A new Mitt Romney ad running in Florida offers yet more proof of how he's retooled his campaign around the economy -- and how it plays to his strengths as a candidate:
While the ad briefly mentions tax cuts and "conservative change," the primary focus is Romney's biography. As he says, "I know how America works because I spent my life in the real economy. I ran a business, turned around the Olympics, and led a state." This is old news to those of us who have followed the presidential campaign. But for many voters in Florida and the February 5 states, this will be their first introduction to Romney. And I'm sure a lot of them will be pretty impressed.
But maybe they shouldn't be. Consider Romney's proposed economic stimulus -- which, at $250 million, is twice as large as what the Democratic presidential contenders have proposed. When I wrote about it a few days ago, I asked if any economists out there could weigh in on whether the package was well-designed. Fortunately, Jason Furman of Brookings and Dean Baker of the Center for Economic Policy Research obliged the request.
Here's an excerpt of what Jason told me:
Even asking the question was way too nice to Romney....in September Romney proposed eliminating capital taxes for households making less than $200,000. The stated goal of the plan was to get people to spend less (i.e., save more). Now that exact same tax plan is a part of his stimulus proposal. If it worked as Romney intended (and I put the chances of this just north of zero percent) the result would be to weaken the economy in the short run as it contracted aggregate demand – which is what matters now, while increasing the level of output in the longer run as the higher savings rate led to a larger capital stock....Romney outbids all of his Republican competitors by proposing to take the corporate rate down from 35 to 20 percent. Again, whatever the merits for long-run growth (and I don't see many if it is not part of a broader, revenue-neutral tax reform), this is not a way to stimulate aggregate demand today because most of the benefit would go to reward companies for past investment choices, not to encourage them to make investments this year. The non-partisan CBO’s latest report has a table rating stimulus options and they put this one at "small" for cost effectiveness and "long" for the length of time to affect the economy. This is tied for worst of all the options CBO reviewed......the proposal does have roughly $40 billion of what I would call "stimulus" -- specifically the reduction in the bottom tax bracket and the payroll tax break for seniors. But this genuine stimulus is one-third of what the President, Democratic leaders in Congress and Democratic candidates are calling for. And its efficacy is limited by the fact that the tax reductions are not refundable and thus would not go the households most likely to spend them.Oh yeah, and it would increase the very large long-run deficit thus hurting the economy in the long run and potentially even leading forward-looking financial markets to raise interest rates and crowd out even the initial stimulus. Unless of course it is paid for by spending cuts but I haven’t found any of those on Romney’s website.
Even asking the question was way too nice to Romney.
...in September Romney proposed eliminating capital taxes for households making less than $200,000. The stated goal of the plan was to get people to spend less (i.e., save more). Now that exact same tax plan is a part of his stimulus proposal. If it worked as Romney intended (and I put the chances of this just north of zero percent) the result would be to weaken the economy in the short run as it contracted aggregate demand – which is what matters now, while increasing the level of output in the longer run as the higher savings rate led to a larger capital stock.
...Romney outbids all of his Republican competitors by proposing to take the corporate rate down from 35 to 20 percent. Again, whatever the merits for long-run growth (and I don't see many if it is not part of a broader, revenue-neutral tax reform), this is not a way to stimulate aggregate demand today because most of the benefit would go to reward companies for past investment choices, not to encourage them to make investments this year. The non-partisan CBO’s latest report has a table rating stimulus options and they put this one at "small" for cost effectiveness and "long" for the length of time to affect the economy. This is tied for worst of all the options CBO reviewed...
...the proposal does have roughly $40 billion of what I would call "stimulus" -- specifically the reduction in the bottom tax bracket and the payroll tax break for seniors. But this genuine stimulus is one-third of what the President, Democratic leaders in Congress and Democratic candidates are calling for. And its efficacy is limited by the fact that the tax reductions are not refundable and thus would not go the households most likely to spend them.
Oh yeah, and it would increase the very large long-run deficit thus hurting the economy in the long run and potentially even leading forward-looking financial markets to raise interest rates and crowd out even the initial stimulus. Unless of course it is paid for by spending cuts but I haven’t found any of those on Romney’s website.
