Republican presidential hopeful Sen. Ted Cruz (R-TX) promised that if he was elected, his administration would oversee economic growth in excess of 5 percent a year stemming from reduced regulations, tax cuts for high-income earners and corporations, a balanced federal budget, and a return to the gold standard. Journalists and experts were quick to criticize Cruz’s economic growth target, which exceeds by 1 percentage point a proposal by former Republican candidate Jeb Bush that was roundly mocked as “nonsense” and “impossible” last summer.
Cruz Proclaims 5 Percent Economic Growth Will Be His “Number One Priority As President”
Ted Cruz Promises “3, 4, 5 Percent” Growth Through Tax Cuts, Deregulation, And The Gold Standard. On the April 15 edition of CNBC’s Squawk Box, Republican presidential candidate Sen. Ted Cruz opened an hour-long guest spot by proclaiming that his “number one priority as president” would be spurring economic growth through tax cuts, deregulation, and what he called “a rules-based monetary policy, ideally with some tie to gold.” Cruz misleadingly claimed that historical standards for annual economic growth in the United States were “3, 4, 5 percent” -- annual growth rates in the U.S. average just 3 percent from 1969-2007, and have been closer to 2 percent in the wake of the Great Recession -- and maligned the economic and tax policy decisions of the Obama administration with weighing down the American economy since 2008. [CNBC, Squawk Box, 4/15/16]
Cruz: “My Object Is A Minimum Of 5 Percent GDP Growth.” Later that hour, during a segment featuring discredited conservative economist Art Laffer -- whom Cruz credited with helping to “think through and design” his tax plan -- the candidate pegged “a minimum of 5 percent GDP growth” as a target for his presumptive presidential administration. Even though Cruz acknowledged Laffer as an author of his tax policy, CNBC nonetheless allowed the “trickle-down” economics enthusiast to pass off his biased commentary as straightforward expertise. [CNBC, Squawk Box, 4/15/16]
Media, Experts Disparage Cruz’s Promise Of Unprecedented Economic Expansion
CNNMoney: Cruz Promised Economic Growth That “Hasn’t Happened Since 1984.” An April 15 article by CNNMoney noted that Cruz’s promise of annual economic growth of 5 percent or more “hasn’t happened since 1984” and quoted economist Dan Sichel as saying that Cruz’s plan is based on “a very optimistic projection.” The article also noted that the candidate is “aiming even higher” than former Republican presidential candidate Jeb Bush, who “was heavily criticized for being unrealistic when he promised to get the economy humming at 4% a year.” [CNNMoney, 4/15/16]
ThinkProgress: Cruz’s Tax Cuts “Unlikely” To Unleash Growth But “Would Be A Huge Giveaway To Corporations And The Wealthy.” An April 15 post by ThinkProgress economic policy editor Bryce Covert outlined the numerous reasons that Cruz’s proposed tax cuts are “unlikely” to “unleash huge economic growth” last seen in the mid-1980s, but are guaranteed to “be a huge giveaway to corporations and wealthy.” Contrary to Cruz’s claims, ThinkProgress noted that existing research on the effects of tax cuts initiated by Ronald Reagan and George W. Bush reveals that the policies “did not spur economic growth”:
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.
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 (sic) 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. [ThinkProgress, 4/15/16]
Salon: When Assessing Cruz’s Promise Of Tax-Cut-Driven Growth, “Assume The Opposite Will Happen.” An April 18 article from Salon political writer Simon Maloy bludgeoned Cruz’s promise of sustained 5 percent economic growth for far exceeding “the much-mocked and self-evidently overoptimistic guarantee” of 4 percent growth pushed by Jeb Bush. The article also highlighted the problematic relationship Cruz has with conservative economist Art Laffer, who consistently supports disastrous “trickle-down” tax cut policies (emphasis added):
But Cruz has an influential ally in his corner: Art Laffer, the high priest of trickle-down economics, who helped craft Cruz’s plan. “Cruz’s tax plan is better than Reagan’s,” Laffer told CNN. “I think you’ll get growth rates higher than Reagan’s.” A good rule of thumb is that whenever you see Art Laffer extolling the amazing economic impact of a tax-cut package, assume the opposite will happen.
Laffer’s time as a Cruz tax advisor was preceded by a high-profile stint as tax advisor to Kansas Gov. Sam Brownback, who came into power by promising to turn the state into a laboratory of trickle-down economic theory. With Laffer’s help, Brownback passed a tax package that knocked out taxes on small businesses and deeply cut rates across the board. Appearing with Brownback to hype the tax scheme, Laffer confidently predicted it would succeed beyond everyone’s wildest dreams. “This will lead to enormous prosperity,” Laffer told a group of Kansans in 2012. “You are moving into the pro-growth world, and believe me it will work.”
