Romney’s Taxes + Ryan’s Budget = Democratic Delight

Illustration by Kelsey Dake

By Caroline Baum  

 

No sooner did Republican presidential candidate Mitt Romney announce his choice of Wisconsin Congressman Paul Ryan to be his running mate than the criticism started flowing, fast and furious.
“Right-wing ideologue,” declared David Axelrod, President Barack Obama’s campaign strategist, to anyone and everyone who asked.

About Caroline Baum

Caroline Baum, a columnist for Bloomberg News since 1998, is the author of "Just What I Said: Bloomberg Economics Columnist Takes on Bonds, Banks, Budgets and Bubbles."
More about Caroline Baum

“Plutocrat Ticket,” said Democratic pundit Paul Begala in the Daily Beast.
“Galt/Gekko 2012,” wrote the vacationing Paul Krugman, who tore himself away from R&R to post to his New York Times blog.
And those were some of the nicer epithets. The Democrats are having a field day with Romney’s 13.9 percent effective tax rate in 2010 and Ryan’s slash-and-burn budget. There’s nothing the presumptive Republican nominees can do about the attempts to portray them in the worst possible light. (Cue the ad of Granny being thrown out of her wheelchair and over the cliff.) What matters is how they respond.
Why not start with some of the sillier accusations? Romney is running for president to help the rich.
Does this make sense? Romney is rich, with assets of $190 million to $250 million, according to his campaign. He doesn’t have to do anything except clip coupons for the rest of his life, and the next 10 generations of Romneys can live in the style to which they are accustomed.

Communication Deficit

As for helping his rich brethren, Romney, like all conservatives, favors letting taxpayers keep more of their own money and decide how to allocate it. It’s self-evident that individuals spend their own money more efficiently than the government can. Stronger growth lifts all boats. It’s a compelling argument, if Romney chooses to make it.
The Republican Party has never been good at selling ideas: powerful ideas, such as freedom, individual responsibility, opportunity, a bigger economic pie. Find people who exemplify your ideals, who pulled themselves up by their own hard work and ingenuity, who did build that business, and drag them to campaign events. Let them tell their inspirational stories.
The idea that the GOP goal is to help the rich at the expense of the poor defies logic. The party’s ideas on how to help the poor may differ from the Democrats’: better education through school choice; creating incentives to work rather than to loaf. But to endure the ordeal of a presidential campaign to help the rich get richer? They may earn the lion’s share of the income, but they don’t control a majority of the votes.
Then there’s Medicare. On Sunday, Obama (or his tweeter- designate) posted a “Twitter pic” with the following: “Fact: Paul Ryan would end Medicare as we know it by turning it into a voucher program costing seniors up to $6,350 a year more.”
The voucher part is true. But Paul Ryan isn’t going to end Medicare as we know it. Medicare is going to do that on its own. The Medicare Trust Fund has been running a cash-flow deficit since 2008 and will go bust in 2024, according to the 2012 report of the trustees of the Social Security and Medicare trust funds.
Ryan’s “Path to Prosperity,” for which he was largely responsible as chairman of the House Budget Committee, would offer senior citizens a choice when they become eligible for Medicare, starting in 2023: remain in the current program or receive premium support and choose a private insurance plan. Senator Ron Wyden, Democrat of Oregon, teamed with Ryan to re- draft the Medicare proposal earlier this year.
Experts can have a legitimate argument on whether health care lends itself to competition or is fundamentally different, with the fixed costs for hospitals and equipment overwhelming any marginal savings from competition. But doing nothing isn’t an option. If the articulate Ryan can drive that point home, he will have advanced the debate.

Starting Point

Ryan’s budget may not suit everyone, but it’s a starting point. It calls for lowering tax rates -- creating two flat income tax brackets of 10 percent and 25 percent and reducing the corporate tax rate to 25 percent from 35 percent -- and eliminating loopholes. Almost everyone talks about lowering the rates and broadening the base; almost no one gets specific about the details.
Each year the government loses an estimated $1 trillion to exemptions and deductions, known as tax expenditures because they are really spending in disguise. The biggest losses are a result of the mortgage-interest deduction and the exclusion of employer-provided health care. Taking on homeowners, many of whom are underwater on their mortgages, may be a stretch in an election year. But it will serve as an indication of just how serious a Romney-Ryan administration is about getting the debt and deficit under control. So far, neither has spelled out exactly which loopholes he would close, which is probably akin to political suicide.
Ryan says his plan would boost revenues as share of gross domestic product to 18 percent to 19 percent, close to the historical average, and reduce federal spending to 20 percent by 2015 via cuts in non-defense discretionary outlays.
Ryan, as commentators have noted, is a direct descendant of Ronald Reagan, Jack Kemp and supply-side economics. What that means is, once the excitement about the GOP ticket dies down, Obama will have a new buzzword for his class warfare: the return of “trickle-down economics.”