Proposals That Can Have Serious Potential Consequences
Economic Warnings: Nobel Prize-winning economist Paul Krugman on HuffPost Live offered a dim assessment of the potential economic consequences of a Mitt Romney presidency. He finds a strong likelihood of another recession, and one with “almost no bottom. ” Krugman said that over the long term, Romney’s economic policies could lead to a recession as deep as that in Greece today, and even a depression. In Greece today 25% of workers are unemployed, including 50% of young workers.
“I think there’s a real chance that he’ll manage to pursue a policy in the first couple of years that simultaneously blows up the deficit and depresses the economy,” . “Tax cuts for the rich, who won’t spend them, and slash spending for the poor and the middle class, who will be forced to cut back. And so we end up managing to have a simultaneous deficit explosion and double-dip recession.”
Candidate Romney’s Economic Fallacies
Two recent studies underscore what numerous economists have already shown: that tax cuts for the wealthy do not promote economic growth, and in fact foster economic decline.
Study 1: A study by the nonpartisan Congressional Research Service found that cutting taxes for the rich does not increase saving, investment, or productivity growth. The study documents show a clear connection between higher taxes for the rich and less income inequality. Over the past 65 years:
- tax cuts for the rich have not led to economic growth
- They are instead linked to greater income inequality in the United States.
The study also finds that:
- In 1945, when the richest families with a marginal tax rate of more than 90%, the top 0.1% of U.S. families accumulated 4.2% of all income gains.
- In 2007, with today’s top marginal tax rate of 35%, the top 0.1% acquired 12.3% of all income gains.
Study 2: Another recent study by Owen Zidar, a PhD student in Economics at the University of California at Berkeley, likewise found:
- Tax cuts for the rich are not correlated with economic growth.
- Tax cuts for the bottom 90% of income earners can stimulate economic growth and job creation.
So much for the “job creators” canard, which is really a repackaging of the now discredited “supply side economics” of past Republican presidents.
What Harm Could Romney Economics Really Do?
What exactly is so potentially devastating about Romney’s supply side economics?
- First, candidate Romney advocates extending all of the Bush tax cuts, instead of extending them on only the first $250,000 of taxable income, as President Obama has proposed, and some analyses have found that Romney’s proposed tax cuts would help the wealthy the most.
- Then he would make additional tax cuts that disproportionately benefit the rich including cutting marginal tax rates and taxes on investment income and eliminating the estate tax altogether.
- He would slash government spending by one-fifth, which economists tell us would depress consumer demand. Fortunately, it isn’t certain that he would be able to make such drastic cuts as Democrats are likely to maintain a majority in the Senate.
A Business Candidate Who Doesn’t Understand Economics
While Romney accused President Barack Obama of pursuing policies that would lead to a Greek-like debt crisis, the fact is that President Obama has been working to reverse the debt crisis that G.W. Bush created. Not only has President Obama’s spending been less than that of any president since Eisenhower, but the U.S. budget deficit is shrinking. Another factor: the Federal Reserve can weaken the U.S. dollar when necessary to stimulate the economy, an option Greece does not have with the euro.
In short, candidate Romney doesn’t understand economics. Krugman said on HuffPost Live:
I’m not seeing a lot of evidence that he really does understand it [economics]. People say he’s a smart guy, but it’s not visible in his statements, and it’s not visible in his off-the-cuff reactions either. I don’t have a lot of hope that he actually would know what he’s doing at all or that he would even know how to pick the right people.
Much of the American public seems to buy the canard that a businessman can do a better job of running a national economy, although history shows the opposite has held true, as businessman presidents like George H.W. Bush and G.W. Bush presided over irresponsible deficits that Democratic presidents were then elected to balance. The evidence is that businessmen-turned-politicians tend to work in the interests of the business sectors they represent, rather than the national economy.
Has Romney Ever Really Balanced a Budget?
Mitt Romney himself has never balanced a public budget. And, while he claims to have put the Olympics back in the black, he did so by accepting a government bailout. According to the Daily Kos:
Mitt Romney did manage to raise money that helped secure Salt Lake as the venue of the 2002 Winter Games. Some of that came from corporate sponsorships, but most of the money came from the US government. And most of the money that was needed was already in place before Romney took over, some $1.5 billion in government support. Both the Utah governor at the time and a US Senator from Utah at the time have confirmed that Presidents George W. Bush and Bill Clinton both cooperated to make sure the Winter Games happened.
A Poor Economic Performance In Massachusetts
The Washington Post’s Fact Checker puts candidate Romney’s record as governor of Massachusetts in perspective, in comparison to President Obama’s record during his presidency. The comparison looks quite unflattering for Romney.
Job Creation: While data from the Bureau of Labor statistics shows that Massachusetts added 50,000 jobs during Romney’s tenure in office, that number represents a meager 1.5% growth, compared to a higher 5% increase for the nation as a whole in taht period, using seasonally adjusted data.
President Obama’s record is considerably better. Since the U.S. downturn ended in June 2009, the nation added about 2.7 million jobs, an increase of 2%, and while that still isn’t great, most of the job losses occurred while the president was trying to reverse a severe recession that he had inherited.
