As the United States moves into its presidential election in 2012, voters should review the economic plans proposed by the Republican Party and its leading presidential candidate, Mitt Romney. The Republican Party laid out its major economic ideas last spring in its “Path to Prosperity,” (which can be downloaded at http://budget.house.gov/UploadedFiles/PathToProsperityFY2012.pdf) while Mitt Romney outlined his ideas in his “Plan for Jobs and Economic Growth” (available at http://mittromney.com/blogs/mitts-view/2011/09/believe-america-mitt-romneys-plan-jobs-and-economic-growth). Not surprisingly, the two documents give very similar proposals, likely because both are based on “conservative” principles that have failed for over thirty years. Both propose lowering income and corporate tax rates and cutting government spending down to 20% of Gross Domestic Product (GDP). However, neither describes what programs it specifically wants to reduce, while also refusing to provide any detailed plans for saving money on Health Insurance, Social Security, Corporate Welfare, or the Military budget. Their energy policy proposals are so unrealistic that they could lead to a national disaster. When compared to other economic policies, particularly the “Plan for a Rational Budget” (available for review and free download at http://www.machineryofpolitics.com/budget.html), the Republican and Romney plans fall far short of anything likely to help the U.S. economy or the federal budget. This only reminds us how desperately we need to reform the corrupt electoral system that continues to tilt government policies toward an inability to solve our major national problems.
The Republican Party’s taxation plan has not changed since 1981: lower tax rates while broadening the tax base, which means eliminating tax loopholes and havens that the rich use to avoid paying taxes. “[The Path] draws on the commonly held view that the key to pro-growth tax reform is lowering tax rates while broadening the tax base – that is, letting individuals keep more of the money they earn, while getting rid of distortions, loopholes and preferences that divert economic resources from their most efficient uses.” (The Path to Prosperity: Restoring America’s Promise, page 50) In essence, Republicans want to eliminate tax loopholes to raise more revenue, but then lower tax rates to get revenue back to where it was with the loopholes. Mitt Romney entirely agrees, writing that “[W]e need both to lower rates and to broaden the tax base so that taxation becomes an instrument for promoting economic growth.” (Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth, page 40) These two ideas are very similar to general Republican proposals since the 1980s.
Unfortunately, those 1980s tax reforms benefited the rich far more than anyone else in the United States. This has been proven by repeated economic studies, most famously by Joseph A. Pechman. “The inescapable conclusion from these figures is that the well-to-do in our society had very large reductions in tax rates in recent years, while the tax rates at the low and middle income levels have not changed much. Since the before-tax distribution has become much more unequal in the 1980s, it follows that inequality has increased even more on an after-tax basis.” (Joseph A. Pechman, “The Future of the Income Tax,” published in The American Economic Review, Volume 80, Number 1, March 1990, page 4) The poverty of conservative economics was already a clear and present reality by 1990.
Broadening the tax base is also unreliable for the long-term. The loopholes closed in the 1980s were put back into place by corrupted Congresses and presidents since then, so the lower tax rates are the only thing we can expect to survive over time. Instead of assuming that closing loopholes will have a long-term affect, we should assume that the loopholes will re-emerge due to a corrupt electoral system, and we should set tax rates accordingly. The independent “Plan for a Rational Budget” does that, and proposes new tax rates that would reduce taxation or keep rates the same for 80% of Americans while increasing taxes on the top 15% of incomes. This would increase federal revenues over $800 billion per year, a major improvement over the failures of conservative economic ideas.
The Republican Path to Prosperity demands a reduction in corporate tax rates: “Encourage economic growth and job creation by lowering the corporate tax rate from 35 percent, which is the highest in the developed world, to a much more competitive 25 percent.” (Path to Prosperity, page 53) Mitt Romney proposes the exact same rates; Day One of his administration promises a bill that “Reduces the corporate income tax rate to 25 percent.” (Believe in America, page 6). Both assume that a lower corporate tax rate would encourage growth, and both ignore the fact that corporations in general only pay half of the current 35% rate (for more on how much corporations pay today, see Robert S. McIntyre, Director of Citizens for Tax Justice, “Statement Before the Senate Budget Committee Regarding Business Tax Subsidies Administered by the Internal Revenue Service,” page 1. The Statement was given March 9, 2011 and published by the Citizens for Tax Justice at http://ctj.org/ctjreports/2011/03/ctj_director_robert_mcinyres_testimony_on_business_tax_subsidies.php).
