Saturday, October 13, 2012

Romney plan: Cut taxes & keep your fingers crossed


Anyone who listened carefully to the recent Presidential and Vice Presidential debates understands that there is a heaping helping of wishful thinking in the GOP economic plan. In fact, wishful thinking is the ONLY thing that can make the plan work.

Romney-Ryan proposals would retain all Bush-Era tax cuts. These largely favor the wealthy in our country, but they also apply to middle class taxpayers (President Obama wishes only to continue the Bush cuts that provide relief to the middle class, so the difference between the two plans is essentially the tax breaks for the wealthy). The GOP proposals also would reduce federal income by slashing all income tax rates by 20 percent, by eliminating or cutting other forms of taxation and by moving to a "territorial" tax system, in which wealthy individuals and companies would not pay U.S. tax on moneys earned in other countries. (A number of measures are already in place to delay and reduce the amount owed on such foreign income - tax breaks that Mr. Romney is surely familiar with as they are represented in his own tax returns.)

Independent analysts have calculated that the overall effect of these tax reductions would deprive the federal government of about $5 trillion over ten years. Democrats have used the $5 trillion figure often, though Mr. Romney denies that the number is accurate. He has not provided an "accurate" number of his own.

Democrats charge that Mr. Romney will need either to grow the budget deficit or to make severe cuts to needed federal programs in order to provide unneeded tax reductions. They reason that the tax cuts are unnecessary, as the Obama plan would take care of continuing tax cuts for the middle class, and the wealthy apparently are doing just fine (growing wealthier every day) under the existing tax system.

A Romney answer at the Presidential Debate provided little clue as to how he would avoid either adding to our debt or dramatically diminishing our services.
- He pledged that he would support the continuation of Social Security and Medicare for everyone currently receiving them or soon to receive them - so, no savings there.
- He said he would close some tax loopholes, but not the loopholes that affect the middle class. Independent analysts say there is insufficient money in all of the loopholes used by the wealthy to make up for the tax breaks.
- And he vowed that he would continue federal support for education, find a replacement program for the "Obamacare" he wishes to scrap and increase spending on the military.

When pressed to indicate something - anything at all - that he would eliminate from the federal spending plan to make his proposals work, Mr. Romney stated that he would cut the small U.S. support for public broadcasting. (Federal support of PBS amounts to about one-hundredth of one percent of the budget. The $445 million that a Romney Administration might save by eliminating support for PBS would move it 0.089% toward covering the $500 billion annual cost of the proposed tax cuts. In other words: Scrap PBS, save $445 million; scrap the unneeded tax cuts, save more than 1,120 times that much money.)

In the Vice Presidential Debate, Romney runningmate Paul Ryan was even less specific about how the budget proposals could possibly work - he didn't even mention the small PBS subsidy. Ryan, known to be good with numbers, has been challenged repeatedly on the campaign trail to describe the arithmetic behind the proposals, and he has begged off every time.

That is because he knows that it is not arithmetic that makes the numbers work; it is voodoo. Specifically, it is Reagan Era "voodoo economics" (a phrase coined by Republican George H.W. Bush shortly before he climbed aboard the Reagan bandwagon).

Mr. Romney provided the clue in his debate answers. He argued that the tax cuts he is proposing would help to grow the economy and that would increase the income, the individuals and the businesses that the government could tax, hence increasing government revenue.

This is less a plan than a pie-in-the-sky hope.

To believe that such a plan has even the remotest possibility of success is to deny the evidence that is all around us. ALL of our recent history indicates that providing the wealthy with additional cash does not in any way result in a significant increase in jobs or investment in America. It merely adds to our debt, damages our economy and prevents our government from providing adequate assistance to those who require it.

To find a moment that any such hoping bore any fruit at all, you need to go back to the early 1960s, when a Kennedy proposal to reduce the top tax rates was adopted and assisted the U.S. toward a period of economic growth. In the Vice Presidential Debate, Mr. Ryan actually referred to Kennedy, but apparently thought better about explaining the reference. It is important that we understand that the Kennedy proposal lowered the top U.S. tax rate to 77%! Seventy-seven! The wealthy in our country pay half that now (some of them use deductions and foreign tax shelters to pay FAR less than half). This is a different time with a different tax structure. It is ridiculous to believe that wealthy Americans, already finding offshore investments for the cash that is piling up around them, would suddenly decide to contribute to the U.S. economy if we gave them even more cash.

It is ridiculous AND it has already been proven to be completely wrong. The Reagan Era tax cuts did coincide with some economic growth, but that growth never managed to offset the cost of the cuts and the expensive military buildup under the Reagan Presidency. As a result, the national debt ballooned under Reagan.

Similar flawed logic was used to support the tax cuts instituted by President George W. Bush. In that case, the effect was precisely opposite of what was desired. The economy slowed and stopped just as the nation was struggling to pay for two Bush-initiated overseas wars on an income squeezed by irrational tax cuts.

Nothing about our already low top tax rate is hindering the investment of the wealthy in our nation's economy, and nothing about a tax rate decrease would spur it.

Yet, here again, we have a Republican candidate for President telling us we can reduce taxes on the wealthy even further than Bush did, pay for a massive and unnecessary military buildup, and simply grow our way out of debt. The critic might ask if the one-trick-pony Republicans ever run out of wishful thinking, as the nation still has not recovered from the debt of Reagan's voodoo economics and may never recover from the debt of Bush's version.

For a lesson on economic growth, we must look to the only Presidential Administration in recent history to have notched a yearly budget SURPLUS and reduced the federal debt. That would be the Democratic Administration of President Bill Clinton. Clinton's methods of dealing with the economic problems he inherited from President George H.W. Bush were the following:
- Pursue disciplined federal spending that eliminates budget waste,
- Open trade around the world and insist on a level playing field with other countries,
- Provide federal funding for education and research that equips workers for modern jobs and opens the door to new services and new industries,
- Maintain low interest rates; and
- Raise taxes slightly on those who could best afford to pay them.

No voodoo. No miracle cure. Just common sense.