ROMNEY PROPOSES SPENDING CUTS THAT WOULD DEVASTATE KEY MIDDLE CLASS PROGRAMS TO PAY FOR TAX CUTS FOR CORPORATIONS AND THE WEALTHY

OBAMA CAMPAIGN RESPONSE

November 4, 2011

Memorandum To Interested Parties

From: James Kvaal

Policy Director, Obama for America

ROMNEY PROPOSES SPENDING CUTS THAT WOULD DEVASTATE KEY MIDDLE CLASS PROGRAMS TO PAY FOR TAX CUTS FOR CORPORATIONS AND THE WEALTHY

As Congress debates how to close the budget deficit and pay down the national debt, our country faces a choice between two very different visions for our future. President Obama has laid out a plan to ensure that our country lives within its means and everyone does their fair share. His plan will achieve $4 trillion in deficit reduction through a balanced approach that makes tough choices, asks the wealthiest Americans to do their part and protects investments in middle-class prosperity and security like education, health care, infrastructure, and innovation. And his plan sets aside the resources necessary to create nearly 2 million jobs now, according to independent economists.

Today, Governor Romney will discuss his plans for federal spending before the Americans for Prosperity convention. He can be expected to embrace a very different approach. Romney apparently operates under the false assumption that we can just cut our way to prosperity. In recent months, he has embraced extreme ideological approaches like Rep. Paul Ryan’s budget plan and the “Cut, Cap and Balance” proposal.1 He would return American families to the failed economic policies that contributed to the years of rising inequality, stagnant wages, and eroding middle-class security.

By virtue of his proposals to date—including large tax cuts, increased defense spending, and support for a balanced budget amendment—Romney has already committed to deep spending cuts. The Romney plan would cut taxes by approximately $1.5 trillion over 10 years, including a trillion-dollar tax cut for large corporations, beyond the cost of extending the Bush tax cuts.2 He promises a large expansion in tax subsidies for health insurance at an unspecified cost.3 He would increase defense spending by an estimated $30 billion a year, according to the Wall Street Journal.4 And he supports a balanced budget amendment to the Constitution.5

But while a balanced, responsible approach to reducing the deficit is needed, Romney will not ask everyone to contribute their fair share. As a result, his plan requires deep spending cuts across government, everywhere outside of defense spending. Limiting federal spending to 20 percent of the economy, as he proposes, would require large spending cuts consistent with those provided by Ryan’s plan. Assuming that Romney would phase in this cap over time in the same manner as Ryan, his plan would require slashing spending by over $250 billion in Romney’s first year and over $5 trillion over ten years.6

In an oped in USA Today, Romney outlined his plan to cut spending by $500 billion in 2015.7 The figures he presents fall nearly $200 billion short of his goal, and some seem questionable: they appear to count multiple years of savings from reducing the size of the federal workforce, for example.8 In fact, his reckless approach to budgeting will take a heavy toll on middle class security:

Ending Medicare and Medicaid as we know them. While Romney has not yet released his own Medicare plan, Romney supported the far-right budget plan drafted by Rep. Paul Ryan in March. That plan could increase out-of-pocket costs for seniors, a cost that will reach $6,000 in 2022.9 The Wall Street Journal concluded that the plan “would essentially end Medicare.”10 With respect to Medicaid, Romney—like Ryan—proposed cuts that would reach $200 billion a year by the end of the decade, turning what’s left of the program over to the states.11 This approach would increase the number of uninsured by 31 million to 36 million, according to the Kaiser Family Foundation.12 The impact of these cuts to Medicare and Medicaid would grow after 2021 as the population ages and health care costs rise.