In reality, the largest American corporations pay an average of about 18% in corporate taxes today. Lowering the tax rate from 35% to 25% would have little real effect on revenue, unless the 25% is actually collected in full. It does not appear likely that a Romney Administration would seek to collect more money (25%) in corporate taxes than what the Obama Administration collects today (18%). However, lowering the official rates to 25% might encourage corporations to pay even less than the 18% they really pay today. It would be far better for the government to actually collect the full 35%, see what that does to federal revenue, and then make a more rational decision on where to set the tax rates.
The Republican “Path to Prosperity” gives many dire predictions about U.S. government spending over the next few decades and promised to cut that spending to 20% of GDP. “With responsible spending cuts now and structural reforms of government spending programs going forward, this budget ensures government spending remains on a sustainable path. Government spending will fall below 20 percent of the economy by 2015.” (Path to Prosperity, page 56) However, the Republicans never say which programs they will cut or give any major details on how they will reduce government spending overall. Romney’s claims, and his lack of detail in what he wants to cut, are eerily similar. “As president, Mitt Romney will immediately move to cut spending and cap it at 20 percent of GDP. As spending comes under control, he will pursue further cuts that would allow caps to be set even lower so as to guarantee future fiscal stability.” (Believe in America, page 141) He offers few details on how to accomplish such spending reduction, outside of suggesting a balanced budget Amendment to the Constitution and a plan to reduce the federal workforce through retirements. Neither of these fiscal theories proposes ways of saving money; they only set goals for cutting and capping government spending.
The Plan for a Rational Budget, however, proposes to save money by making adjustments to Health Insurance costs and Social Security while cutting unneeded spending on Corporate Welfare and the Military. These suggestions would immediately balance the federal budget and save about $1 trillion by altering the government systems that Republican proposals almost totally ignore.
Republicans largely admit that the U.S. health insurance system is a national disaster, and it is a disaster that is costing far too much money. The Republican proposal is to continue spending nearly the same amount of money, but give that money to individual states to allow the states to create their own individual insurance systems. They want to “[s]ecure the Medicaid benefit by converting the federal share of Medicaid spending into a block grant tailored to meet each state’s needs, indexed for inflation and population growth.” (Path to Prosperity, page 39) Mitt Romney proposes almost the exact same thing: “As president, Romeny will push for the conversion of Medicaid to a block grand administered by the states.” (Believe in America, page 143) Despite the fact that Republicans constantly accuse President Obama of pushing the United States toward socialism with his demands for health insurance reform in 2009-10, Republicans themselves continue advocating for taxpayer-funded health insurance that is undeniably socialist. The major difference is that the Republicans want to pass responsibility for administering health insurance off on the states by creating the “block grants.” The Republican Party, in effect, is socialist without any solutions on how to run the system to make it work well.
The best answer, given in the Plan for a Rational Budget and advocated by many consumer and physician groups, is to convert to a “single-payer,” universal health-insurance system modeled on the Spanish, Japanese, or Italian systems. Converting to such universal coverage would actually save the United States budget over $300 billion per year while covering all people in the U.S. with far better care.
The Republicans’ lack of solutions for Social Security is even more striking. The Path to Prosperity gives no suggestions for stabilizing Social Security for the short- or long-term future. It only demands the President “to put forward specific ideas on fixing Social Security” and for Congress “to offer legislation to ensure the sustainable solvency of this critical program.” (Path to Prosperity, pages 48-49) Romney’s ideas are hardly more detailed. He vaguely offers “a number of options that can be pursued to keep the system solvent—from raising the eligibility age to changing the way benefits are indexed to inflation for high-income retirees. One option that should not on the table is raisin the payroll tax or expanding the base of income to which the tax is applied.” (Believe in America, page 142) Romney is only willing to take a strong stand against one policy: broadening the base of income subject to taxation. Instead, he demands to avoid the one policy proposal that would actually solve the long-term funding problem because he does not want people making over $106,000 per year to pay any more taxes. However, raising the payroll tax limit from $106,000 to $200,000 per year would easily fund Social Security until the 2080s, as the Rational Budget clearly proves. The Republican lack of leadership in such a fundamental part of American society is shocking, and that shock is only surpassed by their refusal to even consider the best solutions.
