The Profoundly Screwed-Up Beliefs That Compose Mitt Romney's Economic Ideology

[one...two...tree 2,762]

Robert Reich

Mitt Romney is smart enough not to join Newt Gingrich and Sarah Palin in using the proposed mosque at Ground Zero to to lauch a presidential bid. While Gingrich is busy comparing Muslims to Nazis ("Nazis don't have the right to put up a sign next to the holocaust museum in Washington"), and Palin is calling on New Yorkers to "refudiate" the plan (she subsequently corrected her word choice), Romney is offering an economic plan.

That's a wise choice. Mitt knows Americans don't care about mosques in Manhattan. They care about money in their own mitts.

Romney is intent on selling himself to America as the businessman who can turn the country around (sad to say, unemployment is likely to remain high all the way through November, 2012). Unlike Palin and Gingrich, Romney did, after all, run a business (yes, it was a firm that bought and sold companies and laid off lots of people along the way but, hey, that's business).

So we should take Romney's economics seriously. In today's (Wednesday's) Boston Globe op-ed Romney attacks Obama's economic policies for being ineffective and calls for what he calls a "growth and jobs" agenda. Here are the main points:

– match U.S. corporate taxes with those of other developed economies,

– preserve the Bush tax cuts for everyone, "especially small business,"

– allow businesses to write off capital investments made in 2010 and 2011 rather than over time,

– eliminate taxes on investment dividends,

– eliminate taxes on capital gains and interest for households earning less than $250,000 a year, and

– balance the federal budget.

Apart from the impossibility of simultaneously cutting taxes and balancing the budget without taking a meat cleaver to Social Security, Medicare, and defense spending (Romney delicately sidesteps this conundrum by urging we "reshape government programs" and "restructure entitlements"), his policies raise a more fundamental problem.

Call it the wet-noodle problem.

For Romney, the key to America's recovery is to cut taxes on businesses and on people who invest in them. These steps, he says, are the "conditions that enable businesses of all sizes to grow and thrive." In other words, if businesse get more capital at less cost, they'll create jobs.

But anyone looking closely at the American economy today would see this is nonsense. American corporations have an unprecedented $1.8 trillion of cash. The Fed, meanwhile, has slashed interest rates to essentially zero – a record low – and is still holding over $2 trillion in securities that it said last week it will keep from shrinking. And a Federal Reserve survey released earlier this week showed that banks have been making it easier for businesses of all sizes to get loans. Credit standards for small firms have been loosened for the first time since late 2006.

In other words, businesses have all the capital they need. They're sitting on it or can borrow it more cheaply than ever. But they aren't using it to create jobs.

Why not? Because there's not enough demand for their products or services. Consumers aren't buying.

Retail sales continue to slide. Wal-Mart, Home Depot, and Target report disappointing sales. Same with popular back-to-school retailers like Aeropostale, American Eagle Outfitters, and TJX. Housing sales are down. Appliances are down. (Cars sales are up a bit but that's mainly because they fell to record lows in 2008 and 2009, and by now some people who have held back need another.)

Romney's supply-side economics won't create jobs. It's pushing on a wet noodle. Businesses create jobs only if consumers are pulling the noodle from the other end.

These days, businesses are raising profits by cutting costs (mostly by laying off even more workers), shifting operations abroad wherever they can find consumers (China, Brazil, India), and buying up their own shares of stock. Romney's tax breaks will only hasten all this.

If Mitt Romney really wanted to increase American jobs and not just corporate profits he'd understand why consumers aren't buying, and focus his proposals there.

The first reason they're not buying is they're still carrying a huge debt load. Mortgage debt is still engulfing millions of families. Americans also owe some $826.5 billion in revolving credit, mostly on credit cards (credit card debt was $975.7 billion in September 2008, so they still have a long way to go). On top of that, outstanding student loans (both federal and private) total some $829.7 billion.

So instead of boosting corporate profits, let Americans reorganize their mortgage debt in personal bankruptcy, protect them from credit card companies that charge gargantuan interest on credit card debt, and give their kids more direct aid for college.

The second reason consumers aren't buying is their nest eggs have shrunk down to the size of peas. Homes are still worth 20 to 40 percent less than in 2007, and 401(k)s are down 20 percent. Baby boomers now have to save for retirement big time.

