Posted by: danielfee | October 27, 2012

Where is Romney’s Deficit Reduction Plan?

Remember back in 2010 and 2011 when the national debt and budget deficit were all the rage? The Tea Party-led Republicans in the House of Representatives took the country to the brink of default because they were refusing to raise the debt ceiling unless substantial cuts were made in Federal spending. But then they walked away from President Obama’s proposed $4 trillion-dollar “grand bargain.” Finally a budget deal was reached to raise the debt ceiling, but the gamesmanship still resulted in a downgrade of U.S. debt by Standard and Poor’s. The Budget Control Act of 2011 that Congress finally passed included automatic spending cuts, called sequesters, that go into effect on January 1, 2013. The $1.2 trillion in sequestration cuts were generic and divided equally between domestic program spending and defense spending. It also established a Congressional super-committee that was supposed to identify $1.5 trillion in targeted spending cuts in both defense and domestic programs that would replace the sequestration cuts. But as with most Congressional committees, it failed. So now the previously agreed-to cuts will go into effect starting next year.

However Mitt Romney has been campaigning against the defense cuts the Republicans agreed to in the budget deal. He has no problem with the domestic spending cuts, but Mitt has pledged restore the defense spending. But that is not all. Romney has also pledged to set defense spending at a fixed 4% of GDP. This would result in an additional $2 trillion dollars in defense spending, on top of the $600 billion he wants to renege on from the previous agreement to which his party agreed. In addition to this $2.6 trillion in additional defense spending, Romney has also pledged to restore the $716 billion in Medicare savings that were adopted as part of Obamacare. These savings were primarily a result of reducing the subsidies provided to private insurers through Medicare Advantage and reducing the reimbursement amount to hospitals for Medicare patients. The hospitals actually agreed to the reduced rates so they could know most people arriving at emergency rooms would have insurance coverage, thereby reducing the amount of write-off losses they would incur. One of the ways that Mitt Romney has proposed to reduce federal spending is the complete repeal of Obamacare which he has claimed will save money. But in reality, the Congressional Budget Office (CBO) scored the budget impact of a complete repeal of the Affordable Care Act in July 2012 based on the House Republican’s proposal in H.R. 6079 and found that repeal would add $109 billion to the deficit.

So between the extra defense spending, the repeal of Obamacare and restoration of the overpayments to insurers and hospitals through Medicare, Romney has pledged to add $3.425 trillion in spending. This is before you factor in his proposed 20% across-the-board tax rate cut. These tax expenditures are estimated to cost $4.8 trillion over the next ten years. Then there is the permanent extension of all the Bush tax cuts which Romney has also proposed. This will cost an additional $2.7 trillion over ten years. So Romney’s tax proposals add $7.5 trillion in tax expenditures. All total, Mitt Romney has committed to $10.75 trillion in new spending and tax cut expenditures.

Romney has also committed that his new tax cuts would be deficit neutral which would be accomplished by closing tax loopholes and eliminating deductions. But notice it is only the new 20% tax rate cut that Romney has committed to offset. This leaves $5.95 trillion in new spending that is not being offset. Let’s assume Romney would like to offset this new spending also, so what are the big loopholes and deductions that could be eliminated, and how much would be raised in revenues if they are closed? The following table is a list of the top 15 individual tax expenditures based on the January 2012 report from the Joint Committee on Taxation.

             TOP TAX EXPENDITURES FOR INDIVIDUALS (FY 2011-2015)

Description Amount (in billions $)
1) Exclusion of employer contributions for health care and insurance premiums           725.0
2) Exclusion of pension contribution and earnings           718.3
3) Deduction for mortgage interest on owner-occupied residences           464.1
4) Reduced rates of tax on dividends and long-term capital gains           456.6
5) Exclusion of Medicare benefits           348.3
6) Earned income credits           294.1
7) Exclusion of capital gains at death           230.8
8) Deduction of state and local taxes           230.3
9) Exclusion of benefits provided under cafeteria (health care) plans           197.6
10) Deduction for charitable contributions (other than education and health)           186.1
11) Exclusion of interest on public purpose state and local bonds           177.6
12) Credit for children under age 17           168.9
13) Exclusion of investment income on life insurance and annuity contracts           148.3
14) Exclusion of capital gains on sales of principal residence           123.2
15) Deduction for property taxes on real property           117.1
Total =        4,586.3

