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A Project of The Annenberg Public Policy Center

Romney’s Economic Exaggerations

Republican presidential candidate Mitt Romney claims that his plan would balance the federal budget in eight to 10 years. But so far, he has not made public the details on how he would be able to do that, and one neutral budget expert calls it “an unrealistic goal.”

Also, Romney and running mate Paul Ryan exaggerate when they say “five different studies” prove that all of the stated goals of Romney’s revenue-neutral tax plan could be accomplished without raising taxes on middle-income taxpayers. Two of the five “studies” were blog items. And none of three other studies was nonpartisan: Two were written by Romney campaign advisers and a third was by a former economic adviser to President George W. Bush.

Balanced Budget?

Romney made the claim about balancing the budget on NBC’s “Meet the Press” on Sept. 9, saying: “[W]e’ve put together a plan that lays out how we get to a balanced budget within eight to 10 years.”

The plan, however, doesn’t lay out how this would be achieved. Instead, it’s short on specifics.

When we talked to Josh Gordon, policy director of the Concord Coalition, a nonpartisan group that advocates “responsible fiscal policy,” he said there wasn’t much of a proposal from Romney. But his main takeaway, he said, is that “it’s an unrealistic goal and requires cuts far beyond what they’ve been able to specify.”

Marc Goldwein, senior policy director at the bipartisan Committee for a Responsible Federal Budget, told Bloomberg News such a plan “would require some deep cuts beyond what he specified and beyond what I think most people would imagine.”

The only analysis we were able to find on the Romney budget plan determined what would happen if he cut spending across the board. The liberal Center on Budget and Policy Priorities calculated that if Social Security isn’t touched, all other non-defense spending would have to be cut by 29 percent in 2016 and at least 47 percent in 2022 to balance the budget.

Romney’s goal is far more ambitious than that of vice presidential candidate Paul Ryan’s Republican budget plan, which wouldn’t achieve a balanced budget until 2040.

Romney has said he would limit spending to under 20 percent of gross domestic product (or GDP) by the end of his first term and cut spending by about $500 billion per year, beginning in 2016, assuming, his campaign website says, that there’s a “robust economic recovery” with 4 percent growth annually. He wouldn’t cut defense spending — in fact, it would go up and remain fixed at 4 percent of GDP. (Defense spending is projected to be 4.3 percent of GDP for 2012, but as the economy improves, fixing the defense budget at 4 percent would mean an increase in spending.) Romney also says he would immediately propose cutting non-security discretionary spending by 5 percent across the board — that would be a cut of $31 billion if applied to the 2012 budget — and cap such spending below 2008 levels.

Romney’s proposal to hold all federal spending below 20 percent of GDP requires huge reductions from the 22.9 percent that is projected for the fiscal year that ends Sept. 30, and the 24.1 percent of GDP that the nonpartisan Congressional Budget Office projects for 2022 if spending continues on its current path. That latter figure is from CBO’s “alternative fiscal scenario,” which assumes, among other things, that Congress will continue to avoid scheduled cuts in Medicare physician payment rates.

Romney has proposed cutting tax rates by 20 percent across the board, among other reduction measures, and making up for the lost revenue by eliminating unspecified exemptions for upper-income taxpayers but, he says, not shifting more of the burden on middle-income Americans. But he has not revealed how exactly he would accomplish that.

Similarly, Romney hasn’t revealed how the math would add up to balance the budget in eight to 10 years. His website says he’d cut $500 billion in spending per year starting in 2016. But by 2022, the deficit is expected to be $1.4 trillion. Plus, Romney would increase defense spending, widening that budget gap, and it remains unclear whether his tax plan would be revenue-neutral. Defense spending currently makes up 20 percent of federal spending, and Social Security accounts for another 21 percent. Romney’s website says he would make “no change in benefits for those at or near retirement.” Medicare makes up another 15 percent of the budget, and it’s unclear if spending would be cut in that program under Romney in the near future. Interest on the debt accounts for another 7 percent of spending.

The campaign hasn’t revealed where Romney would even get that $500 billion in cuts. The Romney website lays out spending reductions that total $319.6 billion, which come from privatizing Amtrak, cutting funding for the National Endowment for the Arts and Humanities and foreign aid, eliminating family planning funding, cutting the federal workforce and compensation, block-granting Medicaid and work retraining to the states, and reducing “waste and fraud.” Romney also counts $95 billion a year for repealing the federal health care law. But that’s only the spending in the law, which also includes $569 billion over 10 years of new revenues that would be lost, plus another $161 billion in revenue from the individual mandate tax and penalties on employers.

When we asked the Romney campaign for more information on his plan to balance the budget, spokesman Eric Fehrnstrom sent us this statement:

Fehrnstrom: Governor Romney has balanced many budgets over his career, in private business, at the Olympics and in government. His track record speaks for itself. President Obama doesn’t even have a budget. Before Obama’s election, America had never run a trillion dollar deficit. Since Obama’s been in office, we’ve had four trillion dollar deficits in a row.

