Romney’s Jobs Plan: Punts Short, Goes Long on Supply-Side Tax Cuts and Fiscal Austerity

September 7th, 2011 at 1:07 pm

I pored through Mitt Romeny’s jobs plan last night—it’s a comprehensive piece of work, worth a look.  Unfortunately, Mr. Romney offers no solutions for our most pressing short-term problem: high unemployment and the weak job growth. And his long term strategy is based on supply-side measures that have long been associated more with budget deficits and upward wealth redistribution than with job creation.

Despite evidence to the contrary, part of his case is that stimulative measures haven’t worked, so he has to oppose such ideas in his plan.

That’s a big problem for someone running for President in a climate of highly elevated unemployment.  He argues that since it’s fruitless to attack the short run economy, the only way forward is to focus on longer-term reforms to the tax and regulatory structure, along with some trade deals.

In fact, his main short term ideas are quite dangerous to the economy: an immediate “move to cut spending and cap it at 20 percent of GDP.”  That’s actually worse than a punt on short-term; it’s a 3% cut in next year’s GDP and a touchdown for the team recession.

His longer term measures consist of supply-side tax cuts to corporate rates, though without any loophole closing, and locking in the full range of the Bush tax cuts, so expect big revenue losses.  Moreover, this supply-side, trickle-down stuff simply doesn’t generate job gains. 

On this point, Republican candidates refuse to accept the lesson of the GW Bush years—a solid test, compared to the Clinton years, of trickle down.  Annualized job growth in the Clinton years, under a more progressive tax structure was about four times that of the Bush years.

One wrinkle here is interesting and noteworthy: while Mr. Romney proposes to eliminate capital gains taxes, he only does so for households with incomes below $200,000.  I’ve argued that favorable treatment of cap gains is misguided, but Romney will probably get beat up by the other R candidates for not just zeroing out this tax for everyone.

I suspect Mr. Romney would argue that he differs from the most recent President Bush in that he’ll hold down spending.  In fact, he argues for a balanced budget.  Not only does this have the contractionary impact noted above, but it of course takes away the ability of the federal government to do countercyclical policies (here’s some CBPP analysis of the cuts associated with a balanced budget amendment).  But, as I noted, he’s in a box where he has to argue that such policies don’t work.

There’s a bunch of other standard pabulum about whacking the EPA and labor unions—none of that matters for job growth…just standard R candidate box-checking.  He argues for achieving Social Security solvency with benefit cuts alone—no revenues from increasing the maximum taxable level of earnings.  There’s the standard pledge to get rid of the Affordable Care Act, matched with turning Medicaid into a block grant and (sort of) embracing Rep Ryan voucher’s plan on Medicare (“Romney’s own plan will differ, but it will share those objectives”).   

Put these health care ideas all together and you have the classic R strategy to deal with rising federal health care costs: shifting them onto states and families.  There’s no savings here…nothing that will begin to deal with the American problem—it’s not not just the government problem—of rising health costs.  This is a very significant shortcoming of Mr. Romney’s plan, and I suspect of his colleagues’ as well.  Just shifting the burden elsewhere doesn’t do anything to attack the growth of health-care costs, and that, along with the radical budget cap, may be the most anti-growth part of Mr. Romney’s agenda. 

There are two quite good ideas in the document: going after China on unfair trade practices and supporting more high-skilled immigration.  The former is targeted at China’s currency management and is essentially a strategy to weaken the US dollar in export markets (if China allowed the value of their currency to be set in markets, as opposed to managing it, the yuan would rise relative to the dollar), something that could get the former governor some bad press in conservative places but could potentially help boost manufacturing exports fairly quickly (note that liberal economist Dean Baker makes a similar argument here).

By locking in the Bush highend cuts, cutting the corporate tax, capping spending at 20% (implying large entitlement cuts), shifting health costs, cutting Social Security benefits, and punting on short-term job creation, this is far from a jobs plan that could help the middle class.  It’s more likely to prolong the downturn, hasten the growth of income inequality, and increase economic insecurity.

Update: Matt Yglesias’ has a smart take on the Romney plan.

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12 comments in reply to "Romney’s Jobs Plan: Punts Short, Goes Long on Supply-Side Tax Cuts and Fiscal Austerity"

  1. D. C. Sessions says:

    It’s more likely to prolong the downturn, hasten the growth of income inequality, and increase economic insecurity.

    So where’s the downside?

    Besides that, the spending cap once again demonstrates the Right’s inability to see the world as anything but a zero-sum game. “Countercyclical” would imply a win-win alternative, where my unemployment benefits not only wouldn’t threaten your Medicare benefits in a recession but would improve the economy that sustains them. A Constitutional cap, on the other hand, turns that around: you and I are at each others’ throats for a share of a shrinking pie.

    And they saw that it was good.


  2. John B. says:

    And…. page 16 graph in Romney’s “plan”? Tiny potatoes to an economist, maybe, but certainly a symptom of something to a (former) White House aide.

    The multiple choice seems to come down to this:
    (a) deliberate falsehood approved by Romney to mislead voters;
    (b) accidental proof-reading error by low-ranking campaign schlub who couldn’t get a job at McDonald’s;
    (c) deliberate color graph error cleverly introduced by a non-union Wall Street corporate printing firm while lusting after more tax breaks for the wealthy; or
    (d) graph designed by a star graduate student in economics at the U. of Chicago.


