Six points where Mitt Romney and his economic advisers are mostly wrong

Mitt Romney?s economic plan is largely based on a whitepaper written by several ?heavyweight? economists: Glenn Hubbard of Columbia University, Greg Mankiw of Harvard University, John Taylor of Stanford University, and Kevin A. Hassett of The American Enterprise Institute. Both Mr. Hubbard and Mr. Mankiw served as chairman of the Council of Economic Advisers (CEA) under George W. Bush.

The title is promising: ?The Romney Program for Economic Recovery, Growth, and Jobs.? The problem is, the plan is riddled with fundamental flaws. Here are six points where Mitt Romney and his economic advisers are mostly ? if not fully ? wrong about what ails the American economy and how to fix it.

1. Anemic recovery

Mitt Romney?s heavyweights criticize America?s current economic recovery because it is weaker than the recovery that occurred under President Reagan after the recession in 1981-1982. But the Reagan recovery came after a 0.3 percent decrease in GDP, whereas the current recovery comes after a 3.1 percent decrease in GDP.

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Thus, the present recovery requires digging out of a much deeper hole, and the failure of Mr. Romney and his heavyweights to give consideration to the depth of the Great Recession is a fundamental flaw in their critique of the recovery under President Obama.

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2. 2009 stimulus act

Although Romney supported the bailout of the banks, he opposed Mr. Obama?s bailout of the auto industry. He also opposed Obama?s 2009 stimulus act, officially titled the American Recovery and Reinvestment Act. Romney?s economic heavyweights use flawed logic in challenging the stimulus. They cite studies that apparently show that the Act?s ?cash for clunkers,? ?housing? programs, and ?green? investments did not stimulate the economy.

But only a small percentage of the stimulus was devoted to these programs. For example, cash for clunkers accounted for less than 1 percent of the Act?s spending. Furthermore, the independent and nonpartisan Congressional Budget Office (CBO) and several independent economists have estimated that the stimulus added significantly to both economic growth and employment.

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What if Romney had won the GOP primary in 2008 and become president? What if he had followed the advice of his economic advisers? It?s fair to assume he would have 1) blocked the bailout of GM and Chrysler; 2) not pursued the 2009 stimulus act; and 3) replaced Ben Bernanke, the chairman of the Federal Reserve Board (Fed), with a person who would not have adopted the monetary stimulus policies that have kept interest rates low.

Romney would have likely adopted the same type of ?tight? fiscal and monetary policies that led to the Great Depression, and we likely would have had Great Depression II. After independently reaching this conclusion, I heard Alan Mulally, CEO of Ford Motor Company, which was not bailed out, express a similar view on Fox News.

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3. Romney?s 12 million jobs claim

Romney?s economic advisers assert that his policies ?will create about 12 million jobs in the first term of a Romney presidency.? However, several independent analysts have forecast that over the next four years the economy will create 12 million jobs, regardless of who is president.

ONE MINUTE DEBATE: Jobs report: 3 views on the best way to create jobs in the US

4. Social Security and Medicare

The Romney heavyweights say that a President Romney will ?gradually reduce growth in Social Security and Medicare benefits for more affluent seniors.? Thus Romney?s plan proposes some ?means testing? of Social Security and Medicare, meaning seniors who have greater ?means? would receive fewer benefits. Although not written specifically into his economic plan, Obama has also indicated a willingness to consider means testing of these programs.

On this point, Romney and his economic advisers are right. As I proposed in a June 2011 op-ed in this publication, a partial solution to the funding problem with these programs is to ?phase-out? the entitlements under these programs as a retiree?s broadly measured income increases from $75,000 to $175,000. Canada, which does not have the same type of debt and deficit problem faced by the US, has a similar phase-out and means testing for its Social Security equivalent.

ANOTHER VIEW: How to reform entitlements and save the American dream ? without raising taxes

5. Individual taxes

Romney and his economic heavyweights oppose Obama?s plan to ?raise marginal tax rates on upper-income Americans.? Obama has proposed returning to the pre-Bush rate structure for families making more than $250,000, which would mean increasing the top marginal rate to 39.6 percent from the current 35 percent. Many in the public have misunderstood that to mean that families making more than $250,000 of taxable income will have their taxes increased by 4.6 percent (the difference between 39.6 percent and 35 percent).

That?s not the case. The higher rates only apply to dollars above $250,000. For example, under Obama?s plan, a family with $300,000 of taxable income would see a tax increase of exactly $1,500 ? hardly a burdensome tax.

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Romney?s advisers argue for revenue-neutral tax reform that would decrease marginal rates and pay for this reduction by broadening the tax base and eliminating deductions and exemptions in the tax code. Romney claimed in the first debate that he will reduce the tax rates for all taxpayers, but that also (contrary to his stated economic plan) he ?will not reduce the taxes paid by high-income Americans.? But he will not specify how he could do this. Nor will the Romney campaign identify which tax breaks they?ll eliminate and how those measures will be enough to compensate for their proposed tax cuts.

His advisers argue that lower marginal rates will increase economic growth, but this assertion runs counter to evidence that growth has been higher when marginal rates are higher. For example, in the 1950s, America had high growth and marginal rates as high as 90 percent. In the 1990s, after the top marginal rate was raised from 35 percent to 39.6 percent, the economy experienced the greatest period of growth since the Great Depression. On the other hand, economic growth was not robust after the Bush tax cuts in the early 2000s.

It is clear that in addressing the debt and deficit, Washington needs to raise revenue. In an op-ed last week in The Wall Street Journal, 80 CEOs of large companies agreed with this position. They explicitly stated, that in decreasing the deficit Washington needs to ?raise revenues? as well as cut spending.

ONE MINUTE DEBATE: Jobs report: 3 views on the best way to create jobs in the US

6. Class war and the Grover pledgers

Many Romney supporters have argued that Obama is engaged in a ?class war? against the rich. Warren Buffett says that there is a class war going on, and it is being waged and won by some in the rich class.

Grover Norquist is the head of Americans for Tax Reform (ATR), an organization that is purportedly funded principally by members of the rich class who want to keep their taxes low. ATR has a Taxpayer Protection Pledge pursuant to which legislators ?commit themselves in writing to oppose all tax increases.? What about the Pledge of Allegiance to America?

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To confront the mounting debts and deficits and do what?s best for America (not just the rich), lawmakers need the flexibility to raise revenue as circumstances demand. Pledges like Mr. Norquist?s not only stymie compromise and fuel gridlock in Washington, they undermine debt-reduction and economic recovery.

As one who had the privilege of serving this country as a captain in the Marine Corps during the Vietnam War, it is my opinion that these ?Grover pledgers? have in substance converted the Pledge of Allegiance to America into a pledge to ?one nation under Grover, indivisible, with liberty and justice for the rich.? Unfortunately, both Governor Romney and Congressman Paul Ryan are Grover pledgers. Sadly, through their support of only tax reform that is revenue neutral, the Romney economic heavyweights are tools in the class war and enablers of these Grover Pledgers.

Sam Thompson is a professor of law and director of the Center for the Study of Mergers and Acquisitions at Penn State University Dickinson School of Law. He is the former head of the tax department of a large Chicago law firm and dean of the University of Miami School of Law. His most recent book is ?The Obama vs. Romney Debate on Economic Growth: A Citizen?s Guide to the Issues.?

ALSO BY THIS AUTHOR: Why US should not pay Warren Buffett's Social Security and Medicare

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