WILL MITT ROMNEY BE A BIGGER SPENDER THAN PRESIDENT OBAMA?

The Tax Policy Center has crunched the numbers on Mitt Romney’s tax plan and the findings are pretty interesting.   They used the CBO’s baseline estimates and then included the various tax cuts that Governor Romney is calling for.  Of course, this is only the revenue side so we don’t know what kind of spending cuts Romney might have in store for us, but just looking at the revenue side one might be inclined to argue that Romney will be a bigger spender than Obama is!  Here’s the Tax Policy Center on the plan:

“Last week, Mitt Romney proposed a new tax plan that would, among other things, reduce individual tax rates by 20 percent across the board and repeal the Alternative Minimum Tax. To get a rough sense of what those two tax cuts would cost, the Tax Policy Center crunched the numbers. The result: They would be really, really expensive.

TPC found that repealing the AMT and cutting rates by 20 percent would increase the deficit by more than $3 trillion over the next 10 years, even after the 2001/2003/2010 tax cuts are extended.”

(Source: Tax Policy Center)

(Source: CBO)

Of course, as Treasury Secretary Geithner explained just recently, a tax cut is the equivalent of a spending increase in terms of its effect on the federal budget.  The main difference is that the government doesn’t decide specifically how to allocate the funds. Now, it’s impossible to know what the Romney budget will actually look like until we see it, but his plan for revenues is certainly the equivalent of a big spending increase from the CBO’s current baseline.  For instance, Obama’s next term is projected at $13.6T in revenues while the Romney plan is calling for just $10.85T in revenues.  Based on that, one might argue that Romney will end up running sizable budget deficits that any Keynesian would fall in love with.  But clearly, it’s too early to make such broad conclusions since we only have one side of the ledger to work with….

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. Past history suggests Republicans are better at big deficit spending than Democrats – see Reagan and Bush the Younger.

    So let’s face it. Both parties are equally subordinated to corporate interests. They are in equal measure the parties of the 1%. A rational voter should thus make her choice based exclusively on the likelihood of greater spending. Because that is the issue that really matters for getting the economy back to full employment. If Mitt (or Rick) is more likely than Obama to raise the deficit let’s vote for Mitt or Rick.

    Now, I understand many find the nutty ideas of the Republican candidates on social and other issues simply repellent. But these are mere sideshows to get the attention of the masses (bread and circuses, remember?). What counts is how much net spending they are willing to inject in the economy. I suspect Mr. Bain Capital may well reduce taxes massively while not daring to cut popular entitlements in any significant way. In a word: an ideal scenario.

    It took a right winger to open up to Communist China. It may well take an extreme corporatist to give us back aggregate demand and full employment.

    • Of course, that right-winger turned out to have a more liberal domestic policy than either Clinton or Obama.

      There’s a good argument to be made that the stimulus would’ve been higher with a McCain presidency – as he would’ve gotten GOP and Democratic support, whereas the GOP dug into their trenches on Day 2 of the Obama presidency. It’s possible that Mitt Romney would end up governing like Bush #2. But the question is, where are most of the tax cuts going (He may be more equal than the other 2 candidates, but they still tend to flow to the top)? How much spending cuts would he want, and how much can he actually get? (He, for example, wants to send Medicaid back to the states permanently). Are the days of big-spending conservatives (a la Reagan or Bush) over, and must Mitt Romney cowtow to the conservative movement AND the ‘bipartisan’ Washington establishment consensus to cut spending and entitlements?

      Those are important questions. Overall though, I’d rather trust what Mitt Romney campaigns on rather than what he may or may not turn into office. Mitt Romney may understand that it may be too soon to cut a ton of spending as he took Econ 101 and is advised by Greg Mankiw, but I’m willing to believe he would also support more savage austerity than Obama if given the opportunity.

  2. What is the CBO’s track record on predicting revenue intake after a tax cut? Don’t they work on the assumption that a rate decrease always equals lower receipt intake?

