06/17/2011 03:27 pm ET Updated Aug 17, 2011

Pawlenty Proposal: Worst American Tax Plan Ever

There's finally a serious Republican tax proposal on the table, and it's a plan which deserves consideration.

The nation, of course, now has a massive budget deficit. Not since four straight years of surplus under Bill Clinton has the government broken even much less had a few spare dollars. Under President George W. Bush the deficit increased by $4.35 trillion and it has also increased under President Obama.

Obama, of course, inherited not just a massive deficit that topped $10 trillion the day he entered office, he also took on the expenses of the Iraq and Afgan wars which began years before, as well as an economy that was in tatters as a result of the mortgage meltdown, falling real estate values and Wall Street bailouts.

Now comes Republican presidential candidate Tim Pawlenty, a former Minnesota governor and social conservative, with a detailed proposal to right the government and the economy. The specifics look like this:


"Between 1983 and 1987," says Pawlenty, "the Reagan recovery grew at 4.9%. Between 1996 and 1999, under President Bill Clinton and a Republican Congress the economy grew at more than 4.7%. In each case millions of new jobs were created, incomes rose and unemployment fell to historic lows. The same can happen again."

What's not said is this: Reagan raised taxes. According to Bruce Bartlett, Reagan signed off on at least 11 tax increases during his presidency -- and Bartlett is hardly a liberal. He served as senior policy analyst for President Reagan and was the deputy assistant secretary for economic policy at the Treasury Department during the George H.W. Bush administration.

Tax Rates

Pawlenty says,

On the individual rates we need a simpler, fairer and flatter tax system overall. I propose just two rates, 10% and 25%. Under my plan, those who currently pay no income tax would stay at a zero rate. After that, the first fifty-thousand dollars of income or one-hundred thousand for married couples would be taxed at 10%. Everything above that would be taxed at 25%. That's it.

This is essentially a version of the flat-tax plan long advocated by fiscal conservatives such as Steve Forbes, an heir to the Forbes magazine fortune.

If enacted the Pawlenty proposal would create massive unemployment among accountants, make doing taxes a snap and, alas, bankrupt the country. It would lower the margin top rate for billionaires from today's 35 percent to 25 percent. Given lower tax rates, less money would flow into the government, a government which already has a massive deficit. In comparison, the top marginal tax rate under President Reagan was 69% and 92% under President Eisenhower, 91% under Kennedy, 77% under Nixon and Johnson, and 39.6% under Clinton.

No Taxes For The Rich

"In addition," says Pawlenty, "we should eliminate all together the capital gains tax, interest income tax, dividends tax and the death tax. Government has no moral or economic basis to claim a second share of the same income. When you deposit a dollar in your bank account. Every penny should be forevermore yours and your children's. Not the federal government's."

To understand what Pawlenty is saying, look at the mechanics of his proposal: If you earn $50,000 a year from work and overtime your income will be subject to the income tax. If you make $50,000 a year from interest, dividends or selling stock you pay zero. If you make $100 million a year from interest, dividends or selling stock you pay zero. If you inherit $20 million there will be no tax.

The Pawlenty tax program, if enacted, would split the country in two. Most households would be taxed on all the income they bring in -- because all the income they bring in is from labor -- while the richest among us would pay little or nothing to support what would be left of the government.

The Pawlenty plan is great for the wealthy, a gift to plutocrats and those who believe the government should be made smaller, really smaller, by reducing tax revenues. The Pawlenty proposals would create a patrician class while denying money to the government for Medicare or Medicaid. If a tornado, hurricane, earthquake or fire hits your town, too bad. You won't get a dime in federal assistance unless the money can be taken from elsewhere in the budget. Since there will be very few dollars in the federal budget, good luck.


"American businesses today pay the second highest tax rates in the world," says the former Minnesota governor. "That's a recipe for failure, not adding jobs and economic growth. We should cut the business tax rate by more than half. I propose reducing the current rate from 35% to 15%."

The obvious point is that corporations are not paying the official tax rates. What they actually pay are the effective tax rates and those rates are often zero and less than zero.

Here's an example:

"General Electric, the nation's largest corporation, had a very good year in 2010," reports The New York Times. "The company reported worldwide profits of $14.2 billion, and said $5.1 billion of the total came from its operations in the United States.

"Its American tax bill? None. In fact, G.E. claimed a tax benefit of $3.2 billion." (See: G.E."s Strategies Let It Avoid Taxes Altogether, March 24, 2011)

GE, of course, is not the only corporate behemoth that benefits from massive tax loopholes. Oil companies, tech firms and banks -- among others -- pay less than their share and when they pay lower taxes and no taxes because of lobbyists and overseas tax havens guess who pays more?

Combine little if any taxes for major corporations along with the right to make unlimited political donations under Citizens United decision and you get representation without taxation, the exact opposite of the traditional arrangement.

In the end -- and no matter how dressed up -- what Pawlenty and others like him are proposing is not a new tax plan, it's a new society, one without a safety net, something along the lines of what they have in Mexico, Haiti, Romania and Brazil; places where a few rich live in great splendor, most live in poverty, kidnapping is common, bribery is rampant, and no street is safe.
Published originally at, a leading real estate and personal finance site.