BY BRYCE COVERT – – – – –
Jeb Bush was lambasted for promising that his presidency would have created 4 percent GDP growth. Republican candidate Ted Cruz is now going even further: he’s promising 5 percent growth or more.
On Friday, he told CNBC’s Squawk Box, “My object is a minimum of 5 percent GDP growth.” And he would get there, he said, through his tax plan, which does away with most of the tax code to institute a 10 percent across the board rate on all income, and 16 percent on businesses. “The numbers we’re estimating are, if anything, underselling the GDP impact” of his plan, Cruz said.
Arthur Laffer, a former adviser to President Reagan, also joined the show and made bigger promises on behalf of Cruz’s plan. Pointing to the 7.1 percent annual GDP growth high point under Reagan, Laffer said, “You’ll get more than that” under Cruz’s plan. “Higher growth rates than 5 percent.”
But the economy hasn’t grown by a five percent annual rate since that high point in 1984, according to government data, and hasn’t even reached 4 percent growth in more than 15 years. The economy grew, on average, 3 percent a year between 1969 and 2007, and it’s averaged about 2 percent growth for the last several years.
Bush, when he was still in the race, promised to get to 4 percent growth by increasing worker productivity, labor force participation, and work hours, all of which he said would lead to income gains, on top of tax cuts. Cruz takes a different approach by promising to get there through the tax cuts alone.
It’s unlikely tax cuts will unleash huge economic growth, however. Cruz’s plan would be a huge giveaway to corporations and the wealthy, with the richest 1 percent capturing half of all the benefits and just 7 percent going to the middle and lower class. It would also be costly, reducing government tax revenue by $8.6 trillion over a decade.
And research has found that massive tax breaks for the wealthy don’t trickle down into economic growth. In the post-war period, growth has generally been higher when the top marginal tax rate was also higher and lower then rates were substantially lower. When the top rate was more than 90 percent in the 1950s, for example, growth averaged more than 4 percent. More recently,multiple studies have found that Reagan’s 1986 tax cuts did not spur economic growth, nor did the Bush tax cuts of 2001 and 2003.
But Cruz isn’t the only one still in the Republican presidential race promising fantastical levels of growth. In a recent conversation with the New York Daily News, John Kasich promised that his tax plan, which lowers top income and corporate tax rates while calling for a balanced budget that would necessitate huge spending cuts, would spur nearly 4 percent annual GDP growth. Donald Trump has gone the furthest, saying that his tax plan — which looks very similar to the others by lowering rates and giving the richest 1 percent the bulk of the benefits — could lead to as much as 6 percent GDP growth.