Mitt Romney's Plan for the Economy and Jobs

As we have just discussed, the biggest problem holding back business hiring is low demand for what the businesses have to sell.  Given that, let's take a look at what Republicans have proposed to address the poor job market.

The most detailed Republican proposal to date comes from Mitt Romney, who recently released his Jobs Plan, which can be downloaded here.  Since there is very little in Romney's paper that did not come from mainstream Republican ideas, we can use it as a proxy for standard Republican "solutions."

First, some perspective, to see how well Republican solutions have worked in the past.  On job creation, Democratic administrations have tended to do much better than Republican administrations.  Only Reagan's second term, characterized by more tax increases than tax cuts, approached the typical Democratic administration jobs creation numbers.

Median family incomes have also tended to increase more during Democratic administrations.

While increases in income inequality have tended to take place during both Democratic and Republican administrations, it has tended to increase at a greater rate during Republican administrations, especially when one compares the Clinton and Bush 43 administrations:

As discussed before, this table examines whether the wages of each income group increased more than the overall increase in the economy.  If a group's percentage growth was less than the growth of the GDP as a whole, that group was "left behind."

Thus, when assessing Romney's Jobs Plan, it is a fair question to ask what, if anything, is different than what Republicans have always proposed, regardless of the economic situation, and what they have always implemented when given the power.

On this question, the answer has to be that, with the exception of China bashing, Romney's Plan contains absolutely nothing new.  One could therefore rightfully expect that were Romney, or another Republican, were to become President, the most likely results would be a repeat of the Bush 43 years, with perhaps worse results in that the effects of the horrible policies during those years continue to linger.

While Romney's Plan does a fine job of describing the current mess we're in, it does not do very well in describing why we got into this mess, and how Obama has made it worse.

He characterized Obama's Stimulus as "more than $775 billion in new government spending," without bothering to mention that a third of the Stimulus was in the form of tax cuts.  This is an inconvenient fact for someone who wants to argue that tax cuts are the cure for any ailment.  Another third of that amount was for state aid, to prevent layoffs of state employees, so it was not "new" spending so much as "replacement" spending.

Romney then complained about all the things that were either blocked or have not taken effect yet in any meaningful way, such as Cap & Trade for emissions control, Dodd-Frank Wall Street Reform, and the "uncertainty" that would be created by the Consumer Financial Protection Bureau.  Obamacare, of course, most of which has not taken effect yet, gets blamed for many of the current problems.

So what are Romney's solutions?  First, keep tax rates where they currently are.  Never mind that the economy has performed dismally in the decade since those tax cuts were initiated, compared to how well the economy performed in the almost eight years following the tax increases of 1993.

Then he proposes that taxes on capital gains, interest, and dividends be eliminated for taxpayers making less than $200,000.  Most taxpayers making less than $200,000 have little, if any, capital gains, interest, and dividends, of course.  Romney says this will encourage savings, and will free up capital for investment.  This goes back to the Republican conviction that the problem is not enough money for investment, when in fact there is considerable amounts of cash sitting in corporate books that could be invested, if only there was the demand to justify the investment.

Romney proposes eliminating the Estate Tax (which he of course calls the Death Tax), saying that "small family-owned" businesses risk having to be split up to deal with tax liabilities, ignoring the fact that the family-owned business that would most face such taxes is WalMart. Genuinely small businesses have no such problem.

He proposes to lower the corporate tax rate to 25%, following the typical Republican tactic of referring to the U.S. high corporate tax rate, as opposed to the U.S. actual corporate tax liability.  The real truth, which Romney should be confronted with, is the United States has the lowest corporate tax burden, relative to GDP, of any country in the OECD.  If lower tax burdens would help spur hiring in the United States, why hasn't GE, which had large profits but paid very little in corporate taxes for 2010 (and in fact pays a higher tax rate for income generated outside of the United States), gone on an orgy of hiring?  Instead, in the last several years GE's U.S. employment has declined as its overseas employments has grown.

Romney next attacks regulation.  He ignores the poor regulation and enforcement that helped lead to the huge housing bubble that destroyed the U.S. economy when it popped (and in fact claims that there was instead "mis- and over-regulation").  He singles out Dodd-Frank and Obamacare, and says he'll repeal Obamacare, as if that will create jobs.  He'll replace Dodd-Frank with "a streamlined regulatory framework," which has worked so well in the past.

This posting is already too long, so I'll cover the other proposals in less detail.  Romney would also gut environmental regulations.  Never mind the costs that would be incurred because of global warming, never mind the benefits that cleaner air and water bring.  It's just the costs.

Romney also would pass the stalled trade agreements with Columbia, Panama, and South Korea, and he would designate China a currency manipulator and impose countervailing duties (the one part of his Plan that would probably arouse the opposition of U.S. multinationals and be counter to what Bush 43 and all other presidents have concluded).  On energy policy, it would be "drill, baby, drill."

On labor policy, his proposals essentially amount to weakening unions.  Weakened labor unions have been a major factor the in the reduction of worker's wages, even if non-union, and have contributed to income inequality.  For Republicans, this is not a bug, but a feature.  For Democrats, workers are people, whose well-being contributes to the well-being of the United States.  For Republicans, workers are a cost, to be lowered to increase profits.  Romney goes along with this thinking, trying to convince voters that there will be more jobs if only we paid everyone less.

Finally, he would reduce federal spending and cap it at 20% of GDP.  Then he would push for a balanced budget amendment.  Romney adopts the "crowding out" claim, that "for every dollar that the government borrows for its operations is a dollar that cannot be invested in productive private-sector activity."  Romney utterly ignores the fact that when we're in a situation like the current Recession (or very slow Recovery), crowding out just does not apply.

Romney's Appendix lists all 59 specific proposals.  At best, they won't create jobs.  At worst, they will make the economy worse, except for perhaps the very upper levels of income earners (top 1 percent, and even more, top 0.1 percent).  Romney would qualify as in the top 0.1, or perhaps even 0.01 percent, of wealthiest Americans.  He at least would be helped by his proposals.