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Romney Doubles Down on Bush Policies

A Dream for Corporations, A Nightmare for the Middle Class

SOURCE: AP/Julie Jacobson

Republican presidential hopeful former Massachusetts Gov. Mitt Romney talks about his plan for creating jobs and improving the economy during a speech on September 6, 2011.

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If corporations are people, perhaps they dream. Certainly Mitt Romney’s “Plan for Jobs and Economic Growth” released yesterday is their dream come true. It is a plan from the Republican candidate for president designed to maximize corporate profits. What it doesn’t do is help the middle class or create jobs.

At a time when corporate profits are already at record levels, yet unemployment is at 9 percent, job creation is at a standstill, and wages are stagnant, Romney chooses to give corporations—but not workers—everything they have ever asked for. Romney has argued that corporations are people, and his plan clearly reflects his philosophy.

Under Romney’s plan, corporations will get lower tax rates, a free pass to avoid regulations such as the recently enacted Wall Street Reform and Consumer Protection Act, which are designed to prevent banks from speculating us into another financial meltdown, and policies that will further weaken labor unions and give corporate chieftains even more power over their workers to keep wages low.

Romney’s 160-page plan doubles down on President George W. Bush’s failed supply-side policies of cutting taxes and regulations for corporations and the wealthy. These policies not only helped cause the Great Recession but also are clearly the wrong policies for getting the economy going again. Why? Because they do not address the core problem in today’s economy: lack of demand.

Even Romney’s own economic adviser says the lack of demand is the central problem in our economy, as have several other prominent Republican economists and a host of business economists. Yet, of the 59 policy proposals contained in Romney’s plan, 58 are designed to boost the supply of goods and services, while only one is designed to increase demand.

Businesses would start hiring people if there was demand for their goods and services, but supply-side policies are incapable of addressing this problem. Not all supply-side policies are bad. It’s just that they are based on the faulty logic that “supply creates its own demand.” Our economy is awash in supply—think of the crumbling housing market for example—but we just don’t have enough demand.

Romney’s claim that his plan will generate 4 percent annual GDP growth and create 11.5 million new jobs is complete hooey, not just because he doesn’t address the lack of demand in the economy. His stat is bogus because he has not released any evidence to support this claim.

When America tried the same policies under President George W. Bush they were a complete disaster—even if you ignore the Great Recession. In the 2001 to 2007 business cycle, investment growth, employment, and output all were slower than any other economic recovery in the post-World War II era. During those seven years of the Bush administration, middle class families saw their incomes fall in inflation-adjusted terms for the first time ever in a recovery.

What is worse is that the forward to Romney’s plan acknowledges that Bush-era policies produced poor economic growth, yet then doubles-down on these policies. Romney essentially seeks to return the country to that failed economic policy framework by keeping the Bush tax cuts for the wealthy while getting rid of virtually every major policy enacted by President Obama.

This is likely due in large part because of Romney’s economic advisers, Glenn Hubbard and Greg Mankiw. Hubbard is the author of the forward to Romney’s plan, and he and Mankiw both served as chairs of the Council of Economic Advisers for Bush.

A few of the 59 proposals in the plan, such as reforming worker training and the demand-side investments in basic research, would be good policy. Yet, far more of the proposals seem designed to tackle nonexistent problems. Half a dozen would weaken labor unions, a laughably sad attempt to blame the labor movement for problems it clearly didn’t create. Unions are a shrinking factor in the economy, and when they were at their strongest, the U.S. economy was at its strongest.

Romney’s proposal to eliminate taxes on capital gains, dividends, and interest for taxpayers earning under $200,000 would do very little for most people at this income level. The vast majority of savings held by people earning under $200,000 are in retirement accounts and housing equity, yet these sources of savings already receive quite favorable tax treatment.

Indeed, it is a sign that the wealthy Romney doesn’t get the middle class, that he tells middle-income people—who because of stagnant incomes have very little savings—that if they did have any other savings they wouldn’t be taxed on it. According to the Tax Policy Center, 67 percent of all the benefits from the current policy of lower capital gains tax rates goes to millionaires.

Still other of the policies are seemingly inconsistent. Romney calls for a balanced budget amendment, but his 59-point plan would actually raise the federal budget deficit. The tax cuts he calls for are nowhere near made up for by his 5 percent cut to non-defense discretionary spending, and would yield $6.5 trillion in deficits from 2013 through 2021.

But focusing on the specific proposals ignores the central flaw of this plan—it fundamentally misdiagnoses the cause of our current woes and instead chooses to solve phantom problems. Even though the plan argues that it is “vitally important” to understand the causes of current economic problems, Romney chooses to ignore not just academic economists, but Republican and business economists. As Mankiw wrote just a few months ago: “The decline in the aggregate demand for goods and services led to the most severe recession in a generation or more.”

Other Republican economists have been even more blunt on the causes of our high unemployment and slow economic growth:

  • “It’s the aggregate demand, stupid,” wrote Bruce Bartlett, former senior policy analyst in the Reagan White House, and deputy assistant secretary for economic policy at the Treasury Department during the George H.W. Bush administration on August 16, 2011.

“The high unemployment reflects the lack of demand rather than any fundamental problems with the U.S. labour market,” said Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Reagan, on July 25, 2011.

Business economists are saying the same thing:

  • “There is no demand. Businesses aren’t confident enough, and the longer this goes on the harder it is to convince them that they should be," said Paul Ashworth, chief U.S. economist at Capital Economics, on July 18, 2011.
  • “But while our debt crisis is real and promises to grow to Frankenstein proportions in future years, debt is not the disease—it is a symptom. Lack of aggregate demand or, to put it simply, insufficient consumption and investment is the disease.” That’s Bill Gross, founder and co-chief investment officer of the investment management firm Pimco, writing on August 10, 2011.
  • “Never before in the post-World War II era have American consumers been so weak for so long. This … encapsulates much of what is wrong today in the U.S.—and in the global economy,” said Stephen Roach, non-executive chairman of Morgan Stanley Asia, on August 25, 2011.

Instead of attacking the fundamental problem in our economy, Romney chooses to attack phantom problems. While high tax rates and excessive regulations could theoretically be economic problems, in today’s economy these issues are not at the forefront.

According to the headline of an investigation by McClatchy Newspapers conducted less than a week ago, “Regulations, taxes aren’t killing small business, owners say.” The first two lines of the article make the point very clear: “Politicians and business groups often blame excessive regulation and fear of higher taxes for tepid hiring in the economy. However, little evidence of that emerged when McClatchy canvassed a random sample of small business owners across the nation.”

For the past two years in the monthly survey by the National Federation of Independent Business, which gives almost exclusively to the Republican Party, small businesses have said the single most important problem is “poor sales,” more important than taxes or regulations or any other factor. Finally, in 2010 federal taxes were at their lowest level in more than 60 years, at just at 14.9 percent, according to data from the Office of Management and Budget.

Clearly Romney is tilting at windmills rather than providing real solutions.

Mitt Romney’s proposals are not a plan for economic recovery. Rather they are a plan for corporate America at the expense of the middle class and the larger economy. If you want to know what that looks like, all you have to do is remember the Bush years—slow growth and stagnant wages followed by the worst economic downturn since the Great Depression.

This may be good for corporations, but it would be a nightmare for the middle class.

David Madland is Director of the American Worker Project at the Center for American Progress Action Fund.

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