Ron Paul has touted himself as the strongest fiscal conservative running for the Republican presidential nomination, and according to one new analysis, he may be right.
The Texas congressman ranks as the one candidate among four whose announced policies would leave America with a lower national debt than it would have under a status quo course.
That's the tentative conclusion of the Committee for a Responsible Federal Budget (CRFB), a nonpartisan fiscal watchdog group, in a report evaluating the tax and spending policies of Representative Paul, Newt Gingrich, Mitt Romney, and Rick Santorum.
What sets the Paul plan apart?
It's some basic math that any cash-strapped household would understand: His cuts to federal spending would outweigh his proposed tax cuts. The other candidates so far haven't fleshed out spending-cut plans that equal or exceed their tax cuts, which reduce expected federal revenues.
In all, Paul's proposals would leave the United States with a national debt equaling 76 percent of one year's gross domestic product in 2021. That would be slightly higher than the debt is today, but lower than it would be in a base-line scenario that represents current policies pursued by Congress.
Former Massachusetts Governor Romney would leave public debt at 86 percent of GDP in 2021. Former US Senator Santorum would leave debt at 104 percent of GDP. Former House Speaker Gingrich would leave it at 114 percent of GDP.
In the base-line case, debt reaches 85 percent of GDP. This assumes a continuation of Bush-era tax cuts, an ongoing "patch" to keep more Americans from being hit by the alternative minimum tax, and an annual "doc fix" for physician payments under Medicare. In this status quo scenario, the deficit would amount to more than $1 trillion in 2021.
In public opinion polls, Americans see reducing annual deficits and the nation's overall debt as a top priority (behind economic growth and job creation) for government. Many economists say the debt is already rising into a zone that could threaten the economy's stability.
Paul's prescription is to tackle the problem in libertarian fashion, with a major downsizing of the federal government. His proposals, as gauged by CRFB, would reduce federal spending by some $7.5 trillion over a nine-year period. (For comparison, federal spending will total $3.6 trillion in the 2012 fiscal year, the Congressional Budget Office estimates.)
Paul's cuts would span from the military to Medicaid and beyond.
In one TV ad, Paul's campaign has shown pictures depicting the Departments of Education, Interior, Energy, Commerce, and Housing and Urban Development blowing up as federal spending is reined in. "Later, bureaucrats," the narrator says.
His plan also calls for significant reductions in taxes on personal income, estates, and corporate income – totaling $5.2 trillion over the nine-year period that CRFB analyzed.
The CRFB analysis is tentative for several reasons. The group highlights estimates from an "intermediate scenario" for each candidate, based on policies each has spelled out in some detail. Romney doesn't get credit, for example, for his currently vague call for capping federal spending at 20 percent of GDP.
The CRFB says it will update its report as candidates revise or flesh out their economic plans.
The report also shows an alternative "low-debt" scenario, which essentially takes candidate pledges at face value, even if the proposals currently lack in detail.
In this scenario, Paul also leads the Republican pack in fiscal discipline, with debt falling to 67 percent of GDP. Romney and Santorum (who has a goal to cut $5 trillion in federal spending in five years) would also leave the US with lower debt than under the status quo case.
Another caveat to the CRFB analysis: Paul's proposal to end the Federal Reserve would have wide and uncertain impacts on the economy. The CRFB takes only a first glance at this issue. It emphasizes an "intermediate-debt" scenario in which shutting down the Fed would cost the nation $430 billion over the nine-year period. That's because the Fed would no longer be making annual payments of surpluses from its operations to the US Treasury.
In the "low-debt" scenario, the CRFB credits the Paul plan with saving some $1.2 trillion by shutting down the Fed. But the group calls his idea "incomplete," saying that he proposes what amounts to a default by the Fed on the reserves it now holds for private banks.
Some budget experts say these numbers regarding the Federal Reserve show only one implication of Paul's proposal. The bigger issue would be this: How would the economy function if the nation had no central bank to manage monetary policy?
"The impact on the budget would likely be major," said Alice Rivlin, a former Fed official who spoke at a Thursday panel discussion at the New America Foundation in Washington, at which the CRFB report was presented.
She didn't elaborate on the potential consequences. Many economists, while having varying views on optimal Fed policy, argue that the central bank played a key role in preventing the financial crisis of 2008 from pitching the economy into a 1930s-style depression.
Paul has argued that a return to the gold standard would allow the economy to function with a "sound money" alternative to the current inflation-prone currency.