Originally posted on PoliticsOlogy
If conventional punditry is to be believed, the next President of the United States will be selected on one issue: jobs. In the inaugural post of an ongoing feature examining the positions and records of Mitt Romney and Barack Obama, PoliticOlogy takes a look at Mitt Romney’s job plan, examines its claims and analyzes whether it can deliver.
The heart of Romney's complaint over what he refers to as Obama’s dismal economic record is the President's hesitation about tax policy reform, which has resulted in "a business climate marked by hesitation." This has been a common trope by conservative critics throughout the Obama administration: if only business people were more certain, they would be creating enough jobs to end this depression now, even as it's unclear what ending this uncertainty would entail.
Romney’s plan purports to mitigate economic uncertainty and create jobs in three ways:
- Reducing Marginal Tax Rates: Romney's principal component of his jobs plan revolves around changes to the tax code. Romney complains that the marginal tax rate is too high, and drags down job creation.
- Corporate Taxes: Similarly, Romney complains that the US corporate tax rate, 39%, is the highest in the developed world and calls for it to be lowered.
- Eliminate Regulation: Romney wants to get rid of a good amount of our financial regulation, particularly Dodd-Frank.
Reducing Marginal Tax Rates
Economists Joel Slemrod and Jon M. Bakija write that the lack of a relationship between cutting taxes and creating jobs is "a rare example of a question on which there is a broad consensus among economists." Kevin Drum shows this relationship clearly:
If a Tax Rate Falls...
Will the Economy Notice?
In a masterful editorial for the New York Times, Christina Romer, one of the chief architects of the stimulus package, demolishes the arguments for reducing the marginal tax rate, writing that there is very little evidence of a relationship between decreasing the tax rate and decreasing unemployment, and that "this means policy makers should spend a lot less time worrying about the incentive effects of marginal rates and a lot more worrying about other tax issues."
Lower Corporate Taxes
Romney complains that the US corporate tax rate, 39%, is the highest in the developed world and calls for it to be lowered. This statistic is highly misleading. In fact, the CBO reported that corporate tax receipts, or what companies actually end up paying, fell to 12%, the lowest level since 1972. Why the difference? The New York Times notes that US corporations take "advantage of myriad breaks and loopholes that other countries generally do not offer," and therefore "pay only slightly more on average than their counterparts in other industrial countries. And some American corporations use aggressive strategies to pay less — often far less — than their competitors abroad and at home."
So, while Romney's technically correct in claiming that the US corporate tax rate is the highest in the developed world, the United States pays less than the average of comparable countries. That's because US corporations have been particularly canny about getting out of paying their fair share of taxes. And this trend isn't equal. The worst culprits are the biggest companies that can afford the legal staff to get around the law.
That doesn't mean that lowering the corporate tax rate isn't important, but it shouldn't be the focus of Romney's economic plan. The focus should instead be on simultaneously lowering the posted tax rate, 39%, and coupling it with an elimination of loopholes and a broadening of the tax base. That is, in a nutshell, Obama's plan. Obama calls for reducing the corporate tax rate from 35 to 28%.
Romney wants to get rid of financial regulation, particularly Dodd-Frank. This one’s just ridiculous, so I don’t think it deserves the time and energy his other positions. ProPublica’s analysis of the relationship between regulation and jobs is particularly valuable. The short answer: there is little, if any, effect. And that doesn’t take into account how a lack of regulation got us into this mess in the first place. So no, we don’t need less regulation. We need more. Plain and simple.
In the end, Romney's jobs plan is a certainty plan. But it certainty isn’t the problem, and even if it is, it's highly questionable that a President Romney would provide certainty to financial markets that President Obama lacks. Even the editors at Bloomberg, a right-leaning pro-business news oganization, attack this claim:
Business thrives on certainty, to be sure. Obama’s rhetorical broadsides against business leaders aren’t helpful. Nor are declarations like the one by House Speaker John Boehner on May 15, in which he promised another bare-knuckle fight over the debt ceiling. Yet of this you can be certain: You can blame Obama for many things, but uncertainty isn’t one of them.
This claim is borne out by recent surveys of business opinion. The National Federation of Independent Sales Reports finds that uncertainty is far from small business owner's chief concern.
It's lack of demand, not uncertainty, that creates unemployment. And that’s where all of Romney’s jobs plans fail. Apart from reducing marginal tax rates, none of them would stimulate additional demand. In fact, his plans to reduce government spending would actively hurt demand. And Romney seems to recognize this. Recently, in an interview with prominent idiot Mark Halperin, Romney revealed his true colors:
“Halperin: You have a plan, as you said, over a number of years, to reduce spending dramatically. Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?
Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.”
Because government spending creates jobs. Oh Romney, you Keynesian you. Romney's jobs plan, as posted on his website, isn’t a plan for creating jobs at all. It’s a plan for lowering taxes and reducing regulation. But Romney himself recognizes the link between spendings and jobs. That's more than you can say for the rest of his party. The best we can hope for from a Romney administration is that we get more of this Romney and less of the Republican boilerplate.
That's not quite change we can believe in. And there is every indication that Romney will be a servant of the GOP Congressional Congress, who don't see a link between government spending and consumer demand. President Romney doesn't have a jobs plan. He has a certainty plan. The same plan that Obama paid lip service to in 2010 by appointing Bill Daley. "Certainty" didn't create a recovery then and it won't now. Until Romney grows up and rejects Republican orthodoxy, he will only make our recession worse.
"Facts are stupid things," Ronald Reagan said at the 1988 Republican convention, misquoting John Adams. The real quote was "Facts are stubborn things."
Romney's jobs plan follows the "starving the beast" strategy in which Republicans, following Ronald Reagan, cynically and repeatedly cut taxes, claiming that they want to create jobs to get us out of this recession, but in fact create the government dysfunction that they then use as proof that government doesn’t work.The only problem: cutting government has never gotten us out of a recession. Basic Keynesian theory—that is, the theory that has guided U.S. economic policy since the Great Depression—calls for an INCREASE of spending during a recession (See: every other recovery since 1945). Government spending is crucial during periods of low employment, because government spending creates jobs. Wonder why we have a jobs crisis? Economist Paul Krugman gleefully dismantles the GOP’s premise with these charts: