The 2012 election will be a referendum on how to reshape the federal government in order to engineer stronger economic recovery. The left-of-center argument is that expansionary fiscal and monetary policies should be utilized to promote growth, whereas right-of-center arguments focus on reducing the role of government to decrease burdens on individuals and businesses to generate what is seen as more organic, market-based growth.
Generally, that left-of-center would prefer to pay for economic expansion through a combination of tax cuts and deficit spending (borrowing). Those on the right would prefer a combination of tax cuts paid for through cuts in spending (and inevitably some borrowing, but relatively less). Also a significant factor is the long-run impact of such policies on the fiscal health of the federal government, which is determined by addressing the size of the deficit through spending cuts or revenue increases (or both) in the coming years.
That being said, there is something rather odd going on in this presidential race. The Republican candidates — currently interested in courting conservative voters interested in shrinking the size of government, reducing debt and deficit, and reducing the tax burdens on individuals and corporations — have all submitted proposals that would, in most cases, increase deficits and debt over the next 10 years. Surprisingly, it is President Barack Obama’s budget proposal that has received the best scoring on reducing the debt-to-GDP ratio over the next 10 years.
How could this be? Most of the cuts that the Republican candidates make in their proposals, paradoxically, are cuts to taxes, which are best understood as government spending by another name. The candidates do not specifically offset this spending, and so are guilty of increasing the size of the deficits and national debt over the next 10 years.
The overwhelming majority of tax cuts proposed by Republican candidates go to support the wealthiest Americans, those in the top 1% and 0.1%, as well as corporations and investors — through reductions in corporate rates and capital gains rates. Based on projections by the Committee for a Responsible Federal Budget (CRFB), the Republican primary frontrunners, Mitt Romney and Rick Santorum, offer $1.35 and $6.05 trillion in tax spending respectively, but do not effectively offset that spending with specific cuts in other areas of the government.
The only candidate that achieves deficit reduction in the “intermediate-debt scenario” projections is Rep. Ron Paul (R-Texas), whose budget is tied with Obama’s at the debt-to-GDP level in 10 years. However, the overwhelming majority of Paul’s $7.5 trillion in spending cuts are “unspecified.” Interestingly, the CRFB kept such cuts included in Paul’s intermediate-debt scenario projections, whereas they did not include Rick Santorum’s additional $5 trillion in promised, unspecified cuts in spending (they were only included in the “low-debt scenario”).
I should point out that, based on the current political environment and the feasibility of certain policy actions, the most realistic scenarios are those listed under the “high-debt scenarios,” which projects that all of the Republican candidates’ plans will add at least $1.85 trillion (Paul) to the national debt, with Romney’s plan adding $2.15 and Santorum’s $5.3 trillion each over the next 10 years.
Another curious fact is that, as the CRFB shows, it would be better for those concerned about the national debt to suggest that the candidates do nothing; current law will reduce national debt much more than any of the plans suggested above. So, if government spending, deficits, and debt are the main issues in this election, then why are the candidates offering any substantial changes when the current law approach will affect a bigger change?
The answer is in the way the candidates want to spend. The changes to the tax code offered by the Republican candidates will dramatically increase the after-tax wealth of the richest Americans, whereas current law (and the Obama budget) would increase taxes on upper income Americans. Most of the spending cuts in the candidates’ plans come from entitlement spending (though mostly unspecified) which is overwhelmingly meant to assist the poor, sick, and old.
It seems an odd thing to want to court the conservative vote by increasing the national debt only to transfer income from the most disadvantaged Americans to the richest Americans. How can those that argue against redistribution, which generally shifts money for the advantaged to the disadvantage, support the reverse? Somehow the conservative slogan has gone from “that government is best which governs least’ to ‘that government is best which disproportionately advantages the rich the most.”
Photo Credit: BeckyF