Deconstructing Mitt Romney’s economic plan

What’s at stake: Last week was dominated in the blogosphere by an analysis of the Tax Policy Center – a joint venture of the Urban Institute and Brookings Institution –, which showed that Romney’s fiscal plan did not add up. The Romney campaign reacted by publishing its own White Paper co-authored by renown economists Greg Mankiw, Glenn Hubbard and John Taylor. But rather than calming the blogosphere, this report brought the controversy to an all different level as the document was found citing the work of other economists, claiming that it supports the position of Mitt Romney, when it does no such thing.

The policy gap between Romney and … all the others

Ezra Klein echoes a worry we’ve had for some when writing the blogs review: that central difficulty in covering this presidential campaign — which is to say, of explaining Barack Obama and Mitt Romney’s disparate plans for the country — is the continued existence of what we might call the policy gap. The policy gap, put simply, is this: Obama has proposed policies. Mitt Romney hasn’t. You might say that this is the natural result of an incumbent running against a challenger. But in 2008, John McCain ran on a far more detailed policy platform than Romney. To name just one example, like Romney, McCain promised to end the tax code’s discrimination against health insurance bought by individuals. But he told us how he would do it: by taxing employer-based insurance and using the savings to give families a $5,000 tax credit to put toward buying health insurance. Nor has Romney released anything that matches “Renewing America’s Purpose,” the 457-page policy book that George W. Bush released during the 2000 election. Romney’s vagueness is unique among modern presidential campaigns.

In another post, Ezra Klein speculates on the possible reasons behind this vagueness: First, Romney’s political positions suffer from attempting to be acceptable both to the hard-right Republican base and moderate swing voters. Second, Romney relies on his reputation for economic and technocratic competence (this was written before Paul Ryan was confirmed as running mate) to carry him over the vagueness in his proposals – thus not having to make visible how unattractive the policy implementation of several strategic positions would be to wide parts of the electorate.

The Tax Policy Center report on Mitt Romney’s plan

Mitt Romney’s plan for the US focuses on lowering individual income and corporate tax rates, abolishing the estate tax, capping federal spending to 20% of GDP, and passing a balanced budget amendment to the constitution. The plan also proposes to repeal Obama’s healthcare act and the Dodd-Frank act on financial regulation. The plan also proposes attracting the immigration of graduates in engineering and science jobs by issuing more visas and automatically giving Green Cards to graduates of US universities.

Mike Konczal writes that the Tax Policy Centre’s report highlights the mathematical impossibility of Romney’s different objectives. Since Romney hasn’t released his plan, Brown, Gale, and Looney cleverly put together the best case scenario and crunch the numbers – and conclude they don’t work. How is that? Romney’s plan has three goals. It starts by lowering tax rates by 20 percent. It then seeks to keep raising the same amount of tax revenues as it did before by removing tax expenditures, or the variety of exemptions, deductions, or credits in the tax code that function as government spending. As the wonks would say, it wants to "lower the rates and broaden the base." However, and this will be crucial, it excludes expenditures related to investment income and savings from being available for these cuts. Finally, it wants to maintain the current level of progressivity by making sure that the top one percent pays no less in taxes and everyone else pays no more. The Tax Policy Center analysis shows that it is impossible to do all three: enacting the Romney plan requires cutting taxes on the top one percent and raising them on everyone else.

The Hubbard-Mankiw-Taylor controversy

Ezra Klein writes that Greg Mankiw, John Taylor and Glenn Hubbard make three points in their paper: The first is that this recovery has been terribly slow, even by the standards of post-financial crisis recoveries. The second is that the Obama administration made a grievous error by relying on stimulus. And the third is that Romney’s tax and economic plans would usher in an era of rapid growth that would both be good for the country and provide the boost to revenues and employment necessary to make their numbers work out. Each of these sections include supporting documents from independent economists.

Paul Krugman writes that it’s one thing to make shaky or even demonstrably wrong arguments. It’s something else to cite the work of other economists, claiming that it supports your position, when it does no such thing — and don’t take my word for it, listen to the protests of the cited economists. Read the paper and judge for yourself, or read this post from Brad DeLong for a methodological deconstruction of every single piece of the paper.

Simon Wren-Lewis that this is sad, because it tells us as much about economics as an academic discipline as it does about the individuals concerned. In the past I have imagined something similar happening in physics. It actually stretches the imagination to do so, but if it did, the academics concerned would immediately lose their academic reputation. The credibility of their work would be questioned.

The economic debate going forward and Paul Ryan

Mohammed el-Erian argues that the need for combining short-term stimulus and medium-term fiscal sustainability will limit the degree to which their policies can diverge. However, when it comes to the issue of distributional impact of reforms – be they on employment, debt repayment or skills and education – there is real scope for difference between the incumbent and the candidate, as any reform package would need to be accompanied by a set of social policies intended to ensure fair burden-sharing among the rich, who have gained unimaginable wealth in the past and the poor, who are being failed by the system, not having sufficient access to jobs, health and education.

Josh Barro argues that Romney’s extraordinary ideological flexibility may lead him to implement economic policies different from those proposed by him now. Higher spending on defence may not be coupled with lower spending elsewhere and when deficit reduction becomes paramount, expiration of the Bush tax cuts may make it possible for him to raise taxes whilst claiming he didn’t. And there is scope for a serious stimulation of the economy if he decides to implement the Hubbard-Mayer plan on mortgage relief, as his chances of getting such a bill through Congress would be better than for a Democratic president.

While we haven’t had time to summarize the views of the recent pick of the Republican Party for Vice-President – Paul Ryan – Menzie Chinn has a post linking to his analyses of Ryan’s budgetary and macroeconomic views, including supply side, interest and inflation rates, and command of economic history – that you might find interesting. For a very critical assessment, you can refer to this compilation of posts written by Paul Krugman over the years on Rep. Ryan that Mark Thoma put together.