  3. Mittens has also publicly entertained the concept of a VAT, so I wouldn’t go by just what taxes he wants to cut. Problem with Mittens is that I can’t believe anything he says. His last record is in Massachusetts, and he has flip-flopped too many times since then. He claims to be a “severe” fiscal conservative, for whatever that is worth. I hope he is lying but am afraid he isn’t. We know Gingrich wants to spend big (moon base), and my gut feeling is that Santorum is a big spender also, since he has always been one. Obama’s record is clear as well, but a lot depends on Congress. If Congress and the President are of the same party, spending is likely to be high. If Congress and the President are held by different parties, Congress will cut the President’s spending to the bone. A split Congress, like now, will produce deadlock.

  4. *If* Romney is elected, I expect to see tax cuts ASAP under the mostly sincere guise of helping the economy and after the cuts are in place, the republicans make some designed to fail attempt to cut spending (probably by targeting only programs they know the D’s will defend and not giving up even a little ground on defense and the like). They get the win-win of improved economic conditions and being able to blame a larger deficit on those dastardly Democrats that wouldn’t cut the programs they’re basically in office to protect.

  5. Sure, as far as the amount of money goes, a tax cut is equivalent to a spending increase, but there are distributional effects to consider, not all spending is equal. A rich person can only spend so much, whereas a poorer person will need to spend a much greater portion of their income just to survive. So tax cuts for the poor would have a much greater stimulus effect than tax cuts for the rich. It would be very interesting to know how much govt spending goes directly to the pockets of the very rich.

    • Agree Joe. That’s been one of the big problems with the inequality gap. The tax structure is built to be “equal”, but there’s nothing equal about our tax structure. It’s specifically designed so the money flows to the top. That’s just not a sustainable trend no matter what political side you’re on.

    • Well the poor generally don’t pay taxes, so a tax cut doesn’t help them but a cut in government spending might hurt them severely, depending on whether they rely on government assistance. Of course most of the spending in some way or another moves from the pockets of the spenders to the pockets of the savers if it isn’t taxed away by the government. If you look at debt and savings levels for most Americans and wealth distribution it’s clear where the money ends up. I would also assume it’s also the wealthy were quite a lot of the interest paid on the national debt ends up.

      Also I think the terms rich and poor are misleading. For example, a homeless man who owns $2.32 in Aluminum cans and 5 quarters has a net worth of $3.58. A doctor who owes $750,000 on a house he could now sell for only $500,000 has a net worth of -$250,000. So on paper the doctor is poorer than the homeless man, even though his income and standard of living is probably significantly higher.

      You could also have squirreled away $2,000,000 below your mattress, yet have no income whatsoever and thus pay less taxes than you consume in government services (although you would have paid a lot earning the $2m). Income taxes can’t touch you because you have no income.

      If you substitute “high income” for “rich”, you might be surprised how a drop in income can affect you (have some tissues ready, it’s sob story time): http://www.bloomberg.com/news/2012-02-29/wall-street-bonus-withdrawal-means-trading-aspen-for-cheap-chex.html

      Paying a dog walker $34 an hour is what’s called the “trickle down effect” ;)

      If you want to create incentives to spend there is a lot more to think about, you would want to put more money in the pockets of those more likely to spend. Removing deductions for example to pay for tax breaks might have an interesting effect where a company that spends a lot now has to pay more taxes than a company that hoards cash (AAPL?).

  6. Here is the spending side: http://www.mittromney.com/issues/spending

    It’s the usual cop out. Some of these spending cuts are completely ideological, just cut NPR and Planned Parenthood (that will bite you in the ass when you need to imprison all those unwanted children later, read Freakonomics) and the budget is balanced. Most of the cuts are rather unspecific because they might piss off Republican voters.

    The Federal government is spending $3.5 trillion, going through all the individual programs will probably take longer than two presidential terms.