In the ongoing (and never-ending) ideological redefinition of Mitt Romney, this moment looms especially large. In advance of tonight’s Republican debate, possibly the last one of the primary season, Romney is dropping new hints about his tax cut plan. Romney has been trapped between two irreconcilable needs. For the general election, he desperately needs to move left on taxes, to avoid the fish-in-a-barrel attacks on him as a wealthy financial manipulator who shelters his money overseas and wants to make the tax code even more advantageous for people like himself. Yet conservatives have been pushing him to move in the opposite direction and come out with an even more regressive tax plan.
The result is a careful attempt to fulfill both diametric goals through careful ambiguity. Romney calls for an across-the-board reduction in income tax rates, offset by unspecified reductions in tax deductions and spending cuts. Romney is saying that the top one percent will continue paying their current share. But liberal tax wonk Bob McIntyre notices that “share” does not mean the same thing as “level.” The income tax hits the richer much harder than do other taxes. You could reduce income taxes across the board, and the rich would be paying their same share of the income tax, but their share of the overall tax burden would decrease. And, when combined with the (still unspecified) spending cuts, the overall effect would probably be regressive. Of course, you can’t quantify it because Romney details only the money he plans to put into people’s pockets (lower tax rates) and none of the ways he plans to take money out.
Romney’s plan essentially endorses the goals of the pro-rich right — supply-side enthusiast James Pethokoukis enthuses about Romney’s plan here — while trying to leave enough ambiguity to avoid getting pinned down against Obama. Indeed, Romney follows a similar strategy as the one employed by George W. Bush, who, while running in 2000, cloaked his regressive tax plan in all kinds of misleading language about helping the poor.
The more important development, which has received shockingly little attention, is that Romney once again let the sane man inside him, the one he keeps hidden from sight, briefly slip out in public. Responding to an audience question, Romney said that spending cuts would stymie economic growth:
If you just cut, if all you're thinking about doing is cutting spending, as you cut spending you'll slow down the economy," he said in part of his response. "So you have to, at the same time, create pro-growth tax policies."
Most economists would consider this is a pretty banal statement. In an economy with mass unemployment and zero interest rates, reductions in spending reduce growth. But Republicans have come to regard this position, which is accepted by the entire macroeconomic forecasting field, as utter heresy. The whole Republican indictment of Obama is centered around the claim that he has spent too much, that this spending is responsible for a variety of ills, including unnecessarily slow growth, and that cutting spending immediately would not hurt but help economic growth. This has become perhaps the party’s single most fervent idea during the Obama era.
Romney’s spokesman tries some damage control:
The governor’s point was that simply slashing the budget, with no affirmative pro-growth policies, is insufficient to get the economy turned around. However, he believes that budget cuts – especially in the context of President Obama’s unprecedented spending explosion – are a step in the right direction. As he made clear in his economic plan, he believes that spending cuts that reduce the size of government and balance the budget are crucial to economic growth and job creation.
No, that’s not what Romney said at all. Romney didn’t say that spending cuts alone were not enough. He said that spending cuts alone would reduce economic growth. You can believe that and also believe in the power of marginal tax rate cuts. Indeed, conservative Keynesians like the ones who happen to be advising Romney believe exactly that. No doubt Romney believes it as well. Hell, just about the whole Republican Party believed it before Obama took office and they decided that the Keynesian pump-priming theories they advocated during the mild 2001 recession were suddenly inappropriate for the biggest economic crisis since the Great Depression.
But the notion that increasing short-term deficits is the appropriate response to a liquidity crisis has suddenly become, like many of Romney’s other past beliefs, utter heresy. His profession of heresy is, potentially, a much more damaging gaffe than any of the gaffes Romney has made so far. Rick Santorum has failed to exploit it so far, which suggests he’s either slow on the uptake or saving it for a major assault in tonight’s debate. I’d bet on possibility number two.