The Republican refusal to address Corporate Welfare is yet another glaring gap in their fiscal proposals. The non-profit Citizens for Tax Justice estimated that U.S. corporations were given at least $365 billion in subsidies in 2011. (Robert S. McIntyre, “Statement Before the Senate Budget Committee,” page 2) The Republican Path to Prosperity merely complains about political favoritism in the giving of such funds, while Mitt Romney does not discuss Corporate Welfare at all! Most companies that receive Corporate Welfare do not actually need the money to run their businesses; instead, they are simply favored by politicians that took campaign donations from those companies. Corporate Welfare is clearly a corrupt system and should be targeted for elimination if Americans are serious about balancing the budget. Eliminating 90% of that $365 billion in subsidies would save the United States Budget at least $329 billion per year in spending. The Plan for a Rational Budget proposes to cut that much waste from the budget.
Republicans are equally silent on the need to cut military spending that has grown out of control. Their Path to Prosperity wants to keep military budget at “$692.5 billion for national defense spending in Fiscal Year 2012, an amount that is consistent with American’s military goals and strategies.” (Path to Prosperity, page 28) Republicans want to later cut inefficient spending by $178 billion per year, but reinvest $100 billion of that into “combat capabilities,” so that the budget will only save $78 billion per year. Such insignificant savings are an insult to anybody that has studied the long-term history of U.S. military spending, and such a tiny amount will only cut the U.S. budget deficit by about 7%. Mitt Romney’s plan could only be more short-sighted if he refused to even mention the need to reduce military spending . . . which he fulfills by refusing to discuss military spending at all in his economic plan.
The Rational Budget, though, demands that the United States only keep a military strong enough to defend its own territory. This can be accomplished by spending as much on our military as the next two largest powers combined, which would continue to make the U.S. military the largest and best-funded in the world. We can defend U.S. territory, and probably most important allies, even if we reduce military spending by virtually half in order to save $384 billion per year. That is far more than the Republican plan to save a paltry $78 billion per year, and will go much further toward solving the U.S. deficit.
Of course, the major reason the U.S. spends so much money on its military today is that it relies on foreign oil sources for energy. In order to control those sources, the U.S. military has invaded, conquered, corrupted, or otherwise pressured foreign governments to sell oil to the U.S. at prices below normal market value. The American obsession with controlling foreign oil is one of the biggest factors bankrupting the government. The Republican Path to Prosperity implies its continuing support for this fiscal madness by demanding that military spending stay constant in order to fulfill its foreign “goals and strategies.” Republicans want the American economy to continue its reliance on oil and natural gas, most of which does not sit on U.S. territory. Mitt Romney completely agrees with reinforcing the status quo. His major energy proposals are “significant regulatory reform, support for increased production, and a government that focuses on funding basic research instead of chasing fads and picking winners.” (Believe in America, page 90)
The Republican/Romney strategy for U.S. oil independence is to drill for more oil in U.S. territory. This is a weak plan because the U.S. uses 25% of world oil but has at most 5% of world oil reserves in its own territory. Therefore, even if the U.S. drilled every drop of oil out of its land, it would only produce one-fifth of what its economy actually uses. The U.S. must find, fund, and build alternative energy sources if its economy is to survive the long-term future. Many studies have shown that rebuilding the electricity grid to focus on wind, water, and solar power would produce more than enough electricity for predicted future usage rates. (Mark Z. Jacobson and Mark A. Delucchi, “A Path to Sustainable Energy by 2030,” published in Scientific American, November 2009, page 60) The U.S. could convert its current gasoline automobile fleet to a combination of hydrogen and electric vehicles to break the current reliance on oil. U.S. plastic production could largely be replaced by green plastics and production methods. The U.S. can break its reliance on oil, convert to clean and renewable energy sources, stop polluting its territory and population, and break its ridiculously high amounts of military spending within the next few decades. The initial investment would carry a high price tag, but would easily be worth the spending in the long run and the overwhelming need for new infrastructure would create an employment boom.
