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Romney Plan to End Deficit Hits Poor as Well as Park Rangers (1)

August 30, 2012

Romney's Plan to End Deficits Without Taxes

The Republican presidential candidate pledges to balance the budget through spending cuts while devoting more resources to national defense and ruling out tax increases. Photographer: Daniel Acker/Bloomberg

Mitt Romney’s promise to balance the budget without higher taxes while protecting retirees and spending more on defense means the rest of government -- such as meat inspections, food stamps, national parks and affordable-housing aid -- would need to be cut by more than a quarter.

Though Romney doesn’t spell out how he would achieve his fiscal goals, the arithmetic is clear, and it implies substantial pain for middle-class and low-income Americans.

By putting Social Security off limits to cuts, promising to boost defense spending by as much as much as $150 billion a year, and holding the line on taxes, all other spending would have to take a hit of about 29 percent by 2016, by one estimate.

If that were spread across-the-board, it would translate to 8,000 fewer employees to staff and maintain the national parks, about $35 less a week in food stamps for a family of four, 35 fewer offices to forecast the weather and track storms, and $8.9 billion less for research to battle cancer, Alzheimer’s and other diseases. Cuts in the Medicaid insurance system for the poor and similar programs would save about $100 billion a year, according to the campaign.

Some programs would be cut “down to the bone,” said Marc Goldwein, senior policy director at the bipartisan Committee for a Responsible Federal Budget in Washington. “It would require some deep cuts beyond what he specified and beyond what I think most people would imagine.”

‘Hard Choices’

While New Jersey Governor Chris Christie said during his Aug. 28 keynote speech at the Republican National Convention that leaders “have no other option but to make the hard choices,” Romney has listed few specific targets for cutbacks, aside from Medicaid. They include reductions to Amtrak, the National Endowment for the Arts and foreign aid. That would total $2.6 billion a year, according to Romney’s website, less than 0.07 percent of projected federal spending for 2016.

Romney, 65, a former governor of Massachusetts, will lay out his vision for the country tonight at the convention in Tampa, Florida. His fiscal plan would create a government with low tax rates designed to spur private investment and with limited resources to maintain the social programs of the New Deal and the Great Society.

“We won’t get businesses and individuals to risk starting enterprises here and hiring people if they think America’s going to become Greece,” he said in Hobbs, New Mexico, on Aug. 23. “So we’re going to have to get serious about cutting the federal spending, encouraging growth and finally balance our budget in this country.”

Smaller Government

Romney’s failure to explain the difficult decisions that would have to be made makes it hard to see how he can achieve a balanced budget, said Bob Bixby, executive director of the Concord Coalition.

“It’s saying: I believe in lower taxes and smaller government, except perhaps for defense,” said Bixby, whose Arlington, Virginia-based group advocates for deficit reduction. “That’s really a theme, but he’s yet to show how the numbers add up.”

President Barack Obama, who will accept his party’s nomination next week in Charlotte, North Carolina, is proposing higher spending and higher taxes than his Republican rival. After a decade, Romney and Obama’s plans would be about $300 billion a year apart on revenue and as much as $1 trillion apart on spending.

Preserving Government

Obama wants to preserve the government’s role in aiding the needy while reducing deficits through shallower spending cuts and higher taxes for top earners. He would restore the top marginal rates of the late-1990s, when the economy grew at more than 4 percent annually, a pace that hasn’t been achieved since. Obama isn’t trying to balance the budget; his less-ambitious goal is to stop the debt as a share of the economy from growing.

Beyond the first decade, because of Obama’s reluctance to curb entitlements such as Medicare, his plan would lead to large increases in the deficit and the debt -- under another president’s watch -- as an aging population consumes health care at a pace too fast for revenue to keep up.

Romney’s plan promises tax-rate cuts and avoids immediate changes to Medicare and Social Security benefits, requiring him to rely on undefined spending reductions, vague promises of tax-base broadening and optimistic growth assumptions to turn a trillion-dollar deficit into a balanced budget within eight to 10 years even as he increases defense spending.

Unpalatable Plan

Politically, Romney’s refusal to consider tax increases makes his plan unacceptable to Democrats and hard to move through Congress unless Republicans control both chambers and the White House. Whoever wins, the next president will have to shift from his campaign positions to reach an agreement, said former Senator Judd Gregg of New Hampshire, a Republican who was chairman of the Budget Committee.

“As a practical matter, you can’t make major debt and deficit progress without a comprehensive proposal,” he said. “You’re not going to get a comprehensive resolution unless you have some sort of ratio of spending reductions to revenues.”

The U.S. budget deficit rose to $1.3 trillion in 2011 from $160.7 billion in 2007. That’s mostly a byproduct of the 2007-2009 recession, which reduced incomes and tax collections and increased spending on safety-net programs such as unemployment insurance and food stamps. The 2009 economic-stimulus law and other policies implemented to fight the recession also contributed.