So, we’re left to wonder how spending possibly could be reduced in the next decade to balance the budget. The Center on Budget and Policy Priorities, which has liberal leanings, ran the numbers in May and found that, assuming Social Security is not cut, all other non-defense programs would have to be cut by 29 percent in 2016 and 47 percent in 2022, if the cuts were spread evenly across the board — and if Romney’s tax plan was revenue-neutral.

The CBPP said that the plan would require cuts of $8.1 trillion for the 2014-2022 period, again, if Romney’s tax cuts were revenue-neutral. That’s nearly 19 percent of all projected government spending, including defense and Social Security, for that time period, under CBO’s alternative scenario.

‘Five Different Studies’?

Romney also said on “Meet the Press” that “five different studies” show that his tax plan could accomplish his goals of cutting the income tax rate by 20 percent across the board and make it revenue neutral without raising taxes for the low- to middle-income taxpayers. Rep. Paul Ryan, Romney’s running mate, said something similar on ABC’s “This Week.” Ryan said: “There have been five different studies — that show — that this — that this plan works.”

But the five “studies” aren’t all studies and none of them was nonpartisan. Of the three that could be considered studies, two were written by Romney campaign advisers and a third was written by a former economic adviser to President George W. Bush.

David Gregory, Sept. 9: You’ve called the debt and our deficit a moral crisis, and yet in addition to extending the Bush tax cuts, you want to cut tax rates an additional 20 percent. You’ve rejected a 10 to one spending ratio when it comes to spending to increasing taxes. And, yet, you want to balance the budget. The math simply doesn’t add up, does it?

Romney: Well, actually, it does. And the– the good news is that five different economic studies, including one at Harvard and Princeton and AEI and a couple at The Wall Street Journal all show that if we bring down our top rates and actually go across the board, bring down rates for everyone in America, but also limit deductions and exemptions for people at the high end, while you can keep the progressivity in the code, you could remain revenue neutral and you create an enormous incentive for growth in the economy.

Gregory, the host of “Meet the Press,” was referring to an Aug. 1 report by the nonpartisan Tax Policy Center that concluded it is not mathematically possible to design a revenue-neutral plan without providing “large tax cuts” to high-income households and raising taxes on those earning $200,000 or less. The report, which we wrote about on Aug. 3, was co-authored by William G. Gale, a former staff economist for President George H.W. Bush, and Adam Looney, a former senior economist in the Obama White House.

What were Romney and Ryan referring to when they referenced five studies? We asked Romney spokesman Fehrnstrom, and he emailed us a list that included:

  • A blog item by Matt Jensen, a tax policy researcher at the pro-business American Enterprise Institute. The item — headlined “How the Tax Policy Center could improve its Romney tax study” — was not a study, but rather suggestions on how TPC could make some changes in its assumptions that could show “a pro-growth, revenue neutral tax reform need not be regressive.”
  • A Romney campaign white paper co-authored by two members of Romney’s economic policy team, R. Glenn Hubbard and N. Gregory Mankiw. Hubbard was chairman of the Council on Economic Advisers under President George W. Bush.
  • An opinion article by Romney adviser Martin Feldstein that appeared in the Wall Street Journal that said Romney’s tax plan is mathematically possible with some adjustments to the assumptions used by the TPC. One major adjustment: defining “high-income taxpayers” as those who earn more than $100,000, rather than TPC’s definition of $200,000 or more.
  • A blog item written by Feldstein in response to Democratic tax expert Len Burman — a former director of the Tax Policy Center — who faulted Feldstein’s analysis of Romney’s tax plan. Burman wrote that the assumptions used by Feldstein “would make no sense as policy,” because eliminating deductions for family income above $100,000 would cause an effective tax rate as high as 62.5 percent on income just above that level. In response, Feldstein said, among other things, that he considers it “very reasonable” that those earning over $100,000 in household income “are not the ‘middle class,'” and he suggested that Romney could tax their employer-paid health care benefits, tax their interest payments on normally tax-free municipal bonds, or tax all their capital gains on the sale of a personal residence, if required to make the rate cuts revenue-neutral. (Romney, however, told ABC News’ George Stephanopoulos that “middle income is $200,000 to $250,000 and less” in his plan.)

The only study by someone not advising Romney was done by Harvey Rosen, a Princeton economics professor who also once served as chairman of President George W. Bush’s Council of Economic Advisers.

In his study, Rosen takes issue with TPC’s method — the same sort of computer modeling used by the U.S. Treasury and two nonpartisan congressional offices, the Joint Committee on Taxation and the Congressional Budget Office. He also considered the possible effects of Romney’s plan on economic growth — which the nonpartisan Tax Policy Center said was “likely to be small” because Romney’s plan is revenue neutral.

In any event, there are not “five different studies” that show Romney’s plan works.

— Lori Robertson and Eugene Kiely