Sadly, the Republican Path to Prosperity ignores all these factors and refuses to make the national investment. Its only major statements on green technology are to demand that the U.S. only fund high-speed intercity rail lines when “they can be established as self-supporting commercial services.” (Path to Prosperity, page 33) In effect, Republicans only want to build efficient public transportation when some company has already built them and proven that they are profitable. Mitt Romney also falls into the trap of declaring energy usefulness only according to profit.
[W]ind and solar power, two of the most ballyhooed forms of alternative fuel, remain sharply uncompetitive on their own with conventional resources such as oil and natural gas in most applications. . . . As for job creation, studies show that “green” jobs might actually hurt employment more than they help it. Green energy is capital-intensive and tends to displace labor. (Believe in America, page 90)
Romney wants to focus on oil and natural gas production because they are more profitable today, even though those resources are becoming increasingly scarce, which means they will be more costly to develop in the future. The growing cost of oil and gas, combined with the technology leaps in green energy that will reduce their cost, will flip current costs in the next ten years, making green technology half as costly as “conventional resources” by 2020. (“Path to Sustainable Energy by 2030,” page 64) Romney ignores these facts, and instead wants to focus on the dirty, dangerous, and destructive oil economy. Anyone looking for evidence of those facts can consider the effects of invading Iraq, attempting to conquer Afghanistan, and the inability to stop the BP oil volcano in the Gulf of Mexico in 2010. If the definition of insanity is to do the same thing over and over again but expect different results, the Republican/Romney plans for energy production rely on a short-sightedness that is truly insane.
The Rational Budget combines a large reduction in military spending with a smaller investment in green technology resources. Even the most skeptical of environmentalists argues that we can solve the energy and climate problems by investing only $100 billion per year in research (Bjorn Lomborg, editor, Smart Solutions to Climate Change: Comparing Costs and Benefits. Cambridge: Cambridge University Press, 2010, page 396). Other scientists argue that we can build an entirely clean, renewable, and safe electricity grid for the U.S. by investing only $17 trillion over two decades. This would free the U.S. from foreign wars based on the need for increasingly rare oil reserves, from the pollution that currently clogs our major cities and rural communities, and from the high energy prices that Americans pay today. After considering these possibilities, we realize that Republicans like Romney can only talk about continuing the status-quo because they refuse to discuss or debate anything else.
The Republican Path to Prosperity and Mitt Romney’s Plan for Jobs and Economic Growth reveal a disturbing refusal to admit past mistakes and make desperately needed changes. They refuse to increase taxes on the wealthiest Americans to help reduce the national deficit. In fact, they want to lower taxes on the rich while forcing the rest of us to pay, an idea that has proved disastrous since George W. Bush and the Republican Party cut taxes for the rich in 2002. Today’s Republicans want to go a step further by reducing the corporate income tax, which could likely lead to further fiscal disasters. They want to balance this by cutting and capping government spending, but they refuse to specify exactly what programs they want to cut.
Strangely, their ideas only grow vaguer from there. Republicans in general, and Romney in particular, offer zero details on how to fix health insurance, Social Security, corporate welfare, or military spending for the long-term. They refuse to even discuss the details of these programs, just as they refuse to discuss the details of renewable energy. They love to debate some of the short-term costs, but never the much more impressive and important long-term benefits of transitioning to a renewable, clean electricity grid. As American voters turn away from their ideas for economic investment and growth, the public should be reminded that the Plan for a Rational Budget can be read and downloaded for free at http://www.machineryofpolitics.com/budget.html! Unfortunately, many of these ideas have little chance of becoming real policy until we change our electoral system to eliminate the corruption that keeps these ideas from being considered in Washington, D.C.