So instead of a giving corporations a tax break on their incomes, and giving investors tax breaks on dividends and capital-gains, cut the payroll tax for ordinary Americans. 80 percent of Americans pay more in payroll taxes than in income taxes, and it's a regressive tax. Eliminate payroll taxes on the first $20K of income and make up the difference by raising the cap on income subject to payroll taxes (now about $106,000).

The third reason consumers aren't buying is they've lost their jobs or are scared of losing them, or can only find part-time jobs that pay less. And because most families rely on two wage earners, the chance that at least one of them has lost or is in danger of losing a paycheck is double. That means families have no choice but to economize.

So instead of giving tax breaks to companies for buying more machines to replace their workers, make big profitable companies pay severance to any worker they lay off, equal to a month's salary times the number of years worked. And require that any corporations receiving government contracts and subsidies (including defense contractors) use the money to create jobs in the United States.

Mitt Romney is the most credible of all the likely Republican presidential candidates. He's right to focus on the economy, and he's to be commended for coming up with specifics. But his specifics are loony. Romney's wet-noodle economics won't create American jobs.

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[JohnSmith2007 353]

Robert Reich?? :rofl:

Mitt has more economic common sense in his little finger than Reich has in his whole body. Reich is nothing more than a failed labor secretary.

Mitt sounds like he knows exactly what this country needs economically.

[Dan J 277]

Robert Reich?? :rofl:

Mitt has more economic common sense in his little finger than Reich has in his whole body. Reich is nothing more than a failed labor secretary.

Mitt sounds like he knows exactly what this country needs economically.

How does cutting taxes on business and the wealthy create the incentive to generate new jobs?

[JohnSmith2007 353]

How does cutting taxes on business and the wealthy create the incentive to generate new jobs?

Most business are small business. There is where most of the jobs are. These companies are usually LLC's and the owner claims the business profits as personal income. So someone you call "rich" is in reality a small business owner. The jump in taxes would put some out of business, others to cut back and still more will not hire or expand. This "tax the rich because they can afford it" mentality ignores the reality that higher taxes on the upper income brackets has a profound impact on jobs.

[Dan J 277]

Most business are small business. There is where most of the jobs are. These companies are usually LLC's and the owner claims the business profits as personal income. So someone you call "rich" is in reality a small business owner. The jump in taxes would put some out of business, others to cut back and still more will not hire or expand. This "tax the rich because they can afford it" mentality ignores the reality that higher taxes on the upper income brackets has a profound impact on jobs.

You ignored my question, how does it create jobs? Not how does it affect the companies tax liability.

[JohnSmith2007 353]

You ignored my question, how does it create jobs? Not how does it affect the companies tax liability.

No I didn't, I answered it precisely.

Lower taxes on small business gives them the ability to expand. Anyone that gives it any thought can see that.

[Dan J 277]

No I didn't, I answered it precisely.

Lower taxes on small business gives them the ability to expand. Anyone that gives it any thought can see that.

So if my sales are not increasing, why would I want to spend the money to expand? Am I not better off putting the money into a safer investment such as bonds and waiting for the economy to improve? Again why should I use the money saved on taxes to expand when it doesn't make any business sense to do so?

Are you sort of blinded by the idea that business will infinity expand just as long as the government doesn't interfere?

[mawilson 2,133]

Apart from the impossibility of simultaneously cutting taxes and balancing the budget without taking a meat cleaver to Social Security, Medicare, and defense spending

Well that's just it - we have to take a meat cleaver to all those entitlement programs,

starting with defense spending. Just like everyone else, the military will have to do

more with less, beginning with an explanation as to why we still need a military base

in Okinawa, 65 years after the end of World War II.

[JohnSmith2007 353]

So if my sales are not increasing, why would I want to spend the money to expand? Am I not better off putting the money into a safer investment such as bonds and waiting for the economy to improve? Again why should I use the money saved on taxes to expand when it doesn't make any business sense to do so?

Are you sort of blinded by the idea that business will infinity expand just as long as the government doesn't interfere?

