April 26, 2012
Political arithmetic is invariably suspect and one should always examine carefully the claims of those seeking votes. However, just as one should look at audited and unaudited financials very differently when deciding whether to invest in a company, smart observers have learnt to distinguish between the claims of political candidates and their advisers on one hand, and proposals evaluated by non-political scorekeepers such as the Congressional Budget Office on the other.
This principle has never been better illustrated than by the “budget analysis” put forward by Glenn Hubbard, an economic adviser, to Mitt Romney, the presumptive Republican nominee. In an op-ed published on Wednesday in the Wall Street Journal, he constructs a budget plan he imagines President Barack Obama might one day propose, engages in a set of his own extrapolations, then makes several assertions about it. He does not discuss Mr Obama’s actual plan or how it has been evaluated by the CBO. Nor does he defend the claims Mr Romney has made regarding his own fiscal plans.
Mr Obama has put forward a plan that would cut deficits by more than $4tn over the decade. It starts by making tough decisions on spending, bringing discretionary spending to its lowest levels since the 1960s. It includes $2.50 in spending cuts for every $1 in additional revenue. It also asks everyone to pay their fair share of taxes, repealing the tax cuts made by President George W. Bush for families making more than $250,000 and closing loopholes and shelters such as preferences for private jets, hedge fund managers, and offshore investments.
The independent CBO confirms that the plan would stabilise the debt as a share of the economy, returning us to a sustainable fiscal path. It would do that while allowing increased investments in education, research and infrastructure that are critical to stronger, shared economic growth in the years to come. By focusing on building a robust economy for the future, it expands the tax base and reduces pressures for future tax increases.
But rather than criticise this approach, Mr Hubbard ignores it – and instead chooses to invent a set of assumptions that bear no relationship to the president’s actual policies. His figures are not explained, but they apparently arbitrarily assume that the president must raise taxes to pay for spending above a level of Mr Hubbard’s choosing. This hypothetical exercise bears no resemblance to the president’s policies.
Rather than filling imaginary gaps in the president’s budget, which has been spelt out in sufficient detail to permit evaluation by independent experts, Mr Hubbard should perhaps fill in some of the many gaps in the current presentations of Mr Romney’s economic plans.
He could start with the tax plan. The Romney campaign has been very clear about what he is promising: $5tn in tax cuts on top of extending the Bush tax cuts, with those benefits heavily weighted towards the wealthiest taxpayers.
Mr Romney claims to pay for this plan by ending tax shelters, principally for the wealthy, but he has not specified a single tax break that he would close. I have been party for many years to searches for “high income tax shelters” that can feasibly be closed. There is no reputable expert in either political party who finds it remotely credible that there is anything approaching $5tn in revenues to be generated from this source.
Mr Romney has also proposed a huge increase in defence outlays, even while he says he will cut spending deeply enough to balance the budget. He has clearly explained why he will not tell voters which cuts he would make: because in past campaigns, he found that disclosing his planned budget cuts was politically damaging.
We have seen this narrative before. When Bill Clinton left office in January 2001, our country was paying down its debt on a substantial scale. I was privileged as secretary of the Treasury to be buying back federal debt. George W. Bush campaigned on a programme of tax cuts supported by economic advisers not subject to the rigours of official budget score-keeping. The results in terms of trillions of dollars of budget deficits speak for themselves.
This is a very consequential election. As we continue to recover from the largest economic crisis in generations, we still need to strengthen the job market, address large fiscal challenges and build an economy based on sustainable, shared economic growth. Voters should have a chance to choose between clear alternatives. Mr Obama has laid out a multiyear budget embodying his vision for the future, and it has been evaluated by independent experts. It is time for Mr Romney to do the same.
The writer was director of the national economic council under Barack Obama and is Charles W. Eliot professor at Harvard University.
Copyright The Financial Times Limited 2012.