Romney’s Triangulation

I understand the politics behind Mitt Romney's opposition to the tax deal. But his stated grounds of opposition to the deal still make no sense.

I understand the politics of Gov. Mitt Romney's opposition to the tax deal.

In an oped in the Dec 14 USA Today, Romney has aligned himself with Rush Limbaugh and the Wall Street Journal against the dealmakers in Congress. That's the safest ground for Romney to stand, given (1) Republican conservatives don't trust him and need to be wooed and that (2) Republicans do trust him and expect him to govern responsibly whatever he may say on the campaign trail.

If the deal were to fail, that failure would open a powerful issue for the Republican presidential nominee in 2012.

So I get it, I get it. Romney is a politician, he must act politically.

But can we notice that Romney's stated grounds of opposition to the deal make no sense?

(1) Romney hits the deal for failing to remove uncertainty about tax rates beyond the 2-year horizon.

True, that. But the defeat of the deal will lead to much greater uncertainty. Will the next Congress pass - and will President Obama sign - a longer extension of the tax cuts in 2011? Who knows? Conceivably we could face 2 years of higher tax rates starting 18 days from now, followed by the 2012 elections, followed by - again- who knows?

Besides: from what I hear, the forthcoming tax increases that worry business owners most are the tax increases embedded in the healthcare reform. A "nay" vote on this deal does nothing to alleviate those concerns.

If "certainty" is your concern, the "aye" vote is the vote to cast.

(2) Romney hits the deal for increasing the deficit.

And yes, that is true too. Here is what is weird.

Two of the largest elements of the deal - the unemployment insurance extension and the partial payroll tax reduction - Romney specifically praises as "good."

More to the point: Romney's preferred tax alternative, the permanent extension of the Bush tax cuts, would increase the deficit much more.

Finally, the most immediate driver of the deficit is the severe recession. If the tax deal alleviates the recession, it could actually improve the deficit situation. (A point Romney implicitly concedes in the 5th paragraph of his piece.)

(3) Romney hits the deal for reducing only the employee side of the payroll tax.

I'll quote this passage in full so you can see how strange it is.

Part of the tax deal is a temporary reduction in payroll taxes. The president was insistent, however, that only the employee's payroll taxes be reduced — the portion paid by the employer is to remain the same. Again, the president is looking to get more money into the hands of the consumer to boost near-term spending. But by refusing to lower the cost of hiring a new employee, he fails to encourage what the American people want even more than lower taxes — more good jobs. Like the income tax deal, the payroll tax deal will add to the deficit.

Now ask yourself: what is Romney saying here?

Is he objecting that the payroll tax did not include both the employer and the employee side? If so, that objection makes nonsense of his complaint about the deficit.

Is he suggesting that the payroll tax cut is not a good idea because it increases the deficit too much? If so, why did he describe the payroll tax cut as a good idea at the beginning of the piece?

Is he suggesting that the employer side of the payroll tax is more important than the employee side? Mitt Romney of all people in this presidential race understands that both sides of the payroll tax are paid by employees, the division is just an illusion.

(4) Romney hits the bill for adding to the cost of unemployment insurance.

Romney makes many good points about the defects of the current unemployment system. He urges its eventual replacement with "a very different model, perhaps establishing individual unemployment savings accounts over which employees would exercise direct control when they lose their jobs ..." That's an intriguing idea, although it certainly does sound like a government mandate. However, Romney agrees that the middle of a savage recession is not the right time to reinvent unemployment insurance. He praises the extension of benefits as a good thing. Accordingly, he falls back on the Republican talking point, "While we cannot rebuild our flawed system overnight, we are surely not required to borrow the funds to pay for it. In spending $56.5 billion to extend benefits, the deal is sacrificing the bedrock Republican principle that new expenditures be paid for with offsetting budget cuts."

Can that really be sufficient reason to impose a huge tax increase on the US economy in less than three weeks, with only a hope and a prayer that a better deal can be done in the weeks or months ahead? It hardly seems convincing.

Which takes us to point (5) Romney hits the deal for delivering short-term stimulus that will aggravate persistent high unemployment.

I think I understand what he's driving at. Romney seems to believe that our unemployment problems are structural, not demand-side, and that the remedies require bigger economic changes. That's a smart point and probably a true point - but it raises the question why Romney supports renewal of the Bush tax cuts at all, rather than a tax reform that reduces deficits by shifting the burden of taxation away from production to consumption.

There is an old joke that Wagner's music is not as bad as it sounds. Something similar can be said of Romney's campaign economics. Concealed within the triangulation are some very smart ideas. I remain convinced: this man could be a very good conservative president - if conservatives will permit it.