The financial crisis that plunged the nation into the worst economic downturn since the Great Depression was the product of two decades of deregulation and lax oversight. So when Republican presidential candidate Mitt Romney argues for the repeal of Dodd-Frank – a flawed law, to be sure, but nevertheless a step in the right direction – it is reasonable to question whether Romney’s plan is anything more than a return to the same policies that have brought not only the financial crisis but rising income inequality and continued sluggish economic growth.
The rest of Romney’s plan is similarly suspect: across the board tax cuts in addition to extending those of the Bush-era and massive reductions of government spending (except for defense, of course). Taken together, these policies not only are fiscally irresponsible and fail to address the pressing problems facing this nation today, but also represent a dangerous vision for the future that could threaten the fragile economic recovery and plunge the economy back into recession.
The signature piece of Romney’s economic plan, not surprisingly, is a tax cut – a $5 trillion one, to be exact. This includes extending the Bush tax cuts, reducing income-tax rates by 20 percent, ending capital gains taxes for the middle class, and eliminating the alternative minimum tax and estate tax. Romney claims that these cuts will be made revenue-neutral by the elimination of some, unspecified tax deductions. The respected, nonpartisan Tax Policy Center has analyzed Romney’s plan and concluded that the only way he can achieve the reductions and maintain revenue neutrality is to cut some of the deductions that affect the middle-class, like the mortgage interest deduction. Not only does his tax plan favor the rich, but it also does nothing to help spur economic growth.
A recent report by the Congressional Research Service has found that there is no correlation between economic growth and top marginal tax rates, despite Republicans’ staunch claims to the contrary. Instead, reports the highly respected, independent agency, the top tax rate reductions at the core of conservative economic ideology merely “appear to be associated with the increasing concentration of income at the top of the income distribution.” Naturally, of course, Congressional Republicans have moved to block the report. Romney maintains that his plan will be distributionally equal, meaning that the proportion of overall taxes paid by the wealthy would remain the same, but without specifics, it is hard to see how he can do so. Furthermore, even accepting Romney’s claims on his tax policy, the fact of the matter is that any tax savings he finds from eliminating loopholes and deductions will be spent towards lowering tax rates, and not towards reducing the deficit.
For that, he proposes drastic cuts to government spending – nondefense spending, that is. A 5% cut to nondefense spending and a cap on government spending at 20% of GDP would gut vital programs, although, as usual, Romney has not provided specifics on which expenditures he would cut. His running mate however, Wisconsin Representative Paul Ryan, has done so in the budgets he proposed as Chairman of the House Budget Committee. The results are not pretty. Shifting Medicaid to a block grant program would produce cost savings, but at the expense of millions of low-income people uninsured. Cuts to programs that primarily benefit the poor like job training, Pell grants, and food stamps represent more than three-fifths of Ryan’s plan.
With Romney ambiguous on his own plan, and given the difficulty in finding cuts on the scale that he is proposing, it is only fair to look at the Ryan plan as a broad guideline for how the Romney plan would produce the savings it claims. Not only does the plan disproportionately affect lower- and middle-income Americans but cutting programs that they rely on, it also will not work to spur economic growth. A look at Europe would reveal the deleterious effects of austerity in a time of economic downturn, and although we are making modest steps towards a recovery, large cuts in government spending could very quickly put a halt to that. In fact, one of the primary factors behind unemployment today is not the private sector, which has seen substantial job growth in Obama’s term as president, but the public sector, in which states and localities have shed hundreds of thousands of jobs as part of budget cuts. These jobs, if reinstated, would collectively bring the unemployment rate much lower than where it is today, both directly through the addition of jobs and indirectly through the economic activity produced as a result. Not only does austerity not work, then, but it also dampens our fragile economic recovery.
To be fair, Romney has not provided many specific details on his economic plan, and it is possible that he secretly has a way to implement the broad policies laid out in his plan without increasing the deficit, increasing income inequality, or slowing economic growth. Independent economists, however, have analyzed Romney’s plan and are skeptical. An analysis of the Ryan budget plan – which has the backing of Congressional Republicans sure to push their agenda if Romney becomes president – shows this to be the case. Romney’s economic plan, in its current form, is a dangerous imposition of conservative ideology that would increase inequality, fail to reduce the deficit in a responsible manner, and threaten the fragile economic growth we have experienced in recent months.