Tuesday, June 12, 2012
The Obama campaign has recently resorted to a peculiar
tactic: putting forth the current president as a paragon of fiscal conservatism
and deriding Mitt Romney as a profligate executive. The source of this
criticism suffices to discredit it, but the details of Romney’s fiscal record
add to the evidence in Romney’s favor. They stand in stark contrast to
President Obama’s meager accomplishments these last three and half years.
When Mitt Romney took office as governor of Massachusetts
in 2003, the recent recession had hit Massachusetts particularly hard, leaving
the state’s budget in tatters. But the governor faced a deep-blue wastrel of a
legislature that expected more government whenever it pleased.
His predecessor had left him, even after huge tax hikes,
a $450–$600 million budget deficit remaining in the fiscal year. Knowing that
the legislature would push for tax increases instead of spending cuts, Romney
won more expansive “9C” budgetary powers from the legislature, enabling him to
make midyear reductions in areas that previous governors couldn’t touch, such
as Massachusetts’s $5.5 billion in local-government aid.
Then, in Romney’s first full fiscal year, he faced a $3
billion deficit (based on projected spending growth). For 2004, Romney proposed
$22.8 billion in spending, a real decrease from his predecessor’s $23.5 billion
proposal in 2003 (which required an increase in the capital-gains tax rate).
By contrast, in Barack Obama’s first full fiscal year in
office, he faced a projected deficit of $1.186 trillion. His 2010 budget,
rather than beginning to close that gap, instead expanded it, running a deficit
of $1.29 trillion, which increased the federal debt by 12 percent of GDP in one
year (despite revenues that were greater than expected).
In order to close the gap, Romney made cuts in almost all
areas of state government. He cut health-care spending, closed obsolete state
offices, and consolidated redundant departments and cabinet agencies. However,
facing a huge deficit, a veto-proof legislature, and billions in mandatory
spending, Governor Romney also had to raise some revenues. He did so mostly by
increasing fees, rather than tax rates, to the tune of $501 million. As an
Urban Institute study puts it, “There was no new borrowing, pension
recapitalization, or securitizing of tobacco revenues — which the
administration disdained as ‘fiscal gimmicks.’”
Many of the increases were merely sensible: for instance,
raising greens fees at state golf courses and charging higher rents for highway
billboards, prices that hadn’t changed in years. Some of these fees, as critics
on the right and left have argued, of course fell on the ordinary, middle-class
taxpayers (golfers are people, too), but such is the case for any form of
government-revenue increase, especially at the state level, where taxes tend to
be flatter.
Many anti-tax zealots, including Romney’s
Republican-primary opponents, have also criticized fee hikes as back-door tax
increases, but they are preferable to tax-rate increases. Fee hikes work far
better than increases in income-tax or corporate-tax rates because they don’t
distort incentives as significantly, and they pose less of a threat to businesses
that are assessing a return on investing in the state. Romney also closed a
variety of business-tax loopholes in order to raise revenues — again, a method
much preferable to raising marginal rates. It’s worth comparing how Romney
managed his budget crisis with the methods favored recently in California and
Illinois: Tax rates have increased substantially in these two states, scaring
away investors while barely improving the states’ fiscal picture.
Romney’s record of fiscal discipline continued throughout
his tenure as governor. After his cuts for FY 2003, government spending did
rise eventually, though he managed to cut it again in real terms from 2004 to
2005. Between 2004 and 2006, in fact, Massachusetts’s economy rebounded so
energetically that even in years when the state increased spending, it also ran
a surplus, allowing the state to shore up its “rainy day” stabilization fund, a
key element of state fiscal stability.
The orthodox fiscal-conservative Club for Growth has
criticized Romney for “loosening the purse strings” after the 2003 budget
crisis had been resolved. However, this spending was the result of the rapidly
improving revenue situation: In a nod to the happy days, the legislature
overrode even more of Romney’s spending vetoes than they had before. Overall,
Club for Growth praises Romney for enforcing “much-needed fiscal discipline,”
keeping the rate of spending growth to 2.22 percent, well below the benchmark
of population growth plus inflation.
The Obama campaign has also attempted to assail Romney’s
record on Massachusetts’s debt burden: “Massachusetts’s long-term debt
increased by 16.4 percent or $2.6 billion over four years. His legacy was that
Massachusetts had the highest per capita debt for any state in the nation by
the end of his tenure.” Let’s put aside that this criticism comes from a
president who has, in three years, increased the federal government’s debt by
about 50 percent, or almost $5 trillion. In fact, while Obama’s tenure has seen
the federal debt increase from 60 percent to 100 percent of GDP,
Massachusetts’s debt burden barely budged, rising from 16.3 percent to 19.4.
Romney did add to Massachusetts’s debt, thanks to the
weak economy and profligate legislative spending. But it’s simply false to
assert that he inherited a healthy state and turned it into an invalid. Romney
took over the reins of America’s second-most indebted state, and he left it the
most indebted — but with a restrained budget and $2.2 billion in its
stabilization fund (up from about $500 million when Romney took office).
Further, Massachusetts’s state debt, thanks to decades of
profligate governments, is very nearly an intractable problem. Unlike most
states, the Massachusetts state government issues a significant amount of debt
on behalf of local governments, a policy that’s arguably reasonable so long as
the state government maintains its ability to borrow more cheaply than local
governments, as Massachusetts did during Romney’s tenure.
Moreover, much of the Bay State’s debt burden isn’t the
result of spending that Romney or any other governor could afford to rein in;
it’s the aftermath of the Big Dig boondoggle. Most of the overruns for the
infamous Boston public-works project fell upon the state government, rather
than the federal government, which originally provided much of the funding.
This has burdened the state with huge amounts of very long-term debt and
interest payments of more than $100 million per year.
Romney, to the extent possible in Massachusetts, also
attempted to tackle the state’s long-term fiscal problems: He fought tooth and
nail to raise the amount that state employees had to pay toward their
health-care benefits, eventually prevailing; he also updated Massachusetts’s
welfare system to follow Clinton’s welfare reforms, which a series of waivers
had allowed the Bay State to ignore.
The contrast between the two executives is perhaps
starkest when you consider this: President Obama oversaw the first
credit-rating downgrade in the history of the United States, to AA+, while
Governor Romney convinced the three ratings agencies to lift his state’s credit
rating one notch, to AA, citing a basically balanced budget, stronger revenues,
and a larger stabilization fund. (Further, and thanks in part to the fiscal
reserves Romney set aside, his successor, Deval Patrick, has seen the state’s
credit rating raised to AA+.)
A downgrade is not necessarily a fiscal death knell;
since the federal government’s downgrade, yields on federal bonds have fallen
rather than risen. But that is due to a range of exogenous factors, unrelated
to this president’s fiscal plans, or lack thereof. Ratings agencies assess the
size and trajectory of a government’s obligations and its ability to meet them.
President Obama has been found wanting in this respect, to America’s detriment;
Mitt Romney proved himself capable of such discipline, to the Bay State’s
benefit.
No comments:
Post a Comment