‘A narrative of ... life under a Romney presidency’
On a call with reporters, Glenn Hubbard, the Columbia economist who is one of Mitt Romney’s top economic advisers, described the Romney campaign’s latest tax proposal in unusually evocative terms. “If you take the spending and tax pieces together, it’s a narrative of the policy agenda and life under a Romney presidency,” Hubbard said. And so it is. But if you really follow the numbers, and the policies they imply, it may not be the narrative the Romney campaign wants.
The proposal’s basic features are a 20 percent cut in marginal tax rates (so the top rate would fall from 35 percent to 28 percent, the second-highest rate would fall from 33 percent to 26.4 percent, and so on), a 30 percent cut in corporate taxes, and a cap on federal spending. But that’s just a string of numbers.
What’s important, as Hubbard correctly says, is the story they tell about a Romney administration. And that goes something like this: Under a Romney presidency, there will be a massive redistribution — or perhaps it should be called a re-redistribution — from low-income people who depend on government programs such as Medicaid to higher-income folks who pay taxes.
As of now, we don’t know the single most important fact about Romney’s tax plan: How much money it will raise. His campaign team says those numbers are forthcoming. Outside groups will soon begin releasing estimates as well. But they’re not to be found in the current proposal.
Hubbard says that Romney intends the plan to be “revenue neutral,” which means it won’t increase the deficit. This is a very important admission from the Romney camp: It says, in effect, that we shouldn’t cut tax revenues below where they are now. But it’s unlikely that independent estimates will find their plan is revenue neutral.
The Romney campaign says part of the cost of the plan will come from capping or closing various deductions, particularly for the rich. But they also say that part of the cost will come from assuming the plan leads to faster economic growth, which is a speculative assumption that would be rejected under the rules Congress uses to evaluate tax proposals.
They Romney camp also said that they want their plan to be “distributionally neutral,” which means the tax burden on various income groups won’t change. We won’t know if that’s true until we see some independent estimates. But assuming the plan keeps taxes on the top 1 percent exactly where they are now, that is, according to the Tax Policy Center, $87,000 lower than they will be under Obama’s plan. And so the deficit reduction that Obama envisions from raising taxes on the rich will have to come, under Romney, through cutting spending.
So what we can say with some confidence is that if the Joint Committee on Taxation looked at this proposal, they would score it as lowering revenues. That would mean projected deficits would rise. And that would mean that the corresponding spending cuts would have to be even larger than is currently the case, and much larger than would be the case under Obama’s proposals. So under a Romney administration, at least part of the narrative is clear: Taxes will go down, and the need for spending cuts will go way, way up.
As it happens, we do know the single most important fact of Romney’s spending plan: It cuts spending as a percentage of GDP to 20 percent by 2016. And it does so while boosting defense spending by billions of dollars. As Romney himself says, that will require spending cuts of about $500 billion in 2016 — and they will all have to come from domestic spending. The Center on Budget and Policy Priorities says that though Romney’s numbers were correct a few months ago, recent revisions to the budget outlook put the total closer to $600 billion.
CBPP also ran the math on the sort of cuts Romney would need to reach his target. Using a realistic baseline known as “current policy” — which assumes the Bush tax cuts are extended, and Medicare is protected from automatic cuts that Congress never permits — Romney would need to cut all domestic spending by 20 percent to make his numbers work. But Romney’s proposal says his changes to Medicare and Social Security will only affect “younger generations,” which suggests that Medicare and Social Security won’t see large cuts in the next few years. And once you take those programs out of the mix, Romney needs to cut all domestic spending by 38 percent to make his numbers work.
We’re back to numbers there. So let’s try to return to narrative. If Romney cut Medicaid entirely — took it from the $407 billion its projected to cost in 2016 and moved it to zero — his numbers wouldn’t work. If he then excised out all spending on food stamps — taking them from a projected $80 billion in 2016 to nothing — he still wouldn’t be there.
Romney won’t do that, of course. His cuts presumably will be distributed among many, many more programs. But that thought experiment gives you a sense of the size of the cuts he will need to make. And the reality is that he’s not got many painless places to make them. The largest spending program left to him is Medicaid, which provides health care to low-income Americans, children, and the disabled. Retirement costs for federal employees are a large pot of money, but we can’t break all those promises. Transportation infrastructure is expensive, but we will continue to need to repair our roads. And so on.
The Romney campaign disputes the CBPP’s math, though I couldn’t get them to tell me why. My suspicion is that their problem is CBPP doesn’t include their estimates of higher growth, but I haven’t been able to confirm that. They also say that they will be releasing a more detailed list of their proposed spending cuts soon. But for now, the narrative is clear: A Romney presidency will be tough on those who depend on government programs, and good for those who pay high taxes. That suggests a Romney presidency would, at least in its first few years, reduce the deficit by asking much more from the poor than from the rich. Is that really the narrative they want?