Mitt Romney's big economics speech: Can he deliver 'big change?'
In Iowa, Mitt Romney tells voters President Obama made the economy he inherited worse and pledges policy changes to bring the US economy 'roaring back.'
Mitt Romney pledged Friday that he can deliver policy changes that bring the economy "roaring back."
That assertion, made in an economics speech to voters in Iowa, came amid news that the US economy still is growing at a slow pace: an annual rate of 2 percent, according to the Commerce Department's preliminary gauge of activity in the year's third quarter.
Against that backdrop, Mr. Romney framed his remarks with a rebuke of the Obama presidency.
"President Obama frequently reminds us that he inherited a troubled economy," Romney said. But he also "inherited the most productive and innovative nation in history. He inherited the largest economy in the world.... What he inherited wasn't the only problem; what he did with what he inherited made the problem worse."
Romney said Friday his own plan would bring not only jobs but also control the rising national debt – by setting a new tone of bipartisanship, restraining federal spending, and reforming entitlements.
But as voters know, that's a tall order. Is his promise of sweeping fiscal reform credible?
The answer may be a "good news, bad news" story. On the positive side, it appears likely that whoever wins will face public and financial-market pressure to address the nation's fiscal problems. And many economists embrace a basic tenet of Romney's plan: to focus on generating economic growth, not solely on closing budget deficits in Washington.
On the negative side, however, are some serious doubts. Independent finance experts have asserted that Romney's fiscal plans are math-challenged. And even if his desire to work "across the aisle" is sincere, some analysts question whether he could deliver bipartisan cooperation, given the rigid party lines visible in Congress on issues like taxes.
"I know it because I have seen it," Romney said, referring to bipartisanship during his years as a state governor working with a Democratic legislature. "Good Democrats can come together with good Republicans to solve big problems. What we need is leadership."
In Washington today, that leadership will have to come from more than just the president. For embers of bipartisanship to rekindle, it will also require some effort by members of both parties in Congress.
It appears likely that Republicans will continue to control the House – with most of them having signed a pledge not to raise new tax revenue. The Senate will probably continue to be beyond the filibuster-proof control of either party – perhaps with Democrats retaining the majority. Democrats widely want a fiscal solution that includes some new tax revenue alongside spending cuts, and more US voters align with that view than with the no-new-revenue view.
That gets back to an aspect of the political climate that's more supportive of fiscal change: There's growing pressure to accomplish it.
One sign came this week as more than 80 CEOs of large corporations joined a nonpartisan campaign called "Fix the Debt," designed as an alarm bell for both political parties to control government borrowing. Some 300,000 Americans have signed the group's petition.
Meanwhile, two deadlines loom that will force Congress to consider tax and spending policies: the need to raise the official "debt limit" (an artificial barrier to borrowing set by lawmakers), and the "fiscal cliff." The cliff comes at year-end, when Bush-era tax cuts are set to expire even as across-the-board spending cuts are scheduled to take effect.
The fiscal cliff represents the threat of too-sudden fiscal discipline, which could hit the economy with a steep drop in consumption as consumers get hit with higher taxes, and as federal spending cuts contribute to a slowdown in business activity. If Romney wants the economy to be "roaring back" in 2013, economists say that avoiding the full impact of the cliff is important.
At the same time, though, the cliff and debt-limit bargaining could create a moment for both parties to seek a longer-term deal that would prevent fiscal "austerity" in the short run while setting a course for lower deficits in the future.
Financial markets might send their own signals of fiscal urgency to Washington, if lawmakers appear to be fiddling or fumbling.
So the climate in Washington could help Romney's prospects for "big change" or hurt them, depending on how things were to play out.
How about Romney's specific proposals, which he enumerated again Friday in Iowa? Here, too, economists and policy analysts see a mixed outlook.
Overall, the five major points Romney stresses have some important coherence. Policies that expand exports and reduce America's trade deficit could help grow jobs – including manufacturing ones around which new service-sector employment can also spring up.
More domestic energy, similarly, could reduce the trade deficit and – if it brings energy prices down a bit – leave consumers with more disposable income. In turn, a healthier economy would make it easier to reduce federal budget deficits.
Romney then argues that fiscal reform could help the economy's performance in its own right, if it removes the cloud of worry over soaring national debt. Economists widely agree that stabilizing the debt and another Romney priority – better education and training – are vital to the nation's long-term economic health. Romney's fifth point has to do with small business, and using corporate tax reform to make America a more attractive place to invest.
Of course, saying these priorities are good in general still leaves questions over the details. Are Romney's fiscal and education ideas the right ones? Is Obama right to put more emphasis on environmental concerns than Romney, when it comes to domestic energy production? The Monitor has done a series of in-depth comparisons of the candidates on these and other issues.
Some policy experts argue that, by bringing a more business-friendly tone to Washington, Romney could boost the confidence of employers and consumers. Many corporations have piles of cash ready to invest if they see the right conditions and opportunities. "Unlike the current administration, we actually like business and the jobs business creates," Romney said Friday, after accusing Obama of piling on new regulations.
Skeptics of this view say reviving business investment requires more than just a shift in regulatory surroundings, and that some of Romney's policies might hurt rather than help.
Romney has laid out a fiscal plan that includes sharp federal spending cuts, bringing outlays down from 24 percent of gross domestic product in 2012 to 20 percent by the end of his first term. The Obama budget, by comparison, called for spending to be a little above 22 percent of GDP at that time.
Meanwhile, on the tax side, Romney has called for changes to be "revenue neutral," bringing no more or less revenue than current policies call for. If he achieved those objectives, the result would be a fiscal policy that is growing tighter, perhaps putting a crimp in economic growth in the short run. But economists lack consensus on the impacts of a Romney fiscal policy.
Another question is whether his tax reform would really result in the same amount of tax revenue. Romney wants to cut income-tax rates by 20 percent and to offset that by limiting deductions and other loopholes in the tax code. His plan also relies on the expectation that tax reform will accelerate economic growth, helping to fill the revenue gap.
If Romney won his tax-rate cuts without winning enough deduction offsets, the result could be a fiscal climate that's more stimulative to economic growth in the short run but which adds to the national debt. And, if the tax reform fails to boost GDP growth as much as Romney hopes, that too could make the debt challenge harder to solve.