Tuesday, January 3, 2012
Paul Hoffmeister, Chief Economist at Bretton Woods Research, LLC.
As carried in today's Forbes...
Mitt Romney...is not a pro-growth Republican.
Instead, his economic platform reflects a man who is devoutly Keynesian, and who, as president, would not be able to reinvigorate the U.S. economy.
A pro-growth Republican is a “supply-sider” who believes that stable money, low taxes, and limited regulation produce prosperity. And as Art Laffer has said, if regulatory policy is important by a factor of 1, then tax policy is important by a factor of 10, and monetary policy by 100.
* BTW... LAFFER ENDORSED GINGRICH THE OTHER DAY.
The purpose of these bedrock principles is to encourage capital formation, and thereby raise the national standard of living. The virtuous, supply-side process starts like this: 1) low taxes increase the amount of capital available to invest in businesses; and, 2) stable money, low tax rates, and limited regulation increase the after-tax returns on investment.
Stable money [also] eliminates the risk that inflation will depreciate the real value of future cash flows...
On taxes, Mitt Romney is seeking to eliminate the death tax, cut the corporate tax rate to 25%, extend current income tax rates, and eliminate the tax on capital gains, dividends, and interest for those earning less than $200,000 per year. With our economy struggling because of a dearth of capital investment, the plan is surprisingly timid for a Republican.
Eliminating the death tax is certainly positive because it would unleash more capital into the economy.
* I BELIEVE THAT "REALIZED" INHERITANCE OVER A CERTAIN AMOUNT (SAY FIVE TIMES THE INDIVIDUAL YEARLY AMERICAN INCOME) SHOULD BE TAXED.
A 25% corporate tax rate would only cause the U.S. rate to be equivalent to the average rate for OECD countries. As a result, U.S. corporations would not gain a meaningful competitive advantage.
* AGREED! (I MEAN, IT'S BETTER THAN NOTHING, BUT IT'S NOT NEARLY GOOD ENOUGH.)
And only extending current income tax rates and limiting the tax exemption on capital gains, dividends, and interest are unacceptable.
* EXACTLY! SAY WHAT YOUR TAX PLAN IS AND STICK TO IT!
Romney’s defense of not completely eliminating the tax on capital gains, dividends, and interest is shocking.
* I TEND TO DISAGREE - BUT THEN AGAIN MY TAX VIEWS ARE INTELLECTUALLY CONSISTENT. ROMNEY'S...? I'M GUESSING NOT SO MUCH.
In an interview with Fox’s Chris Wallace on December 18, Romney said: “I’m saying don’t raise taxes on anyone. I want to make sure that with the precious dollars we have, if we can provide the tax relief, that those dollars go to middle-income Americans. The people that have been hurt in the Obama economy are - are not the wealthy. The wealthy are doing just fine. The people that have been hurt are people in the middle class. And so I focus the - those precious dollars that we have - I focus that on the middle class.”
In other words, let’s only cut taxes for the middle class because they have been hurt the most by the recession.
* I WANT TO RAISE TAXES ON THOSE AMERICANS - ROUGHLY HALF OF ALL AMERICANS - WHO CURRENTLY PAY NO FEDERAL INCOME TAXES. I DON'T CARE IF WE SET A MINIMUM RATE AT 1%... BUT EVERYONE'S GOTTA HAVE SKIN IN THE GAME... NO ZERO-PERCENT FREELOADERS! (UNFORTUNATELY, ROMNEY DOESN'T HAVE THE GUTS TO SAY THIS.)
Based on the supply-side economic model, Mitt Romney and his tax platform will hurt the very people that he is trying to help. His plan will scarcely benefit middle and lower income Americans, effectively delivering four more years of the current economic stagnation. The wages and livelihoods of middle and lower income Americans will only begin to improve when investable capital becomes abundant, and what Mitt Romney is proposing will not make investable capital abundant. If Mitt Romney understood the supply-side model and specifically how capital formation increased real wages, he would never make such a defense.
Romney’s defense is rooted in the belief that those who have suffered the most economically deserve to have more money in their pockets. This is the Keynesian prescription of putting money into people’s pockets to spur consumer demand. More money in people’s pockets does nothing for capital formation, which is why Keynesian stimulus plans do not work.
Furthermore, Romney’s reference to a seemingly finite amount of government dollars that can be used for tax cuts ignores the fact that pro-growth monetary, fiscal and regulatory reforms accelerate and foster the conditions for sustained economic growth, which in turn shrinks government deficits because new, expanded production increases government tax revenues.
The most disturbing thing about Mitt Romney is that he supports a weak dollar.
He does not believe in a stable currency.
In December 2008, as the Federal Reserve was telegraphing to markets that it would pursue quantitative easing, he endorsed the expansion of the money supply and devaluation of the dollar.
Then in recent months, he has promised that on his first day as president he would sign an executive order identifying China as a “currency manipulator” and demand that the yuan be strengthened against the dollar. If they fail to comply, he will place punitive tariffs on Chinese exports into the United States.
This is code for: “I believe in a weak dollar to boost exports.” But currency devaluation does not necessarily correlate with a lower trade deficit. It instead raises the risk of domestic inflation and threatens to spark trade wars, where countries attempt to outdo each other with ever higher tariffs, ultimately raising living costs for citizens in those countries.
* WE SHOULD HAVE TARIFFS IN PLACE AGAINST CHINESE IMPORTS IN ANY CASE. (ROMNEY IS JUST CONFUSED AS TO WHAT THE ACTUAL PROBLEM IS; IT'S NOT CURRENCY MUNIPULATION, IT'S THE VERY NATURE OF THE CHINESE SYSTEM VS. OURS!
Even worse, a fluctuating currency increases the risk of depreciating cash flows for businesses in the future. As a result, unstable money reduces the willingness to take risks. Capital formation declines. Wage growth, productivity, and national living standards suffer.
With the Federal Reserve aggressively devaluing the dollar in a misguided attempt to accelerate economic growth, the U.S. economy does not need a currency manipulator in the White House. It needs a president who will seek a stable dollar that provides a sound unit of measurement for commerce.
Since September, there have been three Republican candidates for the nomination who have exceeded 25% of the party’s vote based on RealClearPolitics’ average poll data. Rick Perry reached 31.8% on September 13; Herman Cain 26% between October 20 and November 3; and Newt Gingrich 35% on December 13. Not surprisingly, each of these candidates have (or had) vastly superior tax and monetary platforms to Romney.
* ONE... MORE... TIME...
Not surprisingly, each of these candidates have (or had) vastly superior tax and monetary platforms to Romney.
Perry espouses a 20% flat tax and famously criticized Fed policy in August as being “treasonous.”
Cain’s 9-9-9 plan is now campaign legend, and he consistently held that the dollar must be a dependable unit of measure.
And Gingrich advocates a 15% flat income tax and 12.5% corporate tax. He also seeks to return the country to a Reaganesque era where the dollar is strong and stable.
Each of these candidates has promised to eliminate the capital gains tax.
Mitt Romney is not a supply-sider.
He will not benefit American labor.
In fact, Romney represents the greatest risk that the Republican Party will fail to beat President Obama in November 2012.