It did not work. The cuts predictably sent the state into a budget crisis as it scrambled to cover a series of massive deficits. To pay for these tax cuts, which overwhelmingly benefited the wealthy, Kansas imposed deep cuts to social programs and passed new consumption taxes that disproportionately affect the poor. And what did Kansans get for all this pain? Not much. [Salon, 4/18/16]
Experts Say Tax Cuts And The Gold Standard Won’t Boost Growth And May Be Dangerous For The Economy
CBPP: Cruz’s Tax Plan Would Either Create “A Long-Term Deficit Nightmare” Or “Extraordinarily Severe Cuts” To Vital Programs. According to a March 29 tax policy analysis by the Center for Budget and Policy Priorities (CBPP), Cruz’s promise to dramatically cut taxes while balancing the budget would require cutting federal spending to its lowest level since 1951. According to the CBPP, the tax cuts Cruz has promised would reduce federal tax revenue to levels that “are simply too low” for the demands of the country today, and would create “a long-term deficit nightmare” if not offset by massive cuts to federal spending. Those spending cuts would, in turn, result in “extraordinarily severe cuts to programs vital to low- and middle-income Americans.” [Center on Budget and Policy Priorities, 3/29/16]
Tax Policy Center: Cruz Plan Would Balloon Deficit By $8.6 Trillion Through Massive Tax Cuts For The Wealthy. According to a February 15 analysis from the nonpartisan Tax Policy Center, Cruz’s tax reform proposals “would reduce federal revenue by $8.6 trillion” over their first decade -- resulting in “persistently large, and likely unsustainable, budget deficits” -- while “reducing taxes dramatically for households at the very top of the income distribution”:
Senator Cruz’s tax reform plan would repeal the corporate income tax and the payroll taxes for Social Security and Medicare, impose a new VAT, cut the individual income tax rate to 10 percent for all taxpayers, remove almost all taxation of investment income, and repeal many tax expenditures. It would boost incentives to work, save, and invest and would simplify the tax code. At the same time, the proposal would significantly change the distribution of federal tax burdens by reducing taxes dramatically for households at the very top of the income distribution and by providing little change or even higher taxes for households at the bottom of the distribution. In addition, barring extraordinarily large cuts in government spending or future tax increases, it would yield persistently large, and likely unsustainable, budget deficits. [Tax Policy Center, 2/15/16]
The Atlantic: “Economists Agree That The Gold Standard Is A Bad Idea.” A November 11 article in The Atlantic pushed back on Cruz’s remarks during a Republican presidential debate the night before, during which the candidate expressed his support for “keeping our money tied to a stable level of gold.” The article demonstrated that “in general, economists agree that the gold standard is a bad idea,” and argued that it would be “quite dangerous” for the economy. It also pointed out that hedge fund manager and gold standard enthusiast Robert Mercer has “donated millions to four super PACs affiliated with Cruz's campaign.” [The Atlantic, 11/11/15]
HuffPo: Cruz’s Embrace Of The Gold Standard Is “A Good Way To Run A Modern Economy Into The Ground.” While other outlets focused on the tax cut portion of Cruz’s proposal to boost economic growth far beyond historic averages, an April 17 article by Huffington Post business reporter Ben Walsh spotlighted Cruz’s claim that returning to the gold standard would spur the economy. The article noted that economists and monetary policy experts overwhelming oppose the gold standard -- “a hare-brained policy that no other country uses” -- because it would contribute to wild economic swings driven by fluctuating market prices:
That’s great, you might think: the value of the dollar will be stable. But the exact opposite is true; gold is a commodity and its price, driven by supply and demand and speculation, swings wildly. Under the gold standard, a central bank like the Federal Reserve would have to raise and cut interest rates not based on how well the economy is doing, but what’s going on in the gold market. It’s a good way to run a modern economy into the ground. (The inflexibility of the gold standard caused the Great Depression.)
And yet Cruz thinks the gold standard is a great policy.
He expressed support for this very dangerous idea at Republican debates in October and November, too. “We had it for about 170 years of our nation’s history, and enjoyed booming economic growth and lower inflation than we have had with the Fed now,” Cruz said. “We need to get back to sound money.” [The Huffington Post, 4/17/16]
CRS: Tax Cuts For The Wealthy Do Not Affect Economic Growth, Contribute To Inequality. According to a September 14, 2012, report by the Congressional Research Service (CRS), reductions in top income tax rates over the previous 65 years did not correlate with increased economic growth, but lowering top rates does “appear to be associated with the increasing concentration of income at the top of the income distribution.” On November 1, 2012, The New York Times reported that Senate Republicans suppressed the CRS findings, which debunked “a central tenet of conservative economic theory.” [Congressional Research Service, 9/14/12; The New York Times, 11/1/12]
Brookings: Tax Cuts For The Wealthy May Actually Reduce Economic Activity. According to a September 2014 report from the Brookings Institution, tax cuts do not always create economic growth, and they can even discourage growth by undermining economic incentives to invest. The report also concluded that tax cuts “as a stand-alone policy... will typically raise the federal budget deficit.” [Brookings Institution, September 2014]