Surprises In Newt Gingrich’s Overlooked Plan For Economy

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newt-gingrichIf Newt Gingrich were president–something that has recently at least entered the realm of plausibility–the Federal Reserve would no longer worry about trying to create jobs, and would focus instead only on controlling inflation. And wealthy financial industry tycoons like Warren Buffett would likely get a big tax cut.

When Gingrich released his economic plan in May, it flew under the news media’s radar, in large part because he was considered an also-ran in the race for the Republican presidential nomination (it might also have helped if he had given his plan a catchy name, like one of his rivals did). But now, the former House Speaker is sitting atop the polls, a little more than three weeks before the first contest in Iowa. So it’s worth giving the Gingrich economic plan a second look.

Here are a few of its more noteworthy features, and what they might mean for the economy:

Changing the Fed’s Mission
The Federal Reserve has two tasks under the law: to keep inflation low, and to achieve maximum employment. Gingrich wants to end that “dual mandate,” so that the central bank would focus solely on inflation.

The idea isn’t new. It’s been floating around almost since the “dual mandate” was imposed by Congress in 1975. Two Republican lawmakers last year introduced a bill along the same lines. Backers of the plan say the Fed’s two goals are incompatible. “[T]he same policies that the Fed uses to try to force job and economic growth are also the mechanisms that most dangerously weaken the value of the dollar by promoting inflation,” the Gingrich campaign argues on its website. And some say the tools available to the Fed make it more effective at fighting inflation than creating jobs, so it makes sense to concentrate on where it can have an impact.

If the Fed had focused solely on inflation in recent years, as Gingrich would prefer, it would not have begun the succession of “quantitative easing” programs aimed at spurring growth and jobs. Those measures haven’t produced a strong and sustained recovery, but most analysts–including the Fed itself–have said that without them, the recovery would have been even slower.

Indeed, with the jobless rate above 8 percent for almost three years, there’s a broad movement afoot to increase, not reduce, the Fed’s focus on economic growth. In October, Goldman Sachs’s top economist, Jan Hatzius proposed that the Fed set a target for GDP growth–that is, it should do more, not less, to spur growth and create jobs, even if that meant a modest rise in inflation. Hatzius’ call wasechoed by Christina Romer, the former top economic adviser to the Obama White House, among several others.

Eliminating the Capital Gains Tax
Like several of his rivals, Gingrich would eliminate the tax on capital gains–profits from trading on the stock market, essentially. Doing so, the campaign says on its website, will “make American entrepreneurs more competitive against those in other countries.”

The move would be a boon to the managers of private equity funds–one of Wall Street’s most lucrative financial structures. Private-equity managers make around one-third of their money from the firm’s profits, which are reported as “carried interest,” meaning they count as capital gains. Currently, capital gains are taxed at a rate of 15 percent. Warren Buffett, who also reports much of his income as capital gains, would benefit too.

A Flat Tax on Income
Gingrich wants a system in which taxpayers could choose between their current income tax rate, and a flat tax of 15 percent. (A similar plan offered by Texas governor Rick Perry would create an optional 20 percent flat rate.) The plan would cut income taxes by more than half for high earners, who currently pay a rate of 35 percent.

Experts have said that making a flat tax optional, rather than mandatory, would complicate, not simplify, the process–because many taxpayers would prepare two separate returns to see which was cheaper.

Cutting the Corporate Tax Rate
Gingrich would cut the corporate tax rate from 35 percent to 12.5 percent–meaning it would go from being one of the highest in the industrialized world to one of the lowest.

The goal is to encourage investment in the United States. But it also would drastically reduce the amount of money that the government collects in taxes, at a time when the budget deficit is growing rapidly. A recent report by the non-partisan Joint Committee on Taxation found that lowering the rate below 28 percent would reduce revenue, even if you closed every existing loophole.

Reversing the Obama Administration’s Biggest Moves
Gingrich would repeal the Dodd-Frank financial reform law, an effort to tighten regulation of Wall Street in the wake of the financial crisis. The law, his site argues, “is killing small independent banks, crippling loans to small businesses and crippling home sales.” He also proposes repealing President Barack Obama’s health care overhaul.

A spokesman for Gingrich didn’t respond to a request for comment on the candidate’s economic plan.

{The Lookout/Matzav.com Newscenter}


2 COMMENTS

  1. Reducing the Fed’s focus is interesting, but we need to see the counter-arguments to be able to form a proper opinion.

    Flat tax of 15% max is ridiculous considering the tremendous debt that America owes.

    An aggressive cut of the corporate tax rate is definitely necessary, but I’m afraid that Gingrich’s plan is *too* aggressive – too abrupt and too deep, considering the debt and the loss of resulting revenues. 25%, with a gradual decrease to 15% is wiser. But then again, Gingrich’s strongpoint has never been wisdom.

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