Matt Yglesias

The DeMint “Plan” — Fewer Jobs, Slower Growth, More Money for Rich People

The Heritage Foundation’s Michael Franc, who I had the pleasure of debating last weekend on C-SPAN, can barely contain his enthusiasm over Jim DeMint’s plan to save the economy by extending Bush’s policies:

DeMint plans to offer a pro-growth alternative plan, one that generates so many new jobs it practically short-circuited Heritage’s econometric model when we analyzed it. It already boasts the support of two key Senate Republicans — Sens. Mitch McConnell (R., Ky.), the Minority Leader, and Thad Cochran (R., Miss.), the senior Republican appropriator. His plan would drop the top marginal tax rate to 25% on wage earners, mom-and-pop business owners, and other employers, maintain the top rate on investment income at 15%, keep the children’s tax credit at $1,000, and impose a modest 15% tax on estates valued over $5 million.

Once our model cooled down, we learned the DeMint plan would lead to the creation of 1.3 million new jobs in 2010, 7.5 million by 2013, and an astounding 18 million within ten years. Residential and commercial real estate activity would also soar, by almost $300 billion over 5 years.

DeMint says his plan was actually just based on the Heritage stimulus proposal, so it’s not really clear why Franc would be surprised that it did so well on Heritage’s own model. Or, rather, it’s clear that Franc is just screwing around with people and not offering serious commentary. Meanwhile, “1.3 million” sounds like a large number, but it’s actually ridiculously low. Call it the Doctor Evil stimulus:

The trouble is that for job growth to keep pace with population growth, we need to add 1.5–1.6 million new jobs every year. To get a labor market recovery off the ground after well over a year of job losses, we need the pace of job growth to be considerably faster than that. DeMint’s promise of 1.3 million jobs is a promise to keep recessionary conditions going through 2010. Meanwhile, even the Bush administration Treasury Department has conceded that large, unfunded, permanent tax cuts of the sort DeMint is proposing result in slower long-run growth. Because DeMint’s plan is so generous to the richest Americans, they may well wind up better off under his slow-growth scenario than they would be under more balanced policies. But middle class Americans would be much better served by a policy that brings about more rapid recovery—the Romer-Bernstein number for the Obama plan is 3.7 million jobs instead of DeMint’s 1.3 million—and that lays the foundation for long-term growth by avoiding the sort of huge long-run deficits that DeMint’s plan would guarantee.

Heritage Stimulus Proposals Vs. Progressive Alternatives

Ben Furnas has a nifty chart showing how much less effective the main components of the recently released Heritage stimulus plan are than some major progressive alternatives:

Click over here for the details.

Economic Freedom, Universal Health Care, and Labor Unions

The Heritage Foundation has a new report out touting the fifteenth annual edition of its joint project with The Wall Street Journal called the “Index of Economic Freedom”. This is the right-wing’s gold standard of international comparisons that they say “provides strong evidence that the countries that maintain the freest economies do the best job of promoting prosperity for all citizens.” See here:

Long story short, they think we should become a dictatorial East Asian city state.

But it’s interesting to look at how the non-U.S. countries fare on some controversial policy ideas. Singapore, for example, has an interesting health care system that combines some elements of the consumer-driven model beloved by the right-wing with a universal guarantee of access and affordability and a healthy dose of direct state provision of services. Hong Kong has a British-derived system of public provision. And of course the rest of the top ten are Western countries among which, as is well-known, the US is alone in not providing for universal health coverage.

Or think about the Employee Free Choice Act. Conservative claim that making it easier for workers to form unions will cripple the economy. But consider these union density stats:

1. Hong Kong — 22.1 percent
2. Singapore — 18.5
3. Australia — 20.0
4. Ireland — 35.0
5. New Zealand — 21.1
6. United States — 12.0
7. Canada — 29.7
8. Denmark — 80.0
9. Switzerland — 25.0
10. United Kingdom — 28.4

Long story short, by conservatives’ own lights these major elements of progressive social policy are completely compatible with sound overall economic policy. But health care reform and a stronger voice for labor would help ensure that the gains of economic growth are shared broadly rather than leaving us stuck in the Bushonomics trap of debt-financed middle class consumption growth. And I would argue that egalitarian measures like a stronger health care system and the better wages that come from higher union density help forestall political demand for the kind of labor market regulations that you see in the southern European countries that this Heritage/WSJ study frowns upon.

Heritage: The Country Needs More Bushism

Many people feel that since George W. Bush was a terrible president and the end of his administration coincides with everything being in a sorry state, that it would be appropriate to respond with new and different policies. Not so J.D. Foster and William W. Beach who argue in a new Heritage Foundation paper that more Bushism than every before is needed:

Given the high level of economic pain, policymakers need to pursue stimulus policies that work. The centerpiece of an effective stimulus policy should involve two elements:

1. Extend the 2001 and 2003 tax reductions for as long as possible–certainly through at least 2013 to prevent a tax increase. Better yet, make the tax reductions permanent; and
2. Reduce tax rates on individuals, small businesses, and corporations through 2013 by lowering the top rate by 10 percentage points and reducing rates by similar amounts for lower income level taxpayers.

By definition, a stimulus measure is short-term. Thus, it’s impossible for making permanent changes to the tax code to be a reasonable stimulus. Indeed, in non-recessionary times federal deficits are an impediment to growth, so this could have a seriously problematic long-term impact. Meanwhile, the idea of tax-side stimulus is to put money in the hands of individuals with a high propensity to spend the money — thus giving businesses more customers and creating labor market demand so that unemployed people can find jobs. Extending tax measures that overwhelmingly benefitted the wealthiest taxpayers doesn’t fit the bill, nor does further reductions in the top rate.

A subsidiary goal one might want to accomplish with a stimulus measure it to provide direct relief to those suffering the most during the downturn. But, again, if you’re in the top income tax bracket you’re obviously not suffering very much. Long story short, this plan would deliver nothing to those in the greatest need and would stimulate demand in the least-efficient way possible. All in pursuit of the right-wing’s never-ending goal of further enriching the richest.