the bone, Obama proposes a vastly different path, raising taxes on the wealthy, boosting near-term spending on infrastructure and education and making only minor health care spending cuts.
The group estimated the debt-to-GDP ratio would rise to 78 percent by 2014 under Obama's plan, but settle back to 76.5 percent by 2022. Overall debt would be reduced by about $2 trillion over this period compared with the same baseline used to gauge the Republican tax and spending plans.
The group attributed part of the Obama plan savings to previously enacted spending caps, and called it "just a first step" towards a sustainable fiscal path.
- Islamic State video purports to show beheading of UK hostage David Haines |
- North Korea sentences U.S. citizen Matthew Miller to six years hard labor |
- UK's Cameron resists calls for air strikes despite hostage killing |
- Scots independence battle reaches fever pitch on streets and screens |
- NATO countries have begun arms deliveries to Ukraine: defense minister |