On May 11, Scott Lemieux wrote, in re claims by some on the left, that Romney is a moderate:
“He’ll govern as the head of a very right-wing Republican coalition and will be working with a Republican Congress that will send him plenty of terrible legislation. He’ll be working with the Republican foreign policy apparatus that will be urging him to attack Iran and will probably succeed. We don’t even want to think about what will happen to the federal courts. What Romney really thinks about this stuff is beside the point. John Tyler isn’t a successful leadership model for someone who wants to run for re-election.” [http://tinyurl.com/bwn3rnv]And I would like to elaborate on Scott’s elaboration. Mitt Romney’s economic proposals include:
- Making the Bush tax cuts permanent;
- Cutting tax rates across all brackets by 20%;
- Eliminating the Alternative Minimum Tax (AMT);
- Eliminating the Estate Tax;
- Cutting the corporate tax rate from 35% to 25%;
- Offsetting (D) by eliminating corporate tax loopholes;
- Changing the US tax system to a territorial one, meaning that corporate earnings from overseas would be exempt from US taxation;
- Repealing the Affordable Care Act;
- Repealing the Dodd-Frank financial regulatory reform law;
- Setting minimum defense spending at 4% of GDP & taking funding for wars back off the books, as was done by George W. Bush;
- Capping federal spending at 20% of GDP;
- A balanced budget amendment to the constitution.
The proposals above would reduce federal revenues by $10.7 trillion over 10 years & eliminate any US government flexibility in spending that any modern government would need in emergencies such as wars, natural disasters, or (ahem) recessions and depressions.
Economist Menzie Chinn has guesstimated the scale of across-the-board spending cuts Romney will need to balance the budget by 2022 (no one can do more than that, since Romney has stated publicly that he’s not going to say what he’ll cut until after he’s elected).
Excluding defense, Romney would have to cut every other federal program by 20% to achieve a balanced budget. Under that scenario, Social Security would be cut by $186 billion by 2016, and by $2 trillion in 2022. Three million people would be forced into poverty.
If Social Security is excluded from the cuts, every other federal program would have to be cut by 28%. Medicare, under this scenario, would be hit with $176 billion in cuts by 2016, and $1.9 trillion in cuts by 2022. There would be a sharp increase in premiums and changes in cost sharing. Medicaid and CHIP would be cut by $1.3 trillion as of 2022. SNAP, formerly the food stamp program, would have to drop 12 million recipients, overwhelmingly poor families with children, the disabled and the elderly. Discretionary programs (aside from defense, of course) would lose $166 billion by 2016 and $1.6 trillion by 2022. To put discretionary cuts in perspective, almost all other major industrialized nations spend about 10% to 12% of GDP on such programs as agriculture, commerce, education, energy, environmental protection, food safety, justice, labor, scientific research, disease control, transportation/infrastructure and veterans affairs. The Romney plan would (again, assuming across-the-board cuts) reduce total funding for those programs from the current 30-year average rate of 3.7% of GDP to 2.3% of GDP in 2016 and 1.7% of GDP by 2022–the lowest rate ever recorded.
Thus far, we’ve only considered the implications of the above cuts for specific government programs and the people they benefit directly. What about the broader economic picture? Recall that the immediate consequence of the run on the shadow banking system in September 2008 was the seizing up of the commercial credit market. With credit no longer available, businesses began massive layoffs, lacking the short-term funding needed for things like payroll. And as the layoffs mounted, people around the country began responding in a commonsensical way, by sharply reducing spending. With demand drastically reduced, businesses saw no need to expand or to hire. Four years later, that is still the case, although the recession is technically over and some hiring has resumed. Recent business surveys have borne this out. Despite GOP claims that the cause of reduced hiring is lack of business “confidence” supposedly due to the possibility of higher taxes, businesses have reported that the number one reason for lack of expansion is low demand. To put it another way, not enough money is flowing through our economic system from one transaction to another, boosting economic growth in the process. This is reflected in an unemployment rate of 8.1% and GDP growth under 3%, in a country with a historical average GDP growth rate of 3.4%.
Given the above mentioned situation, what are the likely economic results of withdrawing $10.7 trillion from the economy over 10 years? And does the combination of budgetary, economic and human consequences described above strike you as moderate?