Mitt Romney and America’s Four Deficits

Romney overstates his tax proposals’ long-term growth effects as well. Reducing individual tax rates and taxes on savings and investment at best fosters modest increases in employment, work effort, and income. Despite the Bush-era tax cuts, the 2001-2007 expansion was the worst of the post-war period in terms of investment, employment, wage, and GDP growth. Job creation and growth were much stronger following President Bill Clinton’s tax increases in the 1990’s.

Moreover, if all of Romney’s additional tax cuts were financed in a revenue-neutral way, as he promises, only the composition of taxes would change; the overall tax share of GDP would not. There is no evidence that this would significantly boost growth, as Romney claims.

Based on what Romney has told us, we can conclude that his plan would exacerbate the public-investment deficit as well. Romney’s vow to cap federal spending at 20% of GDP by 2016, while maintaining defense spending at 4% of GDP and leaving both Social Security and Medicare unchanged for those 55 or older, implies exempting more than 50% of government spending from cuts for the next decade. So, to hit the 20% cap, spending on everything else would have to be slashed by an average of roughly 40% by 2016 and 57% by 2022.

Everything else includes government investments in three major areas on which growth and high-wage jobs depend: education, infrastructure, and research. These areas account for less than 8% of federal spending, and their share has been declining steadily. Under Romney, it would plummet to new lows.

Everything else also includes spending on programs that help low-income families, like food stamps, student grants, and Medicaid. The finds that almost two-thirds of the Ryan budget’s spending cuts would come from such programs. Romney offers few specifics, but simple arithmetic shows that his plan would require even deeper cuts in these programs than Ryan’s plan would.

Meanwhile, Romney’s plan would actually increase taxes on middle-income families. His plan would pay for lower income-tax rates by eliminating tax deductions like those for charitable giving and mortgages, while maintaining tax preferences for saving and investment. But there are not enough tax breaks for the rich to cover another 20% reduction in their income-tax rate. That is why the nonpartisan found that Romney’s plan would cut overall taxes for households with incomes above $200,000, but would require an average annual tax increase of at least $2,000 for households with incomes between $100,000 and $200,000.

Romney’s budget plan would also make the federal tax-and-transfer system considerably less progressive, thereby worsening income inequality, which is already at its highest level since the Great Depression. Rising income inequality fuels a growing opportunity deficit for children born into poor and middle-income families, reflected in disparities in educational attainment by family background, and a decline in intergenerational mobility. Under Romney, the opportunity deficit would widen, robbing the country of future talent and productivity.

Romney has provided few details about his deficit-reduction plan. But, based on what he has revealed, we know that it would increase the jobs deficit, the investment deficit, and the opportunity deficit, with negative consequences for future growth and prosperity.

Laura Tyson, a former chair of the US President's Council of Economic Advisers, is a professor at the Haas School of Business at the University of California, Berkeley.

Copyright: Project Syndicate, 2012.

©RIPRODUZIONE RISERVATA