No short-term solutions from Romney
I poured through Mitt Romeny鈥檚 jobs plan last night鈥攊t鈥檚 a comprehensive piece of work, worth a look. Unfortunately, Mr. Romney offers no solutions for our most pressing short-term problem: high unemployment and the weak job growth. And his long term strategy is based on supply-side measures that have long been associated more with budget deficits and upward wealth redistribution than with job creation.
Despite to the contrary, part of his case is that stimulative measures haven鈥檛 worked, so he has to oppose such ideas in his plan.
That鈥檚 a big problem for someone running for President in a climate of highly elevated unemployment. He argues that since it鈥檚 fruitless to attack the short run economy, the only way forward is to focus on longer-term reforms to the tax and regulatory structure, along with some trade deals.
In fact, his main short term ideas are quite to the economy: an immediate 鈥渕ove to cut spending and cap it at 20 percent of GDP.鈥� That鈥檚 actually worse than a punt on short-term; it鈥檚 a 3% cut in next year鈥檚 GDP and a touchdown for the team recession.
His longer term measures consist of supply-side tax cuts to corporate rates, though without any loophole closing, and locking in the full range of the Bush tax cuts, so expect big revenue losses. Moreover, this supply-side, trickle-down stuff simply doesn鈥檛 generate job gains.
On this point, Republican candidates refuse to accept the lesson of the GW Bush years鈥攁 solid test, compared to the Clinton years, of trickle down. Annualized job growth in the Clinton years, under a more progressive tax structure was about four times that of the Bush years.
One wrinkle here is interesting and noteworthy: while Mr. Romney proposes to eliminate capital gains taxes, he only does so for households with incomes below $200,000. I鈥檝e argued that favorable treatment of cap gains is , but Romney will probably get beat up by the other R candidates for not just zeroing out this tax for everyone.
I suspect Mr. Romney would argue that he differs from the most recent President Bush in that he鈥檒l hold down spending. In fact, he argues for a balanced budget. Not only does this have the contractionary impact noted above, but it of course takes away the ability of the federal government to do countercyclical policies (here鈥檚 some CBPP of the cuts associated with a balanced budget amendment). But, as I noted, he鈥檚 in a box where he has to argue that such policies don鈥檛 work.
There鈥檚 a bunch of other standard pabulum about whacking the EPA and labor unions鈥攏one of that matters for job growth鈥ust standard R candidate box-checking. He argues for achieving Social Security solvency with benefit cuts alone鈥攏o revenues from increasing the maximum taxable level of earnings. There鈥檚 the standard pledge to get rid of the Affordable Care Act, matched with turning Medicaid into a and (sort of) embracing Rep Ryan voucher鈥檚 plan on Medicare (鈥淩omney鈥檚 own plan will differ, but it will share those objectives鈥�).
Put these health care ideas all together and you have the classic R strategy to deal with rising federal health care costs: shifting them onto states and families. There鈥檚 no savings here鈥othing that will begin to deal with the American problem鈥攊t鈥檚 not not just the government problem鈥攐f rising health costs. This is a very significant shortcoming of Mr. Romney鈥檚 plan, and I suspect of his colleagues鈥� as well. Just shifting the burden elsewhere doesn鈥檛 do anything to attack the growth of health-care costs, and that, along with the radical budget cap, may be the most anti-growth part of Mr. Romney鈥檚 agenda.
There are two quite good ideas in the document: going after China on unfair trade practices and supporting more high-skilled immigration. The former is targeted at China鈥檚 currency management and is essentially a strategy to weaken the US dollar in export markets (if China allowed the value of their currency to be set in markets, as opposed to managing it, the yuan would rise relative to the dollar), something that could get the former governor some bad press in conservative places but could potentially help boost manufacturing exports fairly quickly (note that liberal economist Dean Baker makes a similar argument ).
By locking in the Bush highend cuts, cutting the corporate tax, capping spending at 20% (implying large entitlement cuts), shifting health costs, cutting Social Security benefits, and punting on short-term job creation, this is far from a jobs plan that could help the middle class. It鈥檚 more likely to prolong the downturn, hasten the growth of income inequality, and increase economic insecurity.
