According to former Massachusetts Gov. Mitt Romney, his business experience makes him better qualified than President Obama to fix the economy. Therefore, it is surprising that, instead of offering new solutions drawn from that experience, he is proposing exactly what any other Republican candidate would be proposing, even if the economy were doing well: Lower taxes, fewer regulations and a balanced budget.
According to Republican dogma, cutting taxes will actually increase revenues rather than decrease them.
The theory is that consumers and businesses will spend the tax cut, thereby lowering unemployment and reducing the deficit.
However, based on past experience, the Republican formula is unlikely to succeed.
When he was a presidential candidate in the 1980 primaries, Ronald Reagan promised to cut taxes, increase defense spending and balance the budget. Although his principal Republican opponent labeled the proposal “voodoo economics,” Reagan won the election and pushed the plan through Congress.
Contrary to what Reagan had promised, the deficit grew larger – rather than smaller – and he had to raise taxes.
Similarly, the tax cuts that President George W. Bush convinced Congress to enact in his first term were followed by red ink. When Bush took office, the federal government was running a surplus. When he left office, it was running a substantial deficit.
The Bush tax cuts are scheduled to expire at the end of this year. Both parties want to continue the middle-class tax cuts for at least one more year, but they differ sharply over what should happen to the tax cuts for families and businesses earning $250,000 or more.
Obama wants to end the tax cuts for these high earners, while Romney and congressional Republicans want to continue them.
If the tax cuts for the wealthy were continued, the deficit would be higher than if they were allowed to expire.
Furthermore, even if one accepts the argument that raising taxes on anyone would jeopardize the recovery, it does not follow that extending the tax cuts for the wealthy would improve the economy.
Rather, that extension would simply maintain the status quo.
Romney also wants to close unspecified “loopholes” and use the new revenue to cut tax rates across the board. According to the nonpartisan Tax Policy Center, his proposal would provide a large tax cut for the wealthy and put the burden of paying for it on middle- and lower-income taxpayers.
Although Romney disputes that conclusion, he has not specified the “loopholes” he wants to close. Therefore, it is difficult to conclude that his proposal would help the economy by creating more consumer spending.
For example, if he were to eliminate the deductions for mortgage interest and state and local taxes and were to begin taxing employer-provided health care, many middle-class consumers would have less spending money, rather than more.
As for providing regulatory relief, Romney seems particularly interested in reducing regulations on Wall Street and in stimulating more energy production by easing environmental regulations. It is difficult to understand how rolling back new regulations on financial institutions would be a prudent response to a financial crisis those institutions helped cause.
Furthermore, it would be unwise to roll back an environmental regulation without showing that the economic benefit would outweigh any negative impact on public health or global warming.
Like Reagan, Romney is calling for higher defense spending at the same time he wants to cut taxes and balance the budget. When Obama took office, the United States was fighting wars in Iraq and Afghanistan. Obama brought the troops home from Iraq and set a timetable for bringing them home from Afghanistan. Romney appears to have embraced that timetable, at least as a goal.
Although it will be necessary to replenish supplies and equipment, it is difficult to accept that ending two wars means that defense spending must increase while domestic spending is cut. However, if Romney believes our security requires a big boost in defense spending, he should have the courage to propose a tax increase to make all of us pay for it.
Romney claims his plan would restore the middle class. However, balancing the budget while preserving tax breaks for the wealthy and increasing defense spending means cuts in domestic programs (including Medicare and Social Security) on which middle-class Americans depend.
Rather than a plan for restoring the middle class, that sounds like a plan to widen the gap between the wealthy and everyone else.
President Obama has no silver bullet to fix the economy. Unfortunately, Gov. Romney has no silver bullet either.
William Lloyd represented Somerset County in the state House of Representatives (1981-1998) and served as the state’s small business advocate (November 2003-October 2011). He is a resident of Somerset Borough and writes a montlhy column for The Tribune-Democrat.
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