Unemployment and Underemployment: Under Governor Romney, underemployment and unemployment in Massachusetts decreased from 241,000 to 223,000, a decrease of only 7.5%, compared to a 15% decline for the country as a whole.
In comparison, although the nation’s combined underemployment and unemployment under President Obama rose by 4.7%, it has fallen by 11.6% since the end of the recession.
Unemployment: Massachusetts’ unemployment rates, dropped .9% under Romney, while the United States fell by 1.4 percentage points during the same period. While the U.S. rate rose .5% since President Obama took office, it went down 1.2% since the end of the recession.
Home prices: Experts generally agree that governors have little power to control home prices, so we need not regard this too seriously. The record is as follows: in Massachusetts, price indexes from the Federal Housing Finance Agency show that home values increased during Romney’s tenure by nearly 26% while he was in office. However, this trailed the 33% rise for the United States during that period. And Massachusetts also experienced a 1.5% drop from the start of fiscal year 2006 through the last quarter of Romney’s administration, while the nationwide home-price index continued to grow. Of course, the housing market was overheated during that time, and the bubble eventually burst.
During the Obama presidency, home prices have fallen by 7.9% for the nation, but, of course, the president took office shortly after the housing market collapsed. The FHFA price index shows a slight uptick in home values during the first quarter of 2012, and monthly data from the agency suggests that the second quarter will show improvement as well.
Budget Deficit: The Washington Post points out that any comparison between Romney and Obama on the issue of budget deficits is misleading, because Massachusetts law requires the state to balance its budget every year, and Governor Romney had no choice but to sign a balanced budget every year. But here’s the record:
- Declining revenues just before Romney took office, forced his administration to implement emergency cuts and work with lawmakers to close a $3 billion gap during his first year.
- Romney left his successor with a similar problem. In late 2006, Romney warned incoming Gov. Deval Patrick that the state could face a deficit of between $400 million and $1 billion because of lower-than-projected revenues.
For Obama, according to historical tables from the White House Office of Management and Budget, the gap between spending and revenues has increased from $641 billion during Bush’s last year to $1.3 trillion for the 2011 budget cycle.
However, the the Post points out that, while Massachusetts was obliged to balance the budget, a Republican-controlled U.S. Congress rejected some of the president’s proposed policies, including tax hikes on upper earners which probably would have lowered the deficit. Additionally, the Budget Control Act, which resolved last summer’s debt-ceiling standoff, is estimated to reduce the deficit by $2.1 trillion over the next decade.
Another important piece of data to consider is an analysis by the Center on Budget and Policy Priorities (CBPP) which shows that the Bush tax cuts, the wars in Afghanistan and Iraq, and Bush’s Great Recession account for virtually the entire federal budget deficit.
Family Income: Data from the U.S. Census Bureau show that Massachusetts’ median family income rose from $49,855 to $55,330 during Romney’s term. However, the median dropped during Romney’s final year compared to 2005; the median family income in Massachusetts fell by $687 from 2005 to 2006. Using inflation-adjusted numbers, the median income dropped by 1% during his administration compared to a 1% increase for the nation as a whole during the same period.
Of course, there is no doubt here that President Obama’s administration has fared worse than this up to 2010, the last year of data available through the Census Bureau. In 2010 dollars, the U.S. median family income dropped 3% from $62,300 the year before Obama took office to $60,400 during 2010. Like most other economic indicators, it may have risen slightly since then.
The Bottom Line: A Fantasy Budget With Real Consequences
To be fair, economic conditions appear to have deteriorated for Massachusetts during the candidate’s last year in office. However, the president took office in the midst of the most severe recession in modern times, and his numbers are generally positive since the end of the downturn, even if the recovery has been relatively slow, for which Congress bears much of the responsibility.
My point here, as an independent isn’t a political one but an economic one. According to Bloomberg Businessweek:
If elected president, Mitt Romney has promised he will create 12 million jobs, replace Obamacare and the Dodd-Frank financial reforms, slash corporate tax rates, preserve the Bush income tax cuts, and then cut an additional 20 percent to boot. And, oh yes—balance the budget. How does Romney propose to pull off this feat of budgetary magic? He isn’t saying…
Absent details, he’s essentially selling a fantasy that depends on voters’ faith that he’ll be able to keep all these vows once elected…On the other hand, Romney’s painstaking effort to avoid specifying such cuts hasn’t spared him from the implications of his proposals. An August study by the Brookings Institution and the Tax Policy Center found that his assorted promises are impossible to reconcile with his claim that he won’t raise middle-class taxes. Cutting ordinary income rates by 20 percent for the wealthy as Romney has pledged would cost the government $251 billion. Romney says he would recoup that lost revenue by eliminating deductions. But the study’s authors note that wealthy taxpayers account for only $165 billion in deductions. So the $86 billion shortfall would have to be borne by everybody else.
In short, candidate Romney is offering a fantasy that would exasperate the deficit while depressing the economy, most especially for the middle and lower income households.