 

The cost of tax expenditures is over a five-year period and the proposed additional spending by Mitt Romney is over a ten-year period, so if we assume the second five years matched the estimates from the Joint Committee on Taxation, then the total cost of the top 15 tax expenditures would be $9.17 trillion. If Mitt Romney was willing to eliminate 100% of the top 15 tax expenditures he would still be $1.58 trillion short of offsetting his proposed new spending and tax expenditures.

But we need to look at the other campaign promises that Mitt Romney has made. He has stated numerous times that he would not increase the capital gains tax rate or tax rates on interest and dividends. In fact he has said he would eliminate all taxes on interest and dividends for those making under $200,000 per year. This would actually add extra spending to Romney’s plan, but let’s ignore this for simplicity. Romney has also said he would eliminate the estate tax. So if we remove these tax expenditures that Romney has said he would keep from our list of the top 15 (those are expenditures #4, 7, 11, 13, and 14), then we are left with approximately $3.45 trillion in tax expenditures that could be eliminated. So over ten years it would be equal to $6.9 trillion. This means Romney would still be $3.85 trillion short of revenue neutral if all the remaining tax expenditures (aka loopholes and deductions) were eliminated. This means taxing employer provide health care as income, taxing pension contributions and earnings, eliminating the mortgage interest deduction, taxing Medicare benefits, loss of the child tax and earned income tax credits, and the deduction for payment of state and local taxes … and he still increases the budget deficit.

But remember Mitt’s commitment to close loopholes and deductions was only intended to offset the cost of his additional spending and tax cuts, which he cannot achieve. He has made no commitments or effort to reduce the existing deficit. Let me repeat that. Mitt Romney has no plan to address the budget deficit and national debt!

However, Romney has continually criticized President Obama for having four years of budget deficits exceeding $1 trillion dollars. It’s true that the annual budget deficits have exceeded a trillion dollars, but the real question is whether Obama increased or decreased the budget deficit since he was elected? To understand if Obama is making the budget deficit better or worse, you have to look at what happened during the last few budget years of the Bush administration. But as soon as someone invokes the name George W. Bush, Republicans and conservatives will counter with their standard rebuttal that “you can’t keep blaming Bush. Obama has had four years and what has he done?” Well actually, Obama has completed three budget years, and we are currently in the fourth of his budget years. That is because the federal government budget years begin on October 1 of each year. My question for those who don’t want to look at where things stood when George Bush left office is how can you determine where you are if you don’t know where you started? You can’t; but that is why they don’t want you to look at the last few of Bush’s budget years. If you did, here is what you would find:

Federal Deficit Net Increase Percentage
FY Amount (in billions) in National Debt Increase in Debt President
2007 $   9,007,653,372 $    500,679,473            – G.W. Bush
2008 $ 10,024,724,896 $ 1,017,071,524       103.1% G.W. Bush
2009 $ 11,909,829,003 $ 1,885,104,107       85.30% G.W. Bush
2010 $ 13,561,623,030 $ 1,651,794,027      -12.40% Obama
2011 $ 14,790,340,000 $ 1,228,716,970      -25.60% Obama
2012 $ 16,045,951,169 $ 1,255,611,169         2.20% Obama

 

