The Plank

Maybe Romney Should Stay In The Private Sector

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A new Mitt Romney ad running in Florida offers yet more proof of how he's retooled his campaign around the economy -- and how it plays to his strengths as a candidate:

 

While the ad briefly mentions tax cuts and "conservative change," the primary focus is Romney's biography.  As he says, "I know how
America works because I spent my life in the real economy. I ran a
business, turned around the Olympics, and led a state." This is old news to those of us who have followed the presidential campaign.  But for many voters in Florida and the February 5 states, this will be their first introduction to Romney.  And I'm sure a lot of them will be pretty impressed.  

But maybe they shouldn't be. Consider Romney's proposed economic stimulus -- which, at $250 million, is twice as large as what the Democratic presidential contenders have proposed.  When I wrote about it a few days ago, I asked if any economists out there could weigh in on whether the package was well-designed.  Fortunately, Jason Furman of Brookings and Dean Baker of the Center for Economic Policy Research obliged the request. 

Here's an excerpt of what Jason told me:

Even asking the question was way too
nice to Romney.

...in September Romney
proposed
eliminating capital taxes for households
making less than $200,000. The stated goal of the plan was to get
people to spend less (i.e., save more). Now that exact same tax plan
is a part of his stimulus proposal. If it worked as Romney intended
(and I put the chances of this just north of zero percent) the result
would be to weaken the economy in the short run as it contracted
aggregate demand – which is what matters now, while increasing the
level of output in the longer run as the higher savings rate led to a
larger capital stock.

...Romney outbids all of his
Republican competitors by proposing to take the corporate rate down
from 35 to 20 percent. Again, whatever the merits for long-run growth
(and I don't see many if it is not part of a broader, revenue-neutral
tax reform), this is not a way to stimulate aggregate demand today
because most of the benefit would go to reward companies for past
investment choices, not to encourage them to make investments this
year. The non-partisan CBO’s latest
report
has a table rating stimulus options and they
put this one at "small" for cost effectiveness and "long"
for the length of time to affect the economy. This is tied for worst
of all the options CBO reviewed...

...the proposal does have roughly
$40 billion of what I would call "stimulus" -- specifically
the reduction in the bottom tax bracket and the payroll tax break for
seniors. But this genuine stimulus is one-third of what the
President, Democratic leaders in Congress and Democratic candidates
are calling for. And its efficacy is limited by the fact that the tax
reductions are not refundable and thus would not go the households
most likely to spend them.

Oh yeah, and it would increase the very
large long-run deficit thus hurting the economy in the long run and
potentially even leading forward-looking financial markets to raise
interest rates and crowd out even the initial stimulus. Unless of
course it is paid for by spending cuts but I haven’t found any of
those on Romney’s website.

Dean cited some of the problems, adding these:

...He proposes to permanently
eliminate Social Security taxes for people over age 65. My guess is that this
would take some time to implement administratively, even if you
got Congress to salute it tomorrow. There are not that many
people working at these ages (around 5.6 million or about 15
percent of the total senior population). It would not be a huge
sum of money (many work part-time), but it disproportionately
would benefit higher income people (more educated people tend to
work later in life) and it doesn't really look like stimulus
since it would have very little impact on the spending of these
folks. ...he proposes temporarily permitted businesses to
deduct 100 percent of the cost of their investments. As business
tax breaks go, this is the closest to stimulus. But, there are
already very generous expensing provisions for small businesses,
so this will have little effect on their behavior. For larger
businesses, it could lead them to move some investment plans
forward, but it no one is going to rush through with major
investments just to get slightly better tax treatment.

In
sum, this should be dubbed "Mitt Romney's 5 ways to redistribute
income upward under the guise of stimulus."

Note that Dean and Jason cover a pretty broad spectrum of left-leaning economic thinking, from the left (which is where I'd put Dean) to the center-left (which is where I'd put Jason).  So their agreement here should carry even more weight.  

Of course, the point of the Romney proposal -- like the other ones from the presidential candidates -- was never to put out an idea that would actually become law.  Everybody understood that, by the time any of today's candidates took office, conditions would have changed -- and a stimulus, hopefully, would already be in place.  (Sure enough, we just got word that Bush and Congress have agreed on a package.)

But these proposals are important as windows into the candidates' thinking and qualifications for office.  And the apparent flaws in Romney's stimulus ought to give everybody some pause -- particularly those who assume that a former businessman is necessarily well-suited to rescuing the economy.

--Jonathan Cohn

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