Why Gingrich’s Budget Plan Doesn’t Add Up
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The Fiscal Times
January 23, 2012

Former House Speaker Newt Gingrich vowed in his South Carolina victory speech that he would balance the budget and even build up a surplus if he is elected president. But how he would manage that while delivering on a costly revamping of the tax code and maintaining robust defense spending is far from clear.

 “I am committed to getting back to a balanced budget,” Gingrich told a cheering crowd in Columbia, S.C.  Saturday night after defeating former Massachusetts governor Mitt Romney in the primary contest. “And since I am the only Speaker of the House in your lifetime to have helped create four consecutive balanced budgets, I think I can tell you as president I will work very hard to get back to a balanced budget as rapidly as possible.  And then to run a surplus to pay down the debt so no Chinese leverage exists on the United States by having our debt.”

Gingrich has claimed partial credit for four consecutive years of budget surpluses during the Clinton administration beginning in the late 1990s that paid off almost $500 billion in federal debt. But Gingrich’s presidential campaign pledge to replace the federal tax code with an optional 15 percent flat tax, while eliminating the estate and capital gains taxes and reducing the corporate rate from 35 percent to 12.5 percent, would likely blow a hole in the budget and send the deficit soaring, according to some experts.

Seth Hanlon, director of fiscal reform at the left-leaning Center for American Progress Action Fund, contends the Gingrich plan “is by far the most fiscally reckless plan to be released by a major 2012 contender,” adding that the projected revenues under the former speaker’s approach “are not even in the ball park of the type of revenue that would support a modern country.”
“It’s simply not possible at all to get down to those levels of revenues and still have a military, some semblance of a government and anywhere near the commitment to seniors we now have with Social Security and Medicare,” he told The Fiscal Times today.

Gingrich’s plan would provide a windfall for corporations and upper income Americans while reducing federal tax revenues dramatically, according to an analysis by the nonpartisan Tax Policy Center. Gingrich’s plan would reduce federal revenues by $1.28 trillion below the Congressional Budget Office’s baseline in 2015, roughly a 35 percent reduction.  That would mean essentially reducing the level of federal revenues to 13.2 percent of the Gross Domestic Product in 2015, contrasted with the 19 percent of GDP the government is currently projecting for that year.

The revenue loss would be considerably less than that -- only $850 billion in 2015 – if Congress and the president agree to eliminate the high end of the Bush era tax cuts. But in either case, there would be a substantial drop in the federal tax liability that would push up the deficit or force draconian cuts in domestic and entitlement spending.

Gingrich has yet to propose specific levels for federal spending, so there’s no way of knowing how he intends to control the deficit, although he has long supported a balanced budget amendment to the Constitution.  However, after blasting the House-passed GOP budget drafted by Rep. Paul Ryan of Wisconsin as “right-wing social engineering” earlier this year, Gingrich said he would support it.

That plan would have reduced long-term spending by reshaping Medicare, converting Medicaid to block grants to the states and reforming the tax code. House Republicans who met over the weekend in Baltimore signaled they were ready to pass another big spending cut designed by Ryan, the chairman of the House Budget Committee.

But Gingrich has repeatedly indicated he would oppose deep defense cuts that Obama and congressional GOP leaders already have agreed to.  Gingrich contends that those cuts in military spending would lead to the most dangerous security situation in the nation since Pearl Harbor.

Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.