Dean cited some of the problems, adding these:
...He proposes to permanently eliminate Social Security taxes for people over age 65. My guess is that this would take some time to implement administratively, even if you got Congress to salute it tomorrow. There are not that many people working at these ages (around 5.6 million or about 15 percent of the total senior population). It would not be a huge sum of money (many work part-time), but it disproportionately would benefit higher income people (more educated people tend to work later in life) and it doesn't really look like stimulus since it would have very little impact on the spending of these folks. ...he proposes temporarily permitted businesses to deduct 100 percent of the cost of their investments. As business tax breaks go, this is the closest to stimulus. But, there are already very generous expensing provisions for small businesses, so this will have little effect on their behavior. For larger businesses, it could lead them to move some investment plans forward, but it no one is going to rush through with major investments just to get slightly better tax treatment.
In sum, this should be dubbed "Mitt Romney's 5 ways to redistribute income upward under the guise of stimulus."
Note that Dean and Jason cover a pretty broad spectrum of left-leaning economic thinking, from the left (which is where I'd put Dean) to the center-left (which is where I'd put Jason). So their agreement here should carry even more weight.
Of course, the point of the Romney proposal -- like the other ones from the presidential candidates -- was never to put out an idea that would actually become law. Everybody understood that, by the time any of today's candidates took office, conditions would have changed -- and a stimulus, hopefully, would already be in place. (Sure enough, we just got word that Bush and Congress have agreed on a package.)
But these proposals are important as windows into the candidates' thinking and qualifications for office. And the apparent flaws in Romney's stimulus ought to give everybody some pause -- particularly those who assume that a former businessman is necessarily well-suited to rescuing the economy.
--Jonathan Cohn
Posted: Thursday, January 24, 2008 3:22 PM with 11 comment(s)
Man oh man. Cheap shots, wrong question, wrong answers. Very disappointing, Mr Cohn. Romney explicitly states-- and this is obvious even to someone perusing the site for 10 seconds-- that his plan INCLUDES huge and targeted tax cuts to the very people who will spend, not save, the money: low-income Americans and seniors.
Here's what Romney's site ACTUALLY says:
1) Permanently Reduce The Lowest Income Tax Bracket to 7.5%. Permanently cutting taxes for all taxpayers will put more money in workers' pockets and stimulate consumer confidence and spending.
- Cutting The Lowest Tax Rate From 10% To 7.5% Will Provide Up To A $400 Tax Cut To Each American Taxpayer.
- Governor Romney Proposes Providing An Immediate Retroactive Tax Credit Reflecting The Lower 7.5% Tax Rate For 2007 Earnings To Employees Who Earned Less Than $97,500 In 2007. This tax cut would immediately stimulate the economy as taxpayers with the highest propensity to consume receive their increased 2007 tax refunds.
- Permanently Reducing The Lowest Bracket Is A Pro-Growth Tax Cut For The Tens Of Millions Of Americans In The Lowest Income Tax Bracket.
2) Permanently Eliminate Payroll Taxes On Employees Over The Age of 65. It is not fair that seniors that have worked their whole life and earned their full Social Security benefit continue to owe payroll taxes to the federal government.
- In This Uncertain Economic Environment, More And More Seniors Are Returning To The Workforce. Governor Romney's proposal will provide an immediate tax cut to working seniors.
- Governor Romney Believes That Seniors Have Already Earned Their Full Social Security Benefit And Should Not Owe Additional Payroll Taxes For Income Earned After Age 65.
Our side is _seriously_ underestimating this man. His is a liberal stimulus plan. He is not an orthodox conservative. If we keep on dismissing his ideas and programs as cavalierly-- apparently without even reading them, as your liberal think-tankers have done-- there's a very high likelihood that Romney will wrongfoot us in the general.
We're off to a flailing start on this issue. Sheesh.
I assume that Romney's stimulus plan is $250 billion, not million. $250 million would be like giving a cancer patient a vitamin.
Agree with Tep because, on the surface, without looking at the details (which most people won't do), this is Romney outlining a serious economic plan, which is something his Republican opponents aren't doing. He is also able to discuss this subject with a gravity that someone like, oh Huckabee, for instance, just can't muster.
I think that Romney circa 05 or 06 would be a formidable general election candidate; fortunately, for Democrats, I think his rightward shift on most major issues won't play well this fall. Could be wrong.
Presumably Romney's plans to build more Gitmo's il also kind of a stimulus package. Maybe there ought to be a tax credit for building waterboards?
Neil
Teplukhin's partially right. The measures he lists certainly are progressive. I would be concerned about the huge drop in Corporation tax in Romney's plans though. All sides are using the "Stimulus" as an excuse to push their economic agenda. Romney is no different, I suspect any tax cuts aimed at the lower brackets would disappear and the Corporation giveaway would remain and be accentuated.
