This is Part I of a two-part series of posts on the presidential candidates' fiscal policies. Part II examines President Obama's plans.
As election day approaches, it is appropriate to look at what we know and what we don’t know about the two candidates’ fiscal policy proposals -- especially since it is unlikely we will get any more details prior to election day.
In many respects, the crucial differences between the two candidates are defined by their fiscal policies, and it is almost certain that the winning candidate’s fiscal policy choices will be as immediately consequential as any president’s in history.
In this blog post, I will review Governor Romney’s proposals and in Part II, I will cover the President’s proposals looking at three key areas: The overall budget goal, tax policy and health care. It is difficult to overstate how little we know about where Governor Romney’s policies will lead. The basic problem is that he has made many promises on the campaign trail, and the math simply does not add up.
Compounding that problem is that despite choosing House Budget Committee Chairman Paul Ryan -- the author of a fairly detailed budget plan -- as his running mate, Romney has attempted to distance himself from those details on occasion, making it even more confusing to fill in the blanks.
Romney’s overarching fiscal policy proposal is his pledge to balance the budget within eight to ten years. He has also pledged to keep his deficit reduction to the spending side of the ledger only -- implicitly rejecting a framework such as the plans of the bipartisan Simpson-Bowles commission and the Domenici-Rivlin task force, both of which included spending cuts and higher revenues.
While Romney has called for cuts of five percent to non-defense discretionary spending (without providing details about where the cuts would fall), he has also supported an increase in defense spending, and restoration of the Affordable Care Act’s (ACA) Medicare cuts. When pressed, the campaign has avoided going into further detail about where all this would come out. In fact, unlike recent past presidential candidates, Romney has not produced even a bare bones outline showing the relative impact of his proposals on the budget. He has certainly given insufficient detail to establish that he has a credible plan to balance the budget.
One only needs to look at Rep. Ryan’s budget to see that even with large cuts to non-defense discretionary spending and Medicaid, it is mathematically suspect to promise a balanced budget without higher revenues -- as the Ryan budget doesn’t achieve balance until 2040. Assuming that the gap can be made up with consistently above-average economic growth is an unrealistic dodge to avoid hard policy choices. Aside from the overall goal, major questions remain about individual components of Romney’s fiscal proposals. The most discussed of these is his three-part tax plan. In short, Romney has promised to: 1) reduce all federal income tax rates by 20 percent after extending the expiring “Bush tax cuts”; 2) reduce taxes on the middle class (defined as individuals earning less than $250,000) and; 3) not increase the deficit -- achieving revenue neutrality by reducing the tax expenditures benefiting the wealthy (except for the tax breaks favoring capital income). These three parts of Romney’s plan are mathematically incompatible. The non-partisan Tax Policy Center has amply demonstrated why this is so, and no credible studies have shown otherwise. When pressed for an explanation of their assumptions, of the tax expenditures they would target, or which of the three parts would be jettisoned if the numbers don’t ultimately work, the Romney-Ryan campaign has avoided an answer. Finally, the Romney plan for controlling health care costs in the federal budget also leaves many unanswered questions. The immediate result of his proposal to repeal not just the new spending within the ACA, but also the ACA’s Medicare cost savings and tax increases, would be to actually increase the deficit. Moreover, repeal of the ACA’s cost control experiments and pilot projects would needlessly inhibit research into ways that the health care system might be reformed to provide better value for our health care dollars. Given that we know very little on how to control systemic health care costs, this would also severely limit the possibilities for success of Romney’s own proposals to remake Medicare and Medicaid. While the attempt to block grant Medicaid has conceptual appeal from a budgetary standpoint and could theoretically encourage some efficiency, the reality of Governor Romney’s proposal and its severe formulaic cuts to state aid would put millions of disadvantaged citizens at risk of losing health care coverage through what already is a low-cost, relatively efficient means of providing at least a minimum amount of care to the nation’s most vulnerable. Romney’s proposal to convert Medicare into a “premium support” system is more promising. It is possible to envision such a shift being a key piece of a long-term fiscal plan because it would place Medicare on a budget while encouraging insurance design innovation and offering future seniors’ choices. However, once again, there are many holes. Without a budget target and an enforcement mechanism, the shift from traditional Medicare to premium support would likely not save any money -- and could even increase health care costs. Yet, the Romney campaign has suggested it does not support such a target, unlike a similar plan in the Ryan budget that limited health care costs to just above the rate of economic growth.
In total, the lack of key details throughout Governor Romney’s proposals is problematic, and not only because voters should have all the information possible about candidates’ major proposals prior to voting. When fiscal policy goals are in tension, recent history has shown that the goodies like tax cuts and spending hikes tend to get passed, while the hard stuff -- like paying for things by eliminating tax breaks -- tends to never happen, leaving gaping holes in the nation’s coffers in the form of large deficits.
Ultimately, the major promises a candidate for president makes during the campaign tend to line up with the major actions that person makes once in office. And, the difficult details that candidates attempt to leave out on the campaign trail don’t get any easier when they become hard choices required to make legislation fiscally responsible.