If a candidate is making ridiculous claims about how much he’ll grow the economy, he probably needs to make those claims to hide the massive deficits that his policies would create under less generous (i.e., more realistic) assumptions.
Astronomically higher economic output and employment create an astronomically larger tax base, after all, which helps offset the costs of spending increases or tax-rate cuts.
Take Bernie Sanders’ suite of economic proposals, which include higher taxes, “Medicare for all,” big infrastructure investments, free college and higher Social Security benefits.
Raise the rate of gross domestic product growth to 5.3 percent per year, more than double the Federal Reserve’s current long-run projection of 2 percent.
Restore the share of the population in the labor force back to what it was in 1999, even though the baby boom generation is much older today and so many more Americans have reached retirement age.
If you actually think about Sanders’ proposals — such as completely delinking health insurance from employment, making college free and increasing Social Security benefits — you’ll realize they mostly would reduce workforce participation on the margin.
Other Republican contenders matched and even one-upped his preposterous promise, with Donald Trump offering 6 percent growth.
“Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic,” four former top economic advisers to Democratic presidents fumed in an open letter to Sanders and Friedman this week.
If you assume 4 percent growth, Bush’s trillions of dollars in tax cuts suddenly cease to mar the deficit, according to his own advisers.
If you assume 5.3 percent growth, Sanders’ tax-and-spend policies may induce a budget surplus (!), Friedman says.
Sanders’ health plan alone — which his campaign insists is fully paid for — has an estimated shortfall of between $3 trillion and $14 trillion.
When putting together your pitch book for a merger, you start with the price you need the valuation to come out to, then bake in more and more generous revenue projections until you get there.