A couple of thoughts on the Bush Stimulus and other plans that depend on boosting consumer spending:
1. 23% of US personal consumption is spent on imports. Therefore, nearly a quarter of any benefit from increased consumer spending will go to foreign economies.
2. Your average US consumer is up to his/her neck in debt. The proposed €800 bucks means-tested rebate is just as likely to end up paying off the credit card as it is on new Walmart purchases.
3. There are bigger problems than a lack of consumer spending: 91% of the new jobs created in the US in 2007 were low pay, minimal benefits, domestic service jobs (barmaids, social assistance, wholesale, retail jobs etc). The investment would be better spent on education and training.
4. Due to the deficits, the 150 Billion will have to be borrowed abroad. This is an all or nothing gamble - if the stimulus doesn't work and is swamped by further bad news on corporate earnings (expected this year) and credit worries then the government can't borrow anymore without tipping the Dollar even further in the wrong direction.
5. One last thing - didn't the Congress pass a 700 Billion dollar defense bill recently?
Huge chunks of this HUGE stimulus plan could have been lifted from Joe Stiglitz' OpEd piece in the Times yesterday.
Please look at this with an unbiased eye. The man is a chameleon, his plan contains as many liberal as conservative elements, and he can talk economics/finance/investment with the best of them. It would be a huge (albeit hugely typical for our side) error to underestimate this man's appeal to swing voters on economic matters.
Especially swing voters across the battleground states in the rust belt. And Michigan, too.
Looks like ex-Bainie Meg Whitmore, having stepped down from the People's Internet leader, eBay, will likely devote herself to her ex-colleague's campaign. Meg knows how to reach the masses. She's charming, determined, smart, homespun.
Please do not underestimate the Romney-Whitmore team's appeal on the economic front.
Tep.-
Your points -- as always -- are well-taken Thanks for taking the time to write them down.
But I wonder if you you read Jason's comments a little too quickly. He agreed that the drop in the lowest income bracket and payroll tax elimination for working seniors was a genuine stimulus -- and a progressive one at that. But, as he noted, it's significantly less than what the Dem contenders were proposing to give roughly the same groups.
(Dean made the very same point, though I didn't quote it becuase it seemed redundant.)
That -- balanced with the other elements, which generally target upper-income earners and of dubious short-term economic valuve -- made it less appealing as a whole than what the Dems were proposing. (Unless I'm misreading, I think that's what Ignorant Populist is pointing out in his comments.)
Now, I'm honestly not in a position at this point to make an independent judgment as to whether Dean and Jason are right about the substance here. (It's just a blog item; haven't done the necessary background research.) But they are both very smart and well-respected. And, as I said, the fact that they reacted so similarly -- despite somewhat different political perspectives -- makes me think they're making the right call here.
Also, I just saw Ruth Marcus's column in the WPost from yesterday. She came to the same verdict.
Where I do agree with you is that the Dems may be taking Romney a little too lightly, as a political matter. The worse the economy gets -- and, as my colleague Noam mentioned, the more this becomes a television campaign -- the stronger Romney becomes.
Best,
Jonathan
Thanks so much, Jonathan, for your detailed and gentlemanly reply. I did indeed skip quickly over your economists' points (I actually have a FT job, can only post while on boring conf calls) and will give them another look.
I do think though that it's a bit of goalpost-shifting to attack any candidate's _overall_ plan, which will include near- and long-term elements commingled, as not having enough near-term impact.
Also, the long-term plans are at least as significant as the short-term ones. I saw a chart yesterday in the hard copy of the Times (or the Journal?) showing a) the start and end dates for each of the last dozen recessions, and b) when the stimulus program's funds were actually disbursed by Congress. In every case but one, the stimulus hit the economy AFTER the recession had ended.
When any candidate, esp a GOP candidate, proposes a $20b investment in automotive hybrid technology, all of us should give him a hearing, not lapse into partisan mode or trudge out stereotypes. If only to ensure we're not wrongfooted, yet again, in battleground states like Ohio and (shudder) formerly safely blue states like Michigan.
Again, thanks for your reply. Appreciate your contributions as always,
T
Tep-
I catch up on my internet browsing during conference calls, too. But don't tell my editors.
Of all the GOP candidates, I suspect Romney would be both the most competent and the one most likely to embrace -- if only out of sheer opportunism, given a Dem Congress -- policies of which I would probably approve. (Hard to be sure, since McCain has at times shown progressive instincts on climate change and political reform.)
But that could be my narrow self-interest talking. As a Michigan resident, it's hard not to like the idea of $20B for the auto industry.
Later,
J