Mitt Romney has an accounting problem—his budget plan, his projections of explosive growth, and even the release of his personal taxes all hinge on the implicit promise of “trust me” rather than numbers showing how everything would add up.
It’s a paradox for the former Massachusetts governor who minted a fortune by carefully scrutinizing private equity investments for Bain Capital. His resume is built on hard data, but, like most anti-incumbent campaigns, he wants to shine the spotlight on President Obama’s dismal record and keep most of his own figures in the shadows.
If Romney spelled out all of the specifics on his call to slice government spending by at least $500 billion a year, he would risk alienating the kinds of voters needed to form a winning coalition in November. Instead, he based what little is known of his plan on slashing programs that are already unpopular with conservatives.
Obama has largely overseen an explosion in federal spending—with the deficit expected this year to top $1.32 trillion—that did little to propel the economy and employment from the depths of the Great Recession. Independent analysis by the progressive Center on Budget and Policy Priorities argues that the roughly $800 billion stimulus launched in 2009 prevented the situation from becoming even more dire, a tough sell to voters who’ve been waiting throughout his term for a solid recovery that largely appears in the White House’s own budget projections.
Just as the administration endures criticism from predicting the stimulus would hold unemployment beneath 8 percent—it’s currently at 8.3 percent—Romney faces challenges because of the dearth of information out of his campaign. Much of the public conversation so far has centered on taxes.. Romney endorses a permanent 20 percent reduction in tax rates, while Obama would lift the top marginal rates on those making more than $250,000 to levels last seen under Bill Clinton.
The Obama proposal risks a tax increase at a moment when the economy remains winded and other forms of stimulus such as the payroll tax holiday disappear. Romney, on the other hand, has pledged his cuts would be revenue neutral, but he hasn’t said which deductions would be eliminated to guarantee that.
The Tax Policy Center published an analysis last week that showed Romney’s plan would increase the burden on middle and lower income households, while providing a larger break for the wealthy. And to ensure that the amount of taxes remained flat with the lower rates, Romney would have to end about two-thirds of the existing $1.1 trillion a year in tax breaks, including the popular mortgage interest deduction.
All of that played into rumor-mongering by Senate Majority Harry Reid, D-Nev., that Romney may not have paid the IRS anything for several years, a claim that seems to be based on anonymous hearsay designed to pressure the candidate into releasing his pre-2010 returns.
But as the Tax Policy Center analysis notes, a major factor in determining just how much of the burden would be shifted depends on proposed spending reductions—and the Romney plan lacked the details to incorporate that component into their analysis.
The report noted “that cutting spending would make the plan even more regressive because government spending tends to benefit low- and middle-income households more than tax preferences do.”
Of course, Romney isn’t selling his budget as a way to improve fairness—just the unemployment rate and gross domestic product. He would shrink federal spending from 24.3 percent of GDP to no more than 20 percent, a move that his adviser Glenn Hubbard, dean of the Columbia Business School, recently claimed would “dramatically reduce policy uncertainty over the need for future tax increases, thus increasing business and consumer confidence.”
But count what reductions are listed in the Romney plan and they fall short of his own target of $500 billion a year in needed cutbacks.
Annual savings—which also have to offset increased military expenditures and the permanent reduction in tax rates—are generated by the following:
- Repeal Obamacare ($95 billion).
- Privatize Amtrak ($1.6 billion).
- Clamp down on support for PBS and the arts ($600 million).
- No more funding for family planning groups like Planned Parenthood ($300 million).
- Trim foreign aid ($100 million).
- Reduce government waste ($60 billion).
- Pay cuts for government employees and contractors—and not replacing federal workers who leave ($62 billion).
The sum of all that is just shy of $220 billion. Include the $100 billion in savings Romney anticipates from turning Medicaid and job training programs into block grants for states, he still has a $180 billion gap in meeting his goal. That can be closed in part by massaging the figures for economic growth just as Obama did in his recent mid-session review.
Romney projects a brisk expansion that is wildly out of whack with private forecasts. He assumes a “robust economic recovery with four percent annual growth,” even though blue chip projections have GDP plodding along at an average of just 2.6 percent over four years.
The irony appears to be lost during election season.
“Any turnaround must begin with clear and realistic goals,” his plan says. “Optimistic projections cannot wish a problem away, they can only make it worse.”