Huge spending cuts at the expense of middle class security. The inevitable result of Romney’s arbitrary limits on federal spending would be deep cuts to education, infrastructure, innovation, and clean energy, devastating efforts to invest in the future of our country even as other nations around the world are racing to make these investments in economic competitiveness. To cut spending to approximately 20 percent of the economy, the Ryan plan would cut education by 25 percent, investments to repair our roads and bridges by a third, and clean energy investments by 70 percent.13

Tax breaks for corporations and millionaires, forcing the middle class to pay a higher share. Romney has proposed additional tax cuts for corporations and wealthy Americans. Families with over $1 million a year in income would receive nearly half of Romney’s tax break for corporations and two-thirds of his proposal to eliminate all taxes on inherited estates.14 And while his tax break on unearned income is limited to families making less than $200,000 a year, a typical middle-class family with $40,000 to $50,000 in income would have gotten a tax cut worth only $54 in 2011.15 These regressive tax cuts for corporations and unearned income would shift a greater share of the tax burden onto wages earned by the middle class. Romney has also supported Republican budget plans that protect tax subsidies for oil and gas companies.

HALF OF ROMNEY’S CORPORATE TAX CUTS GO TO FAMILIES OVER $1 MILLION

Opposing efforts to create jobs and prevent a recession. Romney opposes efforts to cut taxes for working families, calling them “temporary little Band-Aids” even though a family earning $50,000 could receive $1,500 next year and independent economists believe that the tax break may be needed to prevent a recession.16 Even worse, his plan to immediately cut non-security discretionary spending by 5 percent echoes congressional Republican plans that another expert believes would not only fail to create jobs but “could make the economy worse.”17

The Balanced Budget Amendment would require far deeper cuts. Romney goes further than the Ryan budget by calling for a balanced budget amendment, a gimmick that allows politicians to avoid tough choices. If it were in place this year, an independent economist concluded that its impact on the economy would be “catastrophic,” including 15 million jobs lost.18 Whenever it is effective, it will require federal spending to be cut well below 20 percent of GDP. In 2021, for example, it would require $500 billion in cuts above and beyond the cuts required by the spending cap. These cuts—a total of $1.4 trillion in a single year—are equivalent to cutting all non-defense spending, including Social Security and Medicare, by roughly a third.

The timing of these proposals may also set back the Joint Select Committee on Deficit Reduction’s efforts to agree on a deficit reduction plan. By refusing to consider any new revenue and advancing ideological, unrealistic plans to fundamentally reshape the role of the federal government, Romney is echoing the Tea Party agenda and undermining bipartisan efforts to seek common ground.

Our country can live within its means, while still investing in the future of middle class families through education, innovation, and infrastructure. Responsible spending cuts are part of the solution if they follow a balanced approach that asks everyone to do their part. However, Governor Romney advances a starkly different view of our country. He would cut taxes for the most fortunate Americans at the same time he makes reckless cuts to the very programs that help strengthen and build the middle class and provide security to seniors, children with disabilities and the most vulnerable Americans who are working harder and harder to make ends meet.

ROMNEY’S SPENDING CUTS WOULD REQUIRE GUTTING KEY MIDDLE CLASS PROGRAMS

1 ABC News, “Romney Talks to ABC News,” June 2, 2011, available at: http://abcnews.go.com/blogs/politics/2011/06/romney-talks-to-abc-news-about-health-care-jobs-ties-and-red-sox/; NPR, “GOP Fiscal Pledges: Romney Signs One as Others Break Ranks on Another,” June 30, 2011, available at: http://www.npr.org/blogs/itsallpolitics/2011/06/30/137520931/gop-fiscal-pledges-romney-signs-one-as-others-break-ranks; New York Times, “In L.A., Romney Returns to a Familiar Script,” Jul 20, 2011, available at: 8http://thecaucus.blogs.nytimes.com/2011/07/20/in-l-a-romney-returns-to-familiar-script/.

2 Calculations based upon Tax Policy Center, “Reduce Corporate Income Tax Rate and Repeal Various Individual Income Tax and Payroll Tax Provisions,” Table T11-0088, April 7, 2011, available at: http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2969&DocTypeID=5.; Congressional Budget Office, “Reducing the Deficit: Spending and Revenue Options,” March 2011, available at:

http://www.cbo.gov/ftpdocs/120xx/doc12085/03-10-ReducingTheDeficit.pdf.; and Tax Policy Center, “Exempt All Capital Income from Taxation,” Table T11-0190, June 16, 2011, available at: http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3071.

3 Romney for President web page, visited November 2, 2011, “Health Care,” available at: http://www.mittromney.com/issues/health-care.