  3. CEK says:

    Pored, not poured.


    • Jared Bernstein says:

      Thnx!


      • Donna Conroy, Director says:

        Jared, more high-skilled immigration expands discrimination against American and green card IT professionals.

        Corporate visa programs assure companies the ability to conduct segregated recruiting and hiring for their US job openings.

        Companies are so brazen, they post OPT (on the job training visa) and H1-b targeted Help Wanted Ads on job portals. Companies host US job fairs–but you gotta go to India to apply!

        You can see me sorting through some of these ads on Dan Rather Reports:
        http://brightfuturejobs.com/dan-rather-visa-loophole/

        Senator Durbin will re-introduce a bill to give local talent the chance to compete for job opening we are qualified to do–right here in our own country. A good step to restore EEO recruiting and hiring practices.

        BONUS! Offshoring companies need to discriminate against Americans for their US job openings, so this bill will also stop the outsourcing of our “jobs of the future”.

        Donna Conroy
        BrightFutureJobs.com
        773-764-5865


  4. Tyler says:

    The Republican Party doesn’t care about the middle class, so it’s no surprise that Romney’s jobs plan would hurt us.

    If we really want to get this economy moving again, we should exempt the first $50K of income from payroll taxes until the unemployment rate falls under two percent.


  5. Jason says:

    You make the claim that “Just shifting the burden elsewhere doesn’t do anything to attack the growth of healthcare costs”. I disagree strongly with this statement. Individuals will not pay more than they can afford for health care, so if prices get too high, medical providers will have no choice but to reduce them. However, when a third party, be it government or an insurance provider, picks up most of the tab, the patient does not make a proper cost/benefit analysis of their medical care selections. Government, unlike individuals, can raise money through taxation or borrow it at low rates, options which are not available to an individual, and health care spending will always be a high priority for many in government, lest your opponent run an ad accusing you of “killing Grandma”. The more money the government spends on health care, the more demand is increased which causes prices to rise, which in turn creates more calls for increased government spending on health care, which again increases demand and the cycle continues. This isn’t an endorsement of Romney’s plan, because it fails to attack the root problems with our health care system, but I find the claim that shifting the burden of health care costs from government to individuals would have no affect on costs to be dubious.


    • Jared Bernstein says:

      What happens with shifting in health care is more a reduction in quantity than price. People, particularly those without means, end up with less health care than they would otherwise. But unit costs don’t seem to change much–they’re highly inelastic.

      I’ve got some posts on this from back in May with titles like “insurance markets…they’re different.” EG, one is about how while demand for hth care diminished in recession, premium cost growth accelerated!


  6. Tom says:

    The question to ask is what of this proposal would he change if there were not massive unemployment? I suspect nothing. So how is this then a response to needing jobs if he would also offer it at full employment? As you said before, this is just another hammer seeing nails everywhere.

    Lots of great posts lately, thanks.


  7. Jason says:

    A reduction in quantity translates to a reduce in demand, which generally leads to a reduction in price, though you stated that those prices have proven to be inelastic. I can’t say for sure whether they are or not, but I do know that no matter how inelastic a price is, there is a point where people demand will eventually fall. For example, a person is going to put shelter and food above medical care in most cases, and lenders will only extend them so much credit beyond their existing means. This is by no means an ideal situation, but my point that who is picking up the tab can affect health care prices stands. The discussion regarding to what extent we should intervene in the health care market has many other considerations.

    The prices of insurance versus actual care are two different things, and my point was about the latter. As I stated in my previous post, the problem with cost control exists when ANY third party is paying most of the costs of care, be it the government or a private insurance company.


  8. David Ollier Weber says:

    Et tu, Bernstein? “Entitlements?” Come on, let’s ditch that pejorative description of basic programs for the common weal once and for all, at least on this side of the aisle.


  9. Name Withheld says:

    Mr. Bernstein,

    1. We’re supposed to swallow that tax cuts are “proven” in principle not to create jobs simply because Clinton created more jobs than Bush? What about Reagan’s tax cuts and subsequent job creation? What about Clinton’s own tax cuts? What about Hoover’s and Roosevelt’s experience with taxes?

    2. We’re supposed to swallow that there’s nothing in the plan to address short-term job creation? Didn’t Bush’s first term tax cuts clearly spur short-term economic growth? Stepping back to look at principle, aren’t tax cuts essentially the same as government spending programs? Both take money out of our tax-funded government and try to give it back to the people somehow. If so, wouldn’t it be safe to assume some sort of similar economic effect from both?

    3. We’re supposed to swallow that the “trickle down” principle has been disproved? If a small business owner making $400,000/year hires 3 new employees for $50K/year each, isn’t that “trickle down”? If a millionaire gets a tax cut and buys a yacht for $100,000 with it, doesn’t that $100,000 do more to stimulate the economy that a $1,000 tax cut given to a plumber?

    4. If tax cuts are “proven not to create jobs”, why is the Obama administration now campaigning to extend the Bush tax cuts as a way of giving short-term relief? Haven’t government forecasters even estimated that extending the tax cuts will create X jobs?


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