Let’s play pretend in the future: January 2013.
The world is not a post-apocalyptic hellscape, but Mitt Romney is president.
I’ll forego the electoral details, because I’ll just get them wrong and look stupid. Suffice to say that Romney outlasted the GOP field and took down the incumbent in a tight general election. (It could happen.)
Just to make things a little more interesting, let’s also assume that America decided to try two years of conservatism and elected Republican majorities in the House and the Senate.
The party of deficit hawks – like Paul Ryan, who released the House GOP’s FY2013 budget today- and anti-taxers is now in power, and the balance sheet is about to get ugly.
President Romney has only two years of guaranteed Republican majorities in Congress, so he gets to work quickly on the two defining issues of his campaign: job creation and deficit reduction.
The Romney plan for job creation centers around a reformation of the tax code designed to encourage investment and private sector growth. An eased tax burden will ostensibly empower individuals to spend and invest more and allow American business to compete more effectively on the world stage.
From Romney’s website, here are the main points of his tax plan for indivduals:
- Make permanent, across-the-board 20 percent cut in marginal rates
- Maintain current tax rates on interest, dividends, and capital gains
- Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains
- Eliminate the Death Tax
- Repeal the Alternative Minimum Tax (AMT)
And his plan for corporate taxes:
- Cut the corporate rate to 25 percent
- Strengthen and make permanent the R&D tax credit
- Switch to a territorial tax system
- Repeal the corporate Alternative Minimum Tax (AMT)
Not surprisingly, this plan would likely work out to the long-term benefit of American business interests, but it would come at an unsustainable cost to the American people.
An analysis by the non-partisan Tax Policy Center found that Romney’s plan would increase the U.S. deficit by $900 billion in 2015, when the plan would go into full effect. It would increase the U.S. debt by $3 trillion over the course of a decade.
Romney insists that the lost revenue would be compensated for by “widening the base” by eliminating corporate tax loopholes and raising taxes on the bottom 20% of Americans by about 1.3%. To date, Romney has not specified which corporate loopholes he would eliminate.
If Romney cannot offset the massive costs of his tax plan, his fight to reduce the deficit/debt and “balance the budget” will be impossible. And given the lobbying power of the corporations benefiting from tax current loopholes, Romney has absolutely no hope of offsetting the costs with found revenue.
And so the difference must be made up using spending cuts.
Romney’s spending plan says that he’ll pass the House GOP budget as president (like the one released today by Paul Ryan mentioned above). The House GOP’s budget proposes $5.3 trillion in spending cuts on top of those proposed by President Obama over the next decade. The budget would zero-out the Affordable Care Act, scale back Medicare and Medicaid, and cut $2.2 trillion in non-defense discretionary spending. The proposed spending cuts would total $5.3 trillion more than those proposed by President Obama by 2022.
Every government program would feel the tightening of the belt, many would not survive. Romney’s tax breaks would be paid for by cuts to government programs to combat poverty, research new technology, and rebuild infrastructure.
Even using Paul Ryan’s aggressive austerity model to fight the debt, the U.S. will still run a deficit well into the 2020s. Given that Romney’s tax plan cuts even more deeply than Ryan’s, not even the most optimistic of economic prognosticators could foresee President Romney paying down a single cent of the U.S. debt.
That being said, the Romney-Ryan budget would bring down the debt as a percentage of the GDP and reduce government outlays as a percentage of GDP to around 20%.
However, it seems unlikely this “ideal” scenario will come to pass for two reasons.
First, it seems unlikely that even a Republican congress would pass Ryan’s budget as-is, given the intense opposition to Medicare cuts from super old people.
And second, the extreme cuts to government arts/infrastructure/healthcare programs wouldn’t endear many to the Romney administration, meaning that the Romney-Ryan plan likely wouldn’t stay in place for the full decade it would need to be maximally effective. A Democratic Senate in 2014 would certainly put a damper on the austerity and freeze the annual deficit around 3.0% of the GDP.
Romney’s presidential plans to create jobs and reduce the deficit would require doubling down on backbreaking cuts to government programs to cover the current deficit and a massive decrease in tax revenue. Only a dent would be made in the deficit; the national debt would continue to rise.
A Romney-Ryan budget would mean a whole lot of pain for an underwhelming payoff.