4 Wall Street Journal, “Romney Calls for Defense Boost,” October 8, 2011, available at: http://online.wsj.com/article/SB10001424052970203388804576616841644878336.html.

5 Romney for President, “Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth,” September 6, 2011, available

at: http://mittromney.com/blogs/mitts-view/2011/09/believe-america-mitt-romneys-plan-jobs-and-economic-growth.

6 Calculations based on Congressional Budget Office, “Budget and Economic Outlook: An Update,” August 2011, available at: http://www.cbo.gov/doc.cfm?index=12316. Projected spending levels are adjusted to include the costs of maintaining Medicare payment rates to physicians and resulting interest expenses.

7 Mitt Romney, USA Today, “How I Will Tackle the Deficit,” November 3, 2011, available at: http://www.usatoday.com/news/opinion/forum/story/2011-11-03/mitt-romney-budget-plan/51063454/1

8 Romney writes that reducing the size of the federal workforce would save $40 billion “by” 2016. The Simpson-Bowles commission estimated that a similar proposal would save $13 billion a year. See The National Commission on Fiscal Responsibility and Reform, “Moment of Truth,” December 2010, available at http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf

9 Joint Economic Committee Chairman’s Staff, “The Republican Medicare Plan: Health Care Expenditures Would Double for Elderly in Every State,” May 20, 2011, available at: http://jec.senate.gov/public/?a=Files.Serve&File_id=32fde3b7-25b7-4a8b-9a2a-d72505a4d50a.

10 Wall Street Journal, “GOP Aim: Cut $4 Trillion,” April 4, 2011, available at: http://online.wsj.com/article/SB10001424052748703806304576240751124518520.html.

11 Romney for President, “Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth,” September 6, 2011, available

at: http://mittromney.com/blogs/mitts-view/2011/09/believe-america-mitt-romneys-plan-jobs-and-economic-growth.

12 John Holahan et. al., “House Republican Budget Plan: State-by-State Impact of Changes in Medicaid Financing,” May 2011, available at: http://www.kff.org/medicaid/upload/8185.pdf.

13 Jason Furman, The White House Blog, “Unbalanced Approach to Deficit Reduction,” July 19, 2011, available at: http://www.whitehouse.gov/blog/2011/07/19/unbalanced-approach-deficit-reduction.

14 Tax Policy Center, “Share of Taxes Paid by Filing Status and Demographic,” Table T11-0357, September 19, 2011, available at:

http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3201; Tax Policy Center, “Distribution of Cash Income and

Federal Taxes under Current Law,” Table T11-0090, May 19, 2011, available at:

http://www.taxpolicycenter.org/numbers/displayatab.cfm?Docid=2971&DocTypeID=7.

15 Tax Policy Center, “Exempt All Capital Income from Taxation,” Table T11-0190, June 16, 2011, available at:

http://www.taxpolicycenter.org/numbers/displayatab.cfm?DocID=3071.

16 Bloomberg, “Romney, Perry, Cain Square Off on Economy in Debate,” October 11, 2011, available at:

http://www.bloomberg.com/news/print/2011-10-12/romney-perry-cain-square-off-on-economy-in-debate-transcript-.html; and Reuters, “Payroll Tax Cut Needed to Avoid Recession: Zandi,” October 6, 2011, available at: http://www.reuters.com/article/2011/10/06/us-usa-tax-payroll-idUSTRE7955SU20111006.

17 Washington Post, “Economist: Senate GOP Jobs Plan Wouldn’t Help Economy in Short Term, and Could Even Hurt,” October 14, 2011, available at: http://www.washingtonpost.com/blogs/plum-line/post/economist-senate-gop-jobs-plan-wouldnt-help-economy-in-short-term-and-could-even-hurt/2011/10/14/gIQAtVuBkL_blog.html.

18 Macroadvisers, “Man Up: AJ(obs)A vs. J(obs)TGA,” October 21, 2011, available at: http://macroadvisers.blogspot.com/2011/10/man-up-ajobsa-vs-jobstga.html?utm_source=feedburner&utm_medium=twitter&utm_campaign=Feed%3A+Macroadvisers+%28Macroadvisers%29.

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