This table shows how much the national debt increased by each fiscal year. This is the actual amount of each year’s budget deficit no matter how the spending occurred, either on budget or off budget. What the table also shows is that as the country began to slide into the “great recession” in FY 2008, the budget deficit doubled from the prior fiscal year. Then in Bush’s last budget year, FY 2009, the deficit nearly doubled again ending the fiscal year with a national debt of $11.9 trillion. One misleading talking point that Republicans like to use is to claim that the national debt was $10 trillion when Obama took office, hoping you won’t notice that the calendar year doesn’t match the federal budget fiscal year. Whenever a new president takes office on January 20th, one-third of his predecessors last budget year has already been completed. It’s a neat trick to retroactively apply the last President’s budget and spending to the new guy. But in reality, the new President has minimal impact on the budget that was adopted before they were elected. To be fair, Obama did have a small impact on FY 2009 spending because he did get the so-called stimulus bill passed a month after he was elected and approximately $300 billion was added to spending for fiscal year 2009.

If you look at the budget deficit in Obama’s first budget year, there was a decrease in spending by 12.4% from the peak of the prior year. Then in Obama’s second budget year, it decreased by another 25.6% and in the third budget year it increased slightly. So while it is fair to say that Obama has had budget deficits that exceed a trillion dollars for his first three budget years, it is also fair to say that Obama has reduced the budget deficit by 33.4% over this same period. Obama did make a campaign promise that he would cut the budget deficit in half by the end of his first term and so far he has only cut it by one-third. Obama could have reduced the budget deficit even further if the Tea Party Republicans in the House would have agreed to the “grand bargain” that was being negotiated in the spring of 2011. The Obama administration had a $4 trillion-dollar spending cut package on the table, but even though it would not have increased individual tax rates, it did include closure of some tax loopholes. So why did the Tea Party and GOP House leadership walk away from the “grand bargain” if the budget deficit was one of their primary concerns? As David Brody, the chief political correspondent for the Christian Broadcast Network wrote, “Well, first of all, politically speaking, cutting a deal with the Obama administration isn’t appetizing at all. Additionally the dozens of Tea Party freshmen in the House signed a pledge to not raise taxes under any circumstances.” They viewed closing loopholes to be the same as a tax increase because it would have brought in more revenue. So keeping their pledge to Grover Norquist, a Washington D.C. lobbyist, was more important than working with the President to reduce the deficit. Besides – why help Obama accomplish his goal of reducing the deficit? Because they ran on the platform that government spending must be reduced. But when the deal was put in front of them, they were so ideologically committed to their anti-Obama position they could not do the right thing for the American people.

After the $4 trillion-dollar “grand bargain” failed, these same Tea Party House members continued to hold the increase in the debt ceiling hostage, resulting in the downgrade of the United States credit rating. If you are having a hard time comprehending what the Tea Party really wants, don’t worry; you are not alone. But at its base their goal is simple; if Obama is for it, they are against it. If it raises any federal revenue to decrease the budget deficit, they are against it. The only acceptable way of reducing the federal deficit for a Tea Party person is to eliminate all spending for anything they don’t like.

When you go to vote this November, you should be aware that Mitt Romney has put no proposal on the table to make any substantial reduction in the budget deficit. According to Mitt Romney, Big Bird is cooked and Planned Parenthood will have their funding cut-off. So far these are the only two items he has offered to reduce deficit spending. But PBS only gets $445 million (that is million not billion) in federal funding and Planned Parenthood gets $363 million. Combined these two items amount to 0.02% of the annual federal budget. At that rate, if these are the only two items cut, it would take 1.5 billion years to balance the budget! In reality Mitt Romney and the Tea Party Republicans are not serious about reducing the federal budget deficit. They are interested in reducing tax rates and eliminating federal programs that they have never liked and always wanted to kill. The question that Mitt should answer before the election is what other cuts in spending and what other programs is he proposing to kill? But for Republicans it seems that complaining about the budget deficit is only a priority when there is a Democratic President in office. Dick Cheney summarized the Republican position when there is a Republican President in office, when he said in a cabinet meeting shortly after he and George Bush were elected “that Ronald Reagan had proved that deficits don’t matter.” Cheney should have added, “that is until the next Democratic President is elected.” Should Mitt Romney be elected, don’t expect to hear much about the size of the budget deficit.

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