Romney on CNBC says he’ll balance the budget. Piffle.
Today Mitt Romney was on CNBC for about 15 minutes. One thing jumped out at me more than others.
Romney said that he would cut back government spending in various ways, including such major cost centers as AMTRAK (0.045% of federal government spending in FY2010), Planned Parenthood (0.014%), and the National Endowments for the Arts and Humanities (0.009%). Romney claimed that his various efforts at reducing government would bring spending down to 20% of GDP. I’m not going to argue this point today.
But he also said that his plan would result in a balanced budget. To most people, that means revenues would reach the level of expenditures, in this case 20% of GDP.
Here’s the trick: since World War II, revenue has reached 20% of GDP just one time, in 2000. That year saw enormous income growth as the economy reached the peak of an extraordinary business cycle, and tax rates significantly higher than those in place today (contrary to the supply side view, Clinton’s higher income tax rates did not stifle the economy).
For comparison, in the last 20 years of budgets passed under Republican Presidents (FY1982-1993, 2002-2009), revenue averaged 17.6%.
Like Reagan and George W. Bush, Romney proposes to lower tax rates across the board (from a baseline that is in itself historically low), claiming that higher economic growth will close the budget gap. It’s the same supply-side argument that made enormous deficits commonplace under Reagan and Bush. If his goal truly was to balance the budget, Romney would be talking about higher taxes.
But that’s not the goal; the goal is to get elected. And so Romney tells everybody what they want to hear. We’ll cut the federal budget, but not in ways that will hurt. We’ll lower taxes, which everybody wants. And we’ll balance the budget by… er… uh…
Romney’s claim that his plan would balance the budget requires some mixture of mendacity and a belief in mystical forces.