Romney and Ryanomics: Bad Deal for Working Class
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The Fiscal Times
August 14, 2012

Mitt Romney’s choice of Paul Ryan as his running mate makes abundantly clear that the upcoming presidential election presents a choice between two very different views on the role of government in the economy. Republicans believe that smaller, less intrusive government and the reduced tax burden that smaller government allows, particularly for the wealthy, are the keys to robust economic growth.

Democrats do not share the Republican vision of a smaller government, and they are particularly opposed to cuts to social insurance programs such as Medicare and Social Security that are generally at the forefront of Republican proposals to reduce the size of government. Democrats want to preserve existing social insurance programs and perhaps even expand them in this era of increasing uncertainty. They also want to make sure that everyone – including the wealthy – pays an equitable share of the taxes required to support the government programs that we provide.

The debate on this topic should be welcomed. We need to figure out how much government we desire as a nation, and how to pay for it. But the debate must be based upon facts. The discussion should not be driven by politicians hoping to satisfy ideological desires through misinformation, false promises, and misplaced blame for our economic problems. Unfortunately, that’s a pretty good description of how the debate on this topic has gone so far during the presidential campaign, particularly what we’ve heard from Romney, Ryan, and other politicians on the political right.

RELATED: Romney v. Obama: A Clearer Choice After Ryan

In order to support their call for reduced spending on government programs and lower taxes on the wealthy, Romney and Ryan want you to believe that our budget problems were caused by out-of-control spending on social programs, programs favored by Obama and other Democrats. They also want you to believe that our economic problems stem largely from a government sector that is too large and too involved in private sector affairs. According to this perspective, the solution to all of our problems is to cut incentive killing taxes, particularly for the wealthy, to cut social programs that undermine the desire to work and save, and to leave as much as possible – including whatever remnants of Social Security and Medicare remain after the cuts they’d like to impose – to the private sector.

But the Romney-Ryan narrative about out-of-control spending, an over-zealous government, and growth inhibiting taxes isn’t accurate. First, our present budget problems are primarily the result of the Bush tax cuts, the recession, and the wars in Iraq and Afghanistan. As the CBPP points out, “Without the economic downturn and the fiscal policies of the previous Administration, the budget would be roughly in balance over the next decade.” It wasn’t out-of-control spending by Democrats or the policies enacted by Obama that created our current deficit problem – it was the decision by Bush and other Republicans to cut taxes and engage in wars.

Second, the deficit was also caused by the recession, but here again blame is misplaced. The recession wasn’t caused by over-zealous government policy as Republicans charge. It was an out-of-control private sector – the decisions of financial executives who made mountains of money as they crashed the economy – that caused our problems. 

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Third, Romney, Ryan, and other Republicans also argue that a key part of the solution to our troubles is to cut taxes for the wealthy, but there’s very little evidence that tax cuts for the wealthy spur economic growth. The economy’s performance after the Bush tax cuts, for example, does not support this contention.

And that’s not the only problem with Romney’s plan. An analysis by the non-partisan Tax Policy Center shows that Romney’s numbers can’t work unless there are large cuts to social programs the middle class relies upon, and regressive middle class tax increases. For reasons that are easy to guess, Republicans are doing their best to hide this from voters. For example, Mitt Romney won’t specify the spending cuts and middle class tax increases that will be needed in order to make his budget work. In fact, Romney insists – laughably, according to every honest analyst that examines his plan – that he can balance the books by closing tax loopholes. But no matter how much Republicans try to avoid admitting it, large costs to middle class households cannot be avoided under the Romney plan.

When all of the misleading arguments are set aside, Romney’s economic proposal comes down to a simple tradeoff, less social insurance and other government programs for the working class, perhaps higher taxes as well, and more tax cuts for the wealthy. Perhaps that’s a tradeoff America wants to make, perhaps not – I suspect not. But whatever the choice, people should be fully informed about the decision they are making. Unfortunately, as is all too clear from their misinformation campaign, an informed electorate is not something that Romney, Ryan, and other Republicans have an interest in promoting.

University of Oregon macroeconomist Mark Thoma writes primarily about monetary policy its effect on the economy. He has also worked on political business cycle models. Thoma blogs daily at Economist’s View.