On this weekend's talk shows, Mitt Romney could not say which tax loopholes he would close to offset tax cuts for the wealthy. No surprise given the vagueness of the Republican strategy for fixing our economy, but the real issue here is much bigger than just Romney's cluelessness. The principal danger in a Romney presidency is in the reckless and contradictory Republican plan for deficit reduction, most of which is pure ideological nonsense.
Three weeks ago, the Congressional Budget Office predicted that unless we avert the "fiscal cliff," a $500 billion basket of tax hikes and spending cuts scheduled to go into effect in January, 2013, the U.S. will face a significant recession and higher unemployment. That in itself is bad but the larger problem is that a prolonged recession could lead to chronic unemployment, decimate our productivity, erode our market share and competitive edge in global markets, push businesses into bankruptcy, and cause investors to withdraw their money from the U.S. and put it elsewhere. These hits to the system would not just be painful in the short term but would likely cause irreversible damage that could haunt us for many years to come.
But the Republicans' antidote to our economic problems does not take any of this into account. In their lopsided view of the fiscal universe, government spending is a bigger evil than even systemic damage, and free markets can solve all problems through trickle-down economics; and even though that theory worked so well in 2008, they continue to flog the same dead horse.
While government spending does need to be curtailed, any cuts must be phased in gradually to avoid unnecessary shocks to the system, including to the existing paychecks of millions of Americans, a fragile small business sector, an economy driven by consumption (which will be impacted by unemployment and recession), and the very infrastructure of our country that makes fruitful commerce possible. Europe just finished its ill-conceived experiment with austerity, and the loss in the continent's business credibility, as well as the harmful effects of excessive belt-tightening, are still being felt. Do we really want to go down the same track?
Respected economists like Paul Krugman have made compelling cases for a careful and gradual approach to deficit reduction -- one that would adopt the best of Keynes and Friedman and create real long-term benefits for our economy without a gratuitous short term bloodbath and permanent damage to our system -- and that is the blueprint that we should follow. The draconian cuts advocated by fiscal conservatives would just be myopic and counter-productive.
On the tax side of the equation as well, the Republicans are way off base -- as Romney demonstrated this weekend. The tax cuts they advocate run contrary to the goal of deficit reduction; in fact, the only way that their math would work is if the IRS closed most loopholes that enable corporations and wealthy individuals to pay unfairly low taxes, but clearly the Republicans have no idea how to do that -- or perhaps they have no intention of doing it. As it stands, the tax code simplification that Romney wants consists only of cutting taxes and not actually reforming the system, which is a dangerous proposition.
So, while it may be tempting to attack Romney personally, President Obama would do well to keep his eye on the ball and make the Republican plan for deficit reduction the centerpiece of his campaign. On the dinner table of political fodder, Romney's Bain Capital experience and even his offshore bank accounts are the equivalent of side dishes while the schizophrenic and self-destructive Republican ideas for our country's economic future are the main course.
Sanjay Sanghoee has worked at leading investment banks and hedge funds and is also the author of two novels. Please visit www.sanghoee.com for more details and to sign up for updates.
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