Long-Term Deficit

This year, spending will be 22.9 percent of gross domestic product and revenue will be 15.7 percent, according to Congressional Budget Office data released Aug. 22. The challenge for the candidates is to reduce the projected medium-term and long-term deficit, which is rising because of health-care costs and the aging population. In the short term, both candidates say they want to avoid imposing tax or spending policies that would prevent the economy from recovering.

If Congress does nothing, by 2022 revenue to the Treasury will increase to 21.4 percent of the gross domestic product, owing to the expiration of the George W. Bush-era tax cuts and an economic recovery. Spending is projected to decline to 22.3 percent of GDP, yielding a 0.9 percent deficit, or $213 billion.

Because Congress probably will extend most of the Bush-era tax cuts and prevent doctors’ pay under Medicare from being cut by more than 30 percent, the Congressional Budget Office outlines a more politically realistic calculation. Under that scenario, in 2022, revenue would reach 18.6 percent of GDP and spending would be 24.1 percent, for a deficit of 5.5 percent of GDP, or $1.4 trillion.

Spending Cap

Romney calls for capping spending at 20 percent of GDP by 2016, devoting 4 percent of the economy to defense spending and balancing the budget. He wouldn’t raise taxes, relying on broadening of the tax base and economic growth generated by his plan to offset a 20 percent rate cut.

“The reason we’re so opposed to raising taxes is not just because taxes hurt people and they kill jobs, it’s also because when you raise taxes, you slow down growth,” Romney said in Golden, Colorado, on Aug. 2, maintaining that higher taxes would prevent a balanced budget. “It’s like a dog trying to chase its tail. You just don’t ever get there.”

With taxes and near-term changes to Medicare and Social Security benefits off the table for Romney, achieving a balanced budget by 2020 or 2022 would require faster spending cuts to other government programs than in the budget proposed by his running mate, Representative Paul Ryan. The Wisconsin Republican’s plan wouldn’t reach balance until 2040.

‘Happy Medium’

Ryan’s budget passed the House this year. The Republican Study Committee, a group that favors smaller government, offered a plan calling for balance within five years. The House rejected that plan, and Republicans who voted against it included Ryan and Majority Leader Eric Cantor of Virginia.

“There is clearly a happy medium here and that’s what we’re trying to hit,” said Lanhee Chen, the Romney campaign’s policy director, who supported the balanced-budget goal as opposed to the Obama approach that stabilizes debt as a share of the economy. “There’s an elegance about pursuing a path where government is living within its means.”

To achieve the eight-to-10-year goal for balance, Romney would cut Medicaid, convert it to a block-grant program run by states and cap spending at inflation plus 1 percent.

He also would reduce the federal workforce by 10 percent through attrition and cut federal workers’ pay to save $47 billion a year. He says he could find $60 billion a year in waste and fraud.

Wasteful Spending

Getting lawmakers to agree to eliminate wasteful spending can be difficult, said Keith Hennessey, who was an economic adviser to former President George W. Bush.

“In a budget as large as the U.S. federal budget, there is always a tremendous amount of inefficiency that can be cut,” said Hennessey, now a research fellow at the Hoover Institution at Stanford University. “It’s often difficult to get at that without causing someone some serious pain.”

Still, Hennessey said, politicians’ willingness to make tough decisions can change quickly when faced with a fiscal or financial crisis.

“As members become more aware and more concerned about the policy consequences of inaction, I think votes that were considered politically out of bounds become more acceptable,” he said.

Health-Care Law

Romney would dump Obama’s 2010 health-care law, a step that would expand the deficit by $109 billion over 10 years, according to the CBO, because while repeal would reduce spending it also would eliminate cost savings and higher tax revenue.

“The rest of it is missing, and the rest of it is just a huge amount of spending cuts where people have no idea where they come from,” said Richard Kogan, a senior fellow at the Center on Budget and Policy Priorities, a Washington group that supports policies to help lower-income households.

To reach his goals, Romney would have to look for cuts in the rest of the budget, which includes food stamps, the Environmental Protection Agency, medical research and financial regulation. Kogan, who worked in Obama’s budget office, co-wrote a May analysis that estimated Romney would need to cut programs outside of defense and Social Security by 47 percent to achieve balance in 2022 and attempted to quantify the potential effects of the reductions.

By 2016, the cuts would need to be 29 percent across the board, according to the center’s analysis. Excluding Medicare would make the task even harder.

Ending Programs

Eliminating some programs would make the across-the-board cuts smaller. Conversely, protecting some programs would require deeper reductions everywhere else.

A 29 percent cut would make the average Pell Grant for college tuition about $1,000 smaller and shrink the average monthly Supplemental Security Income benefit by more than $100.

The Romney campaign hasn’t said whether it will provide more details on his tax and spending plans before the election.

“We think,” Chen said, “that we’ve put out our big ideas.”

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


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