Monday, March 12, 2012

Why is it assumed that Romney would be good for the economy?

While campaigning, Mitt Romney likes to sell himself as a "government CEO", claiming that he balanced the budget in Massachusetts without raising taxes, while reducing spending and building a "rainy-day" fund. However, for someone with presumed business acumen and fiscal-conservative credentials, who says he understands how to create jobs and what businesses need from the government, the Governor seems to have some trouble with math and black-and-white facts.

One of Romney's top surrogates – Virginia Governor Bob McDonnell – just appeared this week on NBC's Meet the Press, proclaiming that "this election is about jobs, economic development, taxes, spending, debt and deficit."

Unfortunately, the record shows that Romney failed to deliver jobs, business development and economic growth, while increasing taxes and spending. If this election is about the economy, why is it assumed that Romney is the best candidate for those issues, considering his poor record leading Massachusetts?

During Romney's watch (January 2003 to January 2007), Massachusetts spending increased at a rate even higher than the increasing size of the federal government. At the same time, Massachusetts' economy did not do nearly as well as the rest of the country.

Spending rose by 22.2% from Romney's first budget (Fiscal Year 2004) until his final budget (Fiscal Year 2007):
Fiscal Year




According to data from the U.S. Department of Commerce Bureau of Economic Analysis, the Massachusetts GDP during Romney's administration increased by only 13.8%:


(in millions)

During a similar time period, federal outlays increased by 19.0%, while national GDP increased by 18.7%:
(in millions)
(in billions)

Under Romney, Massachusetts underperformed the rest of the nation in terms of job growth. According to data from the U.S. Department of Labor Bureau of Labor Statistics, from January 2003 through December 2006, the national total nonfarm employment increased from 130,270,000 to 136,882,000 – seasonally adjusted. That's an increase of 5.1% and 6,612,000 total jobs.

At the same time, the Massachusetts total nonfarm employment increased from 3,224,600 to 3,263,900 – seasonally adjusted. That's an increase of only 1.2% and 39,300 total jobs. So, Massachusetts only accounted for 0.6% of the nation's job growth during Romney's term as Governor. That's pretty embarrassing for a state with a little more than 2% of the nation's population (as of the 2000 and 2010 census).

In December 2006, Romney was a lame-duck preparing to form his presidential exploratory committee; at the same time, MassINC, an independent think tank to promote a public agenda for the middle class in Massachusetts, was publishing a report on the labor supply and economic future of the state's economy.

The MassINC report found that in the beginning of the decade, before Romney's stint as Governor, Massachusetts resident labor force "did not grow at all," and the state ranked 48th out of 50. Unfortunately, Romney's policies made the situation worse, and from 2003-2005 the labor force contracted by 1.7% - "the only state in the nation to decline each year during this time period" – and Massachusetts exported 120,000 workers to other states. He was unable to slow down the outmigration of young, well-educated professionals, and at the end of his term there were still "important questions about the attractiveness of Massachusetts as a place to live and work, especially for those who have choices."

As governor, Romney had no trouble with putting his need to find new revenues ahead of the long-standing conservative philosophy that tax increases impede job growth, instead of making the necessary decisions to cut spending and reduce the size of government. Michael Barbaro writes in the New York Times last October:
Much of the business community in Massachusetts was puzzled. Mitt Romney, a Republican with high-caliber corporate credentials, had run for governor pledging to sweep aside barriers to business and act as the state's "top salesman."
But just a few months after Mr. Romney took office in 2003, what he delivered seemed anything but friendly to the C.E.O. crowd: a bill to financial firms for what they saw as $110 million in new corporate taxes — and a promise of more to come.
For the next three years, the Romney administration relentlessly scoured the tax code for more loopholes, extracting hundreds of millions of corporate dollars to help close budget gaps in a state with a struggling economy.
Today Mr. Romney rarely, if ever, discusses on the campaign trail how he closed the Massachusetts tax loopholes. There is no proud description of them in his two books, even though many lawmakers in the state consider them a rare show of political courage.
The Democratic-controlled Legislature, which had assumed that Mr. Romney was cozy with the state's corporate executives, was both taken aback and thrilled by the onslaught.
To many chief executives and business groups, it showed something else: a curious insensitivity to the needs of corporations and a willingness to squeeze as much money as possible out of a politically convenient target.
By the end of Mr. Romney's term, the loophole measures required companies to pay about $370 million a year in additional taxes, a nearly 20 percent increase from the period before he took office, according to an analysis of government data by the Massachusetts Taxpayers Foundation, a nonprofit research group that receives financing from corporations.
The impact of closing the loopholes, which produced a relatively small fraction of state revenues, is an open question. "It cost us jobs," said David G. Tuerck, an economist at Suffolk University in Boston, though others say that is difficult to measure and subject to debate. During Mr. Romney's tenure, Massachusetts ranked near the bottom — 47th out of 50 states — in new job creation.
In a 2005 newsletter, the Council on State Taxation, which represents businesses, mocked "the allegedly pro-business" Mr. Romney for trying to "firmly reclaim for the commonwealth the dubious title of Taxachusetts."

