Pawlenty plan rooted in bullish 5% growth

CHICAGO — Republican presidential candidate Tim Pawlenty pitched an economic plan Tuesday that includes deep cuts in personal and business taxes to spur the struggling U.S. economy but would add to deficits in the short term in the hope that badly needed jobs would follow.

The former Minnesota governor’s plan aims for a bullish 5 percent annual growth that would balance the federal budget while forgoing trillions of dollars in tax revenue. Pawlenty’s pitch assumes the benefits of his plan would kick in and eventually make up for its initial costs.

His own team acknowledged the assumptions were aggressive. One critic called it “patently ridiculous.”

“Growing at 5 percent a year rather than the current level of 1.8 percent would net us millions of new jobs, trillions of dollars in new wealth, put us on a path to saving our entitlement programs,” Pawlenty said in his first detailed speech on economic policy since he formally declared his White House ambitions a little over two weeks ago.

The economy averaged 4.9 percent growth between 1983 and 1987, and grew at a 4.7 percent rate between 1996 and 1999. A sustained annual growth of 5 percent for a decade would be unprecedented in modern times.

“It’s patently ridiculous,” said Michael Ettlinger of the liberal Center for American Progress. “It’s not worth serious discussion. … No one serious thinks that’s possible,”

The Washington-based think tank projected Pawlenty’s tax plan would cost $7.8 billion over a decade.

Pawlenty said his plan would translate to $3.8 trillion in new tax revenue that would reduce the deficit by 40 percent.

Pawlenty’s plan also would simplify individual tax rates to just three options and cut taxes on business by more than half. His cuts go further than House Republicans’ recent proposal, which the Tax Policy Center said would cost about $2.9 trillion over the next decade.

Obama adviser David Axelrod said he had not reviewed the details but said Pawlenty seems to be proposing new tax cuts for rich people and collectively would produce huge new deficits.

“He wants to replay the same formula that got us into the jam in the first place, and I don’t think the American people want to go back to that,” Axelrod said.

Pawlenty didn’t back down even though Democrats say the previous two rounds of tax cuts added trillions of dollars to the deficit.

“You’ve got to look at it in isolation,” Pawlenty told reporters after his speech at the University of Chicago. “Did the tax cuts have a positive effect under Kennedy, Reagan, Bush the second? The answer is yes.”

In a speech heavy on specifics, Pawlenty proposed a three-tier income tax system:

The estimated 45 percent of U.S. households that did not pay income taxes in 2010 would see no change in their tax rates.

Individuals would pay 10 percent tax on the first $50,000 of income. Couples earning $100,000 would also pay that rate.

“Everything above that would be taxed at 25 percent,” Pawlenty said.

He said he wants to cut business taxes from the current rate from 35 percent to 15 percent, and he called for dismantling vast pieces of the government.

“We can start by applying what I call the Google Test,” he said. “If you can find a service or a good on Google or the Internet then the federal government probably doesn’t need to be doing that good or service. The post office, the government printing office, Amtrak, Fannie Mae and Freddie Mac were all built for a different time in our country and a different chapter in our economy when the private sector did not adequately provide those services. That’s no longer the case.”

Pawlenty’s economic speech also kept an eye on presidential politics: He blamed Obama for an anemic economy. He said Americans are ready to innovate and create jobs, but “they have been discouraged and weighed down by President Obama’s big government and heavy-handed regulations.”

“The president is satisfied with a second-rate American economy produced by his third-rate policies,” Pawlenty said. “I’m not.”

Pawlenty said he would require a vote in Congress to extend any regulation or he would cancel it. And he proposed that taxes on investments, bank interest, stock dividends and inheritances should all be zero — popular suggestions among fiscal conservatives.

Pawlenty has pitched himself as a tough talker since he formally joined the race. Within days of announcing his campaign, he went to Florida to promise an overhaul of Social Security and Medicare, programs sacrosanct to the state’s seniors. In New York, he told Wall Street a Pawlenty presidency would not bail out investors. And in Iowa he promised to phase out subsidies to corn-based ethanol, a deal breaker for many in a state that relies on those federal dollars for a way of life.

On Tuesday, Pawlenty reminded his audience of university students of his risk-taking rhetoric.

“I’ve proposed capping and block-granting Medicaid to the states entirely, raising the Social Security retirement age for the next generation and I’ve proposed slowing the rate of growth in defense spending,” he said. “We can’t really trust Congress to do it. There’s no historical record.”

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Associated Press writer Deanna Bellandi contributed to this report.