Last fall, in the heat of the primaries, Mitt Romney published his plan to fix the economy.At the time, the plan was mostly ignored. It was also criticised for being vague, timid, and complex. Among the fire-and-brimstone pronouncements of the fringe candidates, 87-pages of just-right-of-centre economic policies don’t generate big headlines.
But now Mitt Romney is the Republican nominee.
And the economy is still weak.
So it’s time we took a detailed look at Mr. Romney’s plan–and assessed whether it will or won’t fix the economy.
The plan does not overhaul the tax code or chop federal government spending by a third.
It doesn't eliminate welfare, or Medicare, or Social Security. It doesn't eliminate the Department of Education or the Environmental Protection Agency.
Rather, the plan aims to modestly cut taxes and also to cut spending.
The tax cuts will go primarily to companies--which is a big weakness of the plan, as far as 'fixing the economy' is concerned (more on this later). The spending cuts will come from non-defence spending, which will hit the economy a bit in the short term. But the plan only calls for a 5% non-defence spending cut (not much).
Unfortunately, the plan also includes no stimulus and no real plan to fix our humongous debt and deficit problem.
Yes, the plan calls for capping Federal spending at 20% of GDP and a 'Balanced Budget Amendment,' but it offers no suggestions as to how to get tax revenue from the current 17% of GDP all the way to 20%--something that will be tough to do with tax cuts.
Overall, though, Mitt Romney's plan should be encouraging to those who are hoping he is still the reasonable fellow he was when he was Governor of Massachusetts and not the fire-breathing extremist he was during the primaries.
Romney's plan contains some good ideas about how to change some things for the better, along with a bunch of clunkers.
But the plan will not 'fix' the economy, at least not in the short term.
By cutting government spending, the plan will actually hurt the economy in the short term--by putting more people out of work and reducing personal incomes (and spending).
Cutting the corporate tax rate will also reduce government revenue, which will likely offset any helpful impact on the deficit from the government spending cuts. So the plan also won't help the deficit and debt problem, at least in the short term.
(The idea that corporations will use the money they're saving on taxes to make new investments and hire more people is misguided. It is based on fundamental misunderstanding--or misrepresentation--of what is wrong with the economy. Corporate profit margins are already at record highs, and corporations have cash coming out of their ears. If corporations could generate a great return by making more investments and hiring more people, they would already be doing this. But the corporations aren't doing that. Why not? Because their customers--consumers--are still hurting.)
Lastly, the plan includes no 'stimulus' or other mechanisms that would give the economy a shot in the arm and persuade corporations to start hiring people again.
The one thing the plan does do is begin to offer a long-term solution to the debt and deficit problem--by proposing that federal spending be capped at 20%. That's a reasonable idea. Unfortunately, Romney also wants to cut taxes, so, again, this won't completely close the budget deficit.
First, Romney wants to maintain current income tax rates, not cut them.
That's startling, right? Didn't everyone think he wanted to cut them?
Romney even describes today's current tax rates as 'low.' Another surprise.
But Romney does want to cut the corporate tax rate from 35% to 25%.
This will help make companies and shareholders richer.
But it will also increase the deficit (less tax revenue).
And it won't help the economy--because companies already have plenty of cash and record profit margins, and they still aren't hiring boatloads of people--because their customers, the world's consumers, are hurting.
This tax cut is also mostly ceremonial: Thanks to all the corporate tax loopholes, most companies don't pay anywhere near a 35% tax rate.
Romney also wants to kill the estate tax and eventually install a simpler tax system. (Who doesn't?)
Romney wants to cut 5% of non-defence federal spending immediately--in part by firing a lot of federal employees.
This would modestly help the budget deficit, but it would also put a lot of people out of work and hit the economy, at least in the short term.
(And Romney has also proposed a tax cut, so the benefit to the deficit from the spending cut will likely be neutralized by the tax cut).
Longer term, Romney wants to cap federal spending at 20% of GDP and press for a 'Balanced Budget Amendment.'
The Federal spending cap is actually a reasonable proposal, as long as it allows the government to spend more when the economy is weak (as it is now) and recoup it later.
As Romney points out, federal spending has surged as a per cent of GDP. Thanks to runaway entitlement spending, it is expected to continue to do so. There has to to be some limit to that.
So proposing that we have such a limit is reasonable.
Another very good idea Romney has: Increasing the number of visas and green cards we give to well-educated immigrants.
One of the strengths of the American economy is technical innovation.
Right now, however, the market for top technical talent is so tight that prices are high--and companies are relocating their development elsewhere.
Also, foreigners who come to the U.S. to learn at our excellent universities are then booted out of the country. So they go start great companies elsewhere instead of here.
Romney's plan includes a chart showing the amazing percentage (25%) of American tech companies that were started by, or are run by, immigrants. These companies now employ thousands of Americans. We should want more of these companies, not fewer.
So Romney is absolutely right that we should increase the number of technical visas.
And it's refreshing--and reassuring--to hear a Republican call for increasing immigration, instead of just ranting about building a 50-foot high electric fence around the country to prevent horrible foreigners from getting in and stealing our jobs.
For example, he doesn't want to ban them.
He also readily admits that they have accomplished a lot for workers and have their place.
But Romney does want to shift the balance of labour vs capital power a bit more towards companies. He justifies this by saying that states with so-called 'right to work' laws, which prohibit unions from requiring workers to pay dues, have better job growth than states that don't.
(I've never seen this comparison before. Is it valid? Are there other forces at work?)
It would be nice to think that we could just wave a magic wand and suddenly all live off solar and wind.
But it's not going to happen.
No matter how fast we develop 'renewable' energy sources, our economy is still going to be powered by fossil fuels for another century or more. And putting ourselves in a situation in which the cost of that energy might suddenly skyrocket--or we might be held even more hostage by people who hate us--is just idiocy.
Romney also points out what any reasonable person knows: The oil in the Canadian tar sands--the vast resource that many environmentalists think will end the world--will be refined and burned by someone (China) regardless of what we do.
So acknowledging this and developing domestic and friendly energy resources is a smart move for the economy.
Importantly, President Obama is pursuing much the same policy. But he's also doing silly things like blocking the construction of the Keystone pipelines, which would have carried Canadian oil across the country. (It's just another pipeline. There are thousands of them. What's the big deal?)
Romney supports the Keystone pipeline. He also supports being more aggressive on the domestic energy front. This would help the economy in two ways: It would create more opportunities for American companies (and jobs), and it would keep the cost of energy lower.
So that's Mitt Romney's plan to fix the economy. Some reasonable ideas, some ideological preaching, nothing earth-shattering.
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