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Not Much Better Than the Status Quo

Tuesday, October 19, 2010

Maybe the GOP isn’t running on the Pledge because it doesn’t do very much.

The Washington Post recently noted that the Republicans’ Pledge to America is not making much of a difference on the campaign trail: “For all the fanfare and publicity that accompanied the pledge's release, relatively few Republican candidates nationwide appear to be adopting it as a guiding vision, much less incorporating it into their campaigns.”

With polls showing strong support for reducing spending and deficits, why would GOP candidates not tout their Pledge? Maybe it is because the Pledge, the GOP's plan to create jobs and cut government spending, is not as fiscally conservative as congressional Republicans claim.

The United States is on an unsustainable fiscal path because lawmakers are spending too much now and have promised to spend far too much in the near future. Spending must be cut at some point, but the Pledge does not do much of that. It makes no attempt to fundamentally reform entitlement spending, the primary driver of government spending growth, and the proposed savings are relatively small.

The Pledge offers only a slight improvement over the current situation and fails to address the country’s looming fiscal crisis (see chart below).

de Rugy CBO Graph 2.png

 Here are all the reforms promised in the Pledge, with the fiscally significant promises in bold:

Stop all tax hikes.
Roll back government spending to pre-bailout levels, with exceptions for seniors, veterans, and troops (the Pledge claims this will save at least $100 billion in the first year alone).
Repeal and replace the government takeover of healthcare.
—Require congressional approval for regulations that may affect the deficit or make it harder to create jobs.
—Repeal small business mandates contained in healthcare law.
—Establish strict budget caps to limit federal spending going forward.
—Freeze net hiring of non-security federal employees.
—Eliminate wasteful and duplicative spending.
—End bailouts.
—Cancel TARP.
—Reform Fannie Mae and Freddie Mac.
—Allow small business owners to take a tax deduction equal to 20 percent of their business income.
—Fully fund missile defense.

Overall, there is no doubt that the Pledge to America is a disappointment for fiscal hawks and it will not be remembered as the signature document of small-government Republicans. The best that can be said about it is that it is a slight improvement over the current budget.

Veronique de Rugy is a senior research fellow at The Mercatus Center at George Mason University, where Jakina Debnam is a research associate.

FURTHER READING: De Rugy also wrote “It Depends on What the Definition of ‘Austerity’ Is,” gives us a lesson on “Taxes and Presidential Math,” and previews what will happen “When Debt Flies Off the Charts.” Kenneth Green discusses “Moderate Republicans and the Ratchet Effect” and Derek Kan worries about “TARP without Strings.”


Note on methodology: The Pledge is light on details. First, when we called the office of Congressman Eric Cantor asking for the Pledge's underlying data, we were told that there was no data available. Second, the document is unclear about what each policy recommendation would entail. For instance, it is unclear if the authors of the Pledge meant to cap spending as percentages of GDP or cap spending in real terms at 2008 levels. Many of the cost-saving claims are too ambiguous to quantify. That means that we had to use our best judgment to assess what the Pledge really meant to achieve. To begin to estimate the budgetary impact of the Pledge we used the Congressional Budget Office alternative scenario, which is more realistic than the CBO baseline. In CBO’s words: “The budget outlook is much bleaker under the alternative fiscal scenario, which incorporates several changes to current law that are widely expected to occur or that would modify some provisions of law that might be difficult to sustain for a long period.” The alternative scenario assumes that the tax increases (i.e., employer penalties, excise taxes on uninsured individuals and Cadillac plans, and hospital taxes on high-income taxpayers) legislated by the Patient Protection and Affordable Care Act would not take effect until 2020, but assumes that spending will kick in before 2020 and that the 2001 and 2003 tax cuts will be extended. Hence, we removed the spending component of the healthcare bill from the alternative scenario and left the revenue projections from the alternative scenario unchanged. To estimate the deficit effects of a hard cap on discretionary spending with exceptions for “seniors, veterans and troops,” we used Rep. John Boehner’s estimate that this cap would save $100 billion each year. Also, to estimate the proposed 20 percent deduction for business income, we use the GOP’s own estimate of a $50 billion increase over two years. It is worth noting that the Pledge promises to cancel unspent stimulus funds. The Center for American Progress estimates that this represents a savings of $69 billion. According the White House report, however, $111 billion are left to appropriate and another $127 billion are committed but unspent. It means that in the best-case scenario, we could save taxpayers $238 billion—that’s real money.

See the data behind our graph here.

 

Image by Darren Wamboldt/Bergman Group.

 

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