Here is an example of the type of campaign argument that frustrates the hell out of voters. The topic is tax policy, specifically the liberals’ accusation that Romney’s tax plan is a $5 trillion tax cut for the wealthy. Starting at the 0:49:53 point in the October 11th VP Debate:
BIDEN: Now, there’s not enough — the reason why the AEI study, the American Enterprise Institute study, the Tax Policy Center study, the reason they all say…taxes [will] go up on the middle class, [is] the only way you can find $5 trillion in loopholes is [to] cut the mortgage deduction for middle-class people, cut the health care deduction [for] middle-class people, take away their ability to get a tax break to send their kids to college. That’s why they arrive at it.
RADDATZ: Is he wrong about that?
RYAN: He is wrong about that. They’re…
BIDEN: How’s that?
RYAN: You can…cut tax rates by 20 percent and still preserve these important preferences for middle-class taxpayers…
BIDEN: Not mathematically possible.
RYAN: It is mathematically possible. It’s been done before. It’s precisely what we’re proposing.
BIDEN: It has never been done before.
RYAN: It’s been done a couple of times, actually.
BIDEN: It has never been done before.
RYAN: Jack Kennedy lowered tax rates, increased growth. Ronald Reagan…
BIDEN: Oh, now you’re Jack Kennedy?
There were similar arguments between President Obama and Governor Romney in their debates, with a bit less interrupting and belligerence.
So what gives here? Clearly each side thinks they’re correct, but they may as well be describing two different worlds. Well, essentially they are, because they’re operating from two different world visions.
Here’s my take on this economic philosophy disagreement.
First I’ll slay a myth so it doesn’t get in our way: “Economists are politically objective mathematicians and accountants that mostly agree.” DON’T KID YOURSELF. Any country’s economy and its politics are intertwined. It can’t be any other way, since a government’s policies play a big part in determining the country’s economic conditions. Agree? So it naturally follows that there’s no such thing as a perfectly non-political economist. The field of Economics is not a purely objective science. I’m sure you’ve noticed that my economic views are an inseparable part of my political views. Guess what? So are yours. It’s ALL politics, underpinned by ideology.
The idealistic economic vision favored by liberals is based on one of their primary beliefs about human nature: People will work just as hard for the benefit of unknown strangers — beneficiaries of the vigorous federal entitlement system — as they will for the benefit of themselves and their own family. Therefore, it follows that liberals are bound to the belief that incentives and disincentives don’t much matter – that our economy is influenced only by simple one-step causes and effects. To acknowledge otherwise would torpedo their own ideology.
By contrast, Romney’s economic plan is based on a realistic vision of human nature: Incentives and disincentives matter, and our economy will naturally increase jobs and wages if citizens are given the prospect of a higher take-home pay because of lower tax rates. As the economy returns to a healthy growth rate by getting annual GDP growth back up to 5% or more, the government soon sees increased tax revenues despite the lower tax rates – in fact BECAUSE of the lower tax rates.
This ideological difference was starkly visible in all four debates.
Here are two acronyms defined: CBO stands for the “Congressional Budget Office,” which is Congress’s financial analysis office. OMB stands for the “Office of Management and Budget,” which is the White House’s financial analysis office.
Both the CBO and the OMB, as well as other liberal-leaning economists, use economic formulas that only compute the first-level effects of changes in tax rates and tax laws. This type of fiscal analysis is called a “static model.”
As you can see here (in the upper right), U.S. federal revenues are about $2.5 trillion this year. Using a “static model,” liberal-leaning economists compute that if the government’s tax rate is lowered by 20% under Romney’s plan, the government revenues will drop $500 billion per year, or a $5 trillion drop over 10 years.
But the OMB’s and CBO’s near-sighted fallacy is that their formulas don’t include any recognition of the secondary and thirdary benefits that lower tax rates would have on the strength of each household and company in the American economy. Isn’t it just common sense that the economy would grow faster? And isn’t it obvious this is what we need right now?
The OMB, CBO, and other liberal economists don’t bother trying to apply a “dynamic model” that shows what happens to the economy when lower tax rates leave more dollars in the hands of savers, investors, and employers. Why don’t they bother? I don’t know, but it’s a sham that is well known among people who monitor and critique government fiscal policies. I strongly feel the OMB and CBO charters must be reformed. After decades of this purposeful malpractice, it’s impossible to count how many crappy government decisions, and misinformed voter decisions, have been based upon these ridiculous “static model” analyses.
In closing, I remind you how fiscally important this election is. I know economics makes most people’s eyes roll up in their head, but c’mon…this is crucial, folks! Armed with my brief explanation of “static models” vs. “dynamic models,” I urge you to go read just 2 pages of Romney’s plan for yourself, uninterrupted by Joe Biden. Please go to this link, click on “Full Plan”, and focus on the “dynamic model” discussion on pages 6 and 7.