Massachusetts' business tax climate ranked 36th in the nation at the start of fiscal year 2007, according to the Tax Foundation. Specifically, the corporate tax index component of the state's business tax climate was ranked 47th in the country, ahead of only Delaware, New Hampshire, and Michigan.

Anti-tax advocates, like the Cato Institute, the Massachusetts Taxpayers Foundation, the National Taxpayers Union, and Citizens for Limited Taxation, did not see evidence that Romney was a tax cutter.
Cato found that Romney increased annual state fees by $500 million as governor and proposed two corporate tax increases totaling close to $400 million a year.
"Romney's people are trying to spin this by saying he kept his 'No new taxes' pledge," said Stephen Slivinski, director of budget studies at Cato. "I guess if you consider only personal income taxes and sales taxes, he's within bounds. If you take a broader view, he is not.
"The spirit of [anti-tax pledges] is to force governors to find more innovative ways of funding government," he added. "If the spirit is to save money before you increase revenues, I don't think Romney has held to the spirit of the no-new-tax pledge."
John Berthoud, president of the National Taxpayers Union, retorted, "Closing tax loopholes and not cutting rates concurrently — that's a tax increase. The loopholes business is sometimes patina to make it seem like it's not really an increase."

The Club for Growth, who is also committed to lower tax rates that encourage greater economic growth, notes that Romney "had a mixed record on taxes."
While it is true that Governor Romney did not impose any broad-based tax hikes despite pressure from liberal special interests and an inherited budget deficit, he imposed a slew of fee hikes and tax "loophole" closures, together with spending cuts, in order to eliminate the budget gap.

According to calculations of the combined state-local tax burden by the Tax Foundation during Romney's term, per capita taxes paid increased by 13.2% and Massachusetts' burden ranked in the worst quartile (on average) amongst the other states:

Tax Burden

Per Capita Taxes
Paid to Massachusetts

A report in October 2006 by the Cato Institute presents the findings of their fiscal policy report card on the nation's governors. Two months away from the end of his term, Romney received an overall score of 55 and a grade of "C". His spending score was a 50 (grade of "C") and his tax score was a 60 (grade of "C").
Romney likes to advance the image of himself as a governor who has fought a liberal Democratic legislature on various fronts. That's mostly true on spending: he proposed modest increases to the budget and line-item vetoed millions of dollars each year only to have most of those vetoes overridden. But Romney will likely also be eager to push the message that he was a governor who stood by a no-new-taxes pledge. That's mostly a myth.
If you consider the massive costs to taxpayers that his universal health care plan will inflict once he's left office, Romney's tenure is clearly not a triumph of small-government activism.

Five years ago, like they are today, Romney's "fiscal and economic achievements are central elements of his campaign." Back then, Pam Belluck at the New York Times reported that some in Massachusetts questioned the health of the state's economic and fiscal condition, leaving his successor to fill a whopping budget deficit of $1.3 billion.
Unemployment is still relatively high… some economic analysts say Mr. Romney has exaggerated some of his successes or taken credit for improvements that had more to do with national trends.
"When he talks about a turnaround, we really haven't had a turnaround," said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a nonpartisan organization that analyzes state economic policies. "We had a temporary fiscal respite. But we're trailing the nation in job growth. Our job growth has been anemic."
The average unemployment rate fell to 4.8 percent in 2005 from 5.8 percent in 2003, the State Department of Workforce Development said, but has increased since then. It averaged 5 percent in 2006 and was 5.3 percent in January of this year, compared with a national rate of 4.6 percent.
Mr. Romney says he did not raise taxes, but some critics say that is not entirely accurate. There was no broad-based tax increase — no change in the income tax, sales tax or gas tax — but Mr. Romney did increase some fees, and he instituted changes that he called closing corporate tax loopholes, which some consider a euphemism for raising corporate taxes.

Supporters of Governor Romney highlight his executive experience as a positive and an advantage because of the current state of the national economy. However, with a closer inspection, you can see a mediocre fiscal record on spending, taxes, and the economy:
  1. Romney says that he reduced spending – but spending in Massachusetts increased at an even faster rate than federal spending.
  2. Romney says that he didn't raise taxes – but per capita taxes rose during his term, and he did technically raise taxes through fee hikes.
  3. Romney says that he understands job creation – but Massachusetts had meager job growth under his leadership, and the labor force contracted via outmigration as workers saw an unattractive place to live.
  4. Romney says that he knows what businesses need to succeed – but the state's economy underperformed the national economy, while he raised corporate taxes by closing loopholes without cutting rates concurrently.
It's hard to look at this data and rationally believe that Romney would be good for the national economy, when his record of success in Massachusetts is this uninspiring.

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