President Obama's plan to give the economy a short-term jolt, paid for in part by tax hikes on the rich, won't turn things around, a top economic adviser to Republican presidential candidate Mitt Romney writes. In a column for Bloomberg News, Glenn Hubbard argues that the economy suffers from more fundamental problems, and lays out his own ideas to address them. A former chair of the White House Council of Economic Advisers under President Bush, Hubbard would likely be in line for a top economic policy post should Romney be elected president. So Hubbard's list of proposals represents perhaps the most detailed blueprint we've yet seen of the economic principles that might guide a Romney administration.
Hubbard's plan relies mainly on bolstering confidence by reducing fear of tax increases, while cutting spending. He argues that the weak demand that's holding back growth and job creation is caused by fear of tax hikes. "The president's advocacy for higher marginal tax rates on the well-to-do dampens both job creation and asset prices," he writes. "Uncertainty over future tax and spending policy--How much will taxes need to rise to finance rising spending? If spending is to be cut, how and on whom?--weighs heavily on household and business spending decisions."
As a result, he says, any short-term stimulus plan should be offered alongside a longer-term effort to carry out "structural reform." The formula, in other words, boils down to cutting spending and not raising taxes. Its four components are a deficit reduction plan that avoids tax hikes, relying instead on spending cuts and economic growth; a commitment to reduce future deficits through spending cuts rather than tax hikes, as well; cuts to Social Security, Medicare and Medicaid; and tax reform that reduces marginal tax rates, while scrapping some deductions or exclusions.
Though Hubbard criticizes Obama's approach, his solution shares some features with the president's plan. Obama this week proposed his own $3 trillion long-term deficit reduction plan, which includes getting rid of certain tax deductions that primarily benefit the rich. The key difference is that Obama's plan includes an even split of spending cuts and tax hikes--including lettin the Bush tax cuts on high earners expire--while Hubbard's includes only spending cuts. Polls suggest that most Americans support letting the Bush tax cuts expire.
As for shorter-term stimulus proposals, Hubbard doesn't spell out anything specific. He appears to argue that simply reducing uncertainty over future tax hikes will spur growth and help create jobs.
Earlier this month, Romney's campaign unveiled a 59-point economic plan that included a call for a constitutional amendment requiring a balanced budget. But the plan, intended largely for political consumption, mostly avoided detailed discussion of economic principles.