We are not talking about GE or Exxon. We are talking about Joe's Body Shop or Jims Quicky Mart. These people don't have piles of money that Reich thinks. They run on a shoestring and the added tax burden would cause them to lay off or at least not hire someone. Giving them a tax break and they will expand and hire. These are the people that claim $300K on their taxes and you call rich. In reality they are paying themselves the minimum to get buy so they can keep the business going. Taxing them more would put them out of business and put people out of work. Helping them allows them to expand and hire. Lower taxes is pro small business. Taxing the rich like Reich suggests is anti mom and pop.

Well that's just it - we have to take a meat cleaver to all those entitlement programs,

starting with defense spending. Just like everyone else, the military will have to do

more with less, beginning with an explanation as to why we still need a military base

in Okinawa, 65 years after the end of World War II.

Yep, bring everyone home and cut them 25%. Every entitlement program should also take a big hit. That is why we have trillions in debt.

[Dan J 277]

We are not talking about GE or Exxon. We are talking about Joe's Body Shop or Jims Quicky Mart. These people don't have piles of money that Reich thinks. They run on a shoestring and the added tax burden would cause them to lay off or at least not hire someone. Giving them a tax break and they will expand and hire. These are the people that claim $300K on their taxes and you call rich. In reality they are paying themselves the minimum to get buy so they can keep the business going. Taxing them more would put them out of business and put people out of work. Helping them allows them to expand and hire. Lower taxes is pro small business. Taxing the rich like Reich suggests is anti mom and pop.

You keep saying that, but why? Expansion requires an economic opportunity. If you are a small business seeing a decline in sales, why would they be thinking about expanding? If anything you are looking at how you can save the money that you do have to get you through the current business climate, not thinking about expanding and creating jobs. (Unless you have a huge tolerance for risk)

You can always lower your tax liability by spending more money to maybe create more jobs?

[mawilson 2,133]

You keep saying that, but why? Expansion requires an economic opportunity. If you are a small business seeing a decline in sales, why would they be thinking about expanding?

Expansion requires confidence in the economy and government. Companies won't expand

if they don't know what kind of interest rates we will have one year from now, what

their tax burden is going to be, or how much the US dollar will be worth. Uncertainty

is what makes companies (and people) hold on to their cash. Economic opportunities

are there - there are 200 countries you can sell your stuff to besides the US.

[JohnSmith2007 353]

You keep saying that, but why? Expansion requires an economic opportunity. If you are a small business seeing a decline in sales, why would they be thinking about expanding? If anything you are looking at how you can save the money that you do have to get you through the current business climate, not thinking about expanding and creating jobs. (Unless you have a huge tolerance for risk)

You can always lower your tax liability by spending more money to maybe create more jobs?

Like I said, we are not talking about big business, we are talking about the small one owner business. These are the ones that sell you your milk or pound out the dents in your car. These companies would add another worker or add on to their business because they are small and are striving to become bigger. Higher taxes is anti-small business.

[mawilson 2,133]

Like I said, we are not talking about big business, we are talking about the small one owner business. These are the ones that sell you your milk or pound out the dents in your car. These companies would add another worker or add on to their business because they are small and are striving to become bigger. Higher taxes is anti-small business.

Well, I think Dan is saying that there's only so much milk that people can buy

and they wouldn't expand unless there was additional demand for more milk.

[JohnSmith2007 353]

Well, I think Dan is saying that there's only so much milk that people can buy

and they wouldn't expand unless there was additional demand for more milk.

I doubt if he or you has ever worked for a small business then. A lot have only 2 or 3 workers and that means the owner is working 16 hours a day. Even if demand isn't going up they would still want to hire to take the load off. These business are the backbone of our economy, the mom and pop stores that are always being talked about when the subject of Walmart comes up. Raising their taxes does have the effect of hurting them and lowering their taxes without any doubt will at least allow them to continue to have a business. So while in some instances it doesn't mean more jobs but it does mean more jobs wouldn't be lost.

[I AM NOT THAT GUY 5,715]

Businesses require capital. The more the government continues to suck up that capital in the form of taxes and the cost of compliance with mandated programs, the less capital a business has to invest toward making a profit. By investment, I mean new hires, equipment purchases, sales campaigns, et cetera. If as a small businessman all I am concerned with is keeping my head above water, I am not going to do anything but sit on my assets.

Edited August 25, 2010 by ##########