“Large cuts in government spending will exert a strong drag on economic activity while large output gaps persist … tax cuts, particularly tax cuts for businesses and higher-income households, are highly inefficient at spurring growth.”
It is important to understand what this study is saying here. The economy is already going to add a certain # of jobs and then when you take that baseline projection … the study details the impact on the direction the economy is already going. Obama’s plan would add more jobs in addition to the existing job growth that already exists; Mitt Romney’s plan would actually reduce existing job growth by over 500k jobs in the next two years relative to what is already on track to be created.
There is a major clash in visions between the two campaigns. The Romney campaign wants to cut taxes for the rich. He has already admitted that his plan won’t benefit 47% of Americans and frankly – because his math is impossible … the only way to do this is for him to raise taxes on the middle class. Romney has already said publicly that he thinks it is good economic policy for the rich to have lower tax rates than the middle class (source) even though there is no correlation between cutting taxes on capital gains and economic growth (source). He’s tripling down on trickle-down.
Obama would ask for the rich to pay more in taxes in order to ensure keeping taxes as low as possible for the middle class (source), we won’t be spending trillions on a war with Iran, we will continue “the longest stretch of employment gains in manufacturing in almost two decades” (source), banks will be more accountable for their actions instead of living in a laissez-faire market environment, 50 million people will not have to worry about losing access to healthcare that they never had before, and we would see pro-immigration and pro union policies.
Big differences between the two that will affect the economy.
The Economic Policy Institute explains their math HERE:
President Obama’s budget would do more to spur nearterm economic and employment growth than Gov. Romney’s budget plan, regardless of how Romney would finance his second round of tax cuts. Further, because the Obama budget calls for spending increases in areas that provide efficient fiscal support for economic activity and jobs in the near term, and for tax increases that have little impact on economic activity, it generates $3.39 in GDP for every dollar added to the budget deficit in 2013 and $1.00 in GDP for every dollar of deficit reduction in 2014.
Using the specific policy proposals provided by the Romney campaign (which imply deficit-financing of all tax cuts, as detailed in Table 2), the Romney budget plan would generate only 3 cents of GDP for every dollar added to the budget deficit in 2013 and would actually reduce GDP by 28 cents for every dollar added to the deficit in 2014.
And the Washington Post points this out for the people who don’t understand how the budget works HERE:
“Zandinomics,” however, have come under criticism by those who believe that Zandi is overstating the multiplier effect of government spending. Robert Barro and Charles Redlick, for example, found that the average multiplier for defense spending was only about 0.6 to 0.7 when the unemployment rate was an average of 5.6 percent, and that the estimated multiplier effect rose only to 1.0 when the employment rate was extremely high, at 12 percent.
But note that Romney doesn’t dispute the basic finding that cutting spending will be a drag on the economy. Take this interview he did with Time Magazine’s Mark Halperin:
Halperin: You have a plan, as you said, over a number of years, to reduce spending dramatically. Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?
Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.
If you haven’t already seen Mitt Romney’s ENTIRE economic plan for the country … well – try not to be overwhelmed:
THAT is Mitt Romney’s entire economic plan. The EPI was able to compare Obama’s plan with Romney’s plan based off of many statements that he has made.
On a related note – the Labor department revised upwards the number of jobs created this year by an additional 386k (source). That means – since January of 2010 – the economy has already seen an increase of 5 million private sector jobs during that time. Fact.
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