Wednesday, July 25, 2012

Romney's Economic "Plan" in Brief

According to a recent poll, registered voters trust Mitt Romney more than Obama when it comes to managing the economy. Partly, this can be explained by the fact that the economy is still sputtering, with an 8.2% unemployment rate and slow GDP growth. Another cause may be the fact that hardly anyone knows what Romney actually has in store for our country's economy.

With that in mind, here's a brief rundown of the economic components of Romney's plan and its effects, budgetary and economic.

To put it simply, Romney combines Paul Ryan's economic plan, the tea party demands for "cut, cap and balance," and replaces Ryan's call for a reduced rate of increase in defense spending with a massive increase of 66% above current levels.
  • Massive tax cuts, overwhelmingly to the richest 1%:
    • Making the Bush tax cuts (all of them) permanent
    • Cutting tax rates 20% across all brackets
    • Elimination of the estate tax
    • Elimination of the Alternative Minimum Tax (AMT)
    • Reduction of corporate tax rate from 35% to 25%
    • Elimination of corporate tax loopholes to offset the rate reduction above
    • Changing corporate taxation so corporate earnings overseas are not taxable in the US
  • Cap on federal spending at 20% of GDP (federal budget is now 24% of GDP)
  • A huge increase in defense spending
  • Repeal of Affordable Care Act
  • Repeal of Dodd-Frank financial regulatory reform law
  • Turning Medicare into a voucher system
  • Turning Medicaid funding into block grants
  • Balanced Budget Amendment to the Constitution

Key Points:
  • Total reduction in federal revenues from the above: $10.7 trillion over 10 years.
  • Eliminating tax loopholes won’t be enough to offset the huge loss of federal revenues. 
  • To grow our way out of the deficit, as Romney claims, would require the economy to grow twice as fast--every year--as it has historically (on average). No credible economist thinks this can happen.
  • The GOP is against raising any tax, of any kind, at any time. 
  • So the only options are enormous budget cuts or even bigger deficits and much deeper debt.
What would be the economic effects of such huge budget cuts? To get an idea, look at what’s happening in the Eurozone. Drastic budget cuts have left the UK in a longer period without economic growth than during the Great Depression, and the UK has just gone back into recession. The unemployment rate in Spain is now 25%--for workers under age 25, it’s 50%. Ireland, Portugal and Greece are in recession, the latter having become an economic basket case with no hope of revival. 

Or consider this: Last summer's debt ceiling debacle led to an agreement in which huge cuts in domestic spending (17%) and defense spending (15%) would kick in automatically (a "sequester") if a congressional supercommittee failed to reach a deal on raising the debt ceiling and cutting the deficit. Republicans refused to allow tax increases of any kind and the deal fell apart. The non-partisan Congressional Budget Office has concluded that the combination of the sequester and expiration of the Bush tax cuts would push the economy back into recession for the first half of 2013, regardless who is in the White House. Or, to put it another way, withdrawing a large amount of money from an already weakened system is exactly the opposite of what should be done when economic activity has declined significantly.

Is that the kind of economic future we want?

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