Like the presidential candidates for their respective parties, Republican Linda McMahon and Democrat Chris Murphy differ on how best to cut taxes without ballooning the federal deficit.
Gathered with a group of business owners in the north end of Hartford Thursday, Murphy talked about how he wants to keep the Bush tax cuts for middle class families, but would allow them to expire for wealthier individuals.
McMahon wants to maintain the Bush tax cuts for all income levels, but she also has a plan to cut taxes further for middle class families and pay for it with a 1 percent reduction in federal spending. Her plan excludes defense spending and Medicare from that one percent cut.
“Her tax cuts would add $4 trillion to the deficit. That’s over a decade,” Murphy said. “Her spending cuts over a decade would be about 1/10th of that amount.“
The line of attack is similar to President Barack Obama’s attack of Mitt Romney’s tax plan during their first televised debate Wednesday. Obama accused Romney of proposing a $5 trillion tax cut and not having a plan to pay for it. Romney said his tax changes are revenue neutral.
“An independent economist has scored Linda’s plan and it will reduce the deficit over 10 years,“ Todd Abrajano, McMahon’s spokesman, said. “What Chris Murphy is not talking about is he’s not factoring any potential for economic growth. That’s a big part of what this plan is about. All he’s talking about are tax cuts.”
The argument, which is similar to the argument Romney used last night, was an argument that cutting taxes will actually encourage consumers to spend money and hence spur economic activity and eventually jobs.
Abrajano says talking about just the tax cuts ignores that fact that she’s also going to reduce spending in order to pay for it.
“Bush’s tax cuts unaccompanied by spending discipline exploded the deficit and killed jobs,” Murphy said. “So it’s amazing to me that Linda McMahon looks at the Bush jobs record and wants to repeat it.”
Abrajano laughed at the comment. Since Murphy was sworn into Congress the deficit, which was $8.6 trillion in January 2007 when he took office, has ballooned to $16 trillion today, he said.
“Nothing he’s said about Linda’s position on anything is accurate. It’s getting to the point of ridiculous,” Abrajano said.
The two do agree on maintaining the payroll tax cut.
Murphy, whose tax plan is to simply extend the Bush tax cuts for the middle class, agrees with McMahon that Obama’s 2 percent temporary payroll tax cut should be extended. However, Murphy said he doesn’t know exactly how he would pay for it.
Meanwhile, McMahon’s campaign consistently claims that her plan has been vetted and scored independently by John Dunham and Associates. It has also declined to released the economic modeling it used to come up with the plan.
UConn Economist Steven Lanza said it’s unclear if McMahon’s plan cuts 1 percent from the projected federal budget. Spending is expected to increase 4 percent so is she cutting 1 percent from the 4 percent or the current budget?
Lanza estimated that if McMahon is cutting 1 percent from the current budget and protects defense spending, Medicare, and Social Security from cuts it would leave the government with “no discretionary spending,” by 2021 or 2022. All the spending would go to entitlement programs and the military, according Lanza’s “back of the envelope” analysis using numbers from the Office of Management and Budget.
In theory, without commenting directly on McMahon’s plan, Lanza said a tax cut for the middle class does help stimulate the economy. But tax cuts for the rich don’t do much to stimulate the economy in the short term, he said.
McMahon’s plan cuts middle class taxes from 25 to 15 percent. She keeps the capital gains and dividends tax at its current 15 percent rate under the Bush tax cuts.
In the short term, to get the economy growing the government needs to start spending more money and at the moment the government isn’t doing much of anything to prop up the economy, Lanza said.
Government spending on infrastructure improvements, in combination with middle class tax cuts would get the economy moving again, he said.
Fred Carstensen, another Uconn economist, has been critical of McMahon’s plan for not spending any money on infrastructure improvements which he has said will help the economy and business. He was also critical of the proposed tax cuts which he said would “savage federal revenue.“
Carstensen’s comments on the plan back in August were met with a letter-to-the-editor from John Dunham, managing partner of Dunham and Associates.
In the letter Dunham argued that parts of McMahon’s plan reduces the amount of revenue to the federal government, and some of it increases revenue.
“Eight of the components, including the elimination of about $132 billion per year in corporate tax loopholes, and $90 billion per year in corporate welfare, are designed to save the taxpayers’ money,“ Dunham wrote.
“Many of these proposals interact with each other, so that together, the 20 components of the plan would likely reduce the federal budget deficit by about $1.7 trillion over the next 9 years in nominal terms. This is not a huge amount considering that the 2012 deficit alone is estimated to be $1.1 trillion, but it does represent a big difference from the outdated and unimaginative borrow and spend economic policies of the past 12 years,” he concluded.