Both Republican candidate Mitt Romney and his running-mate Paul Ryan claim that their campaign’s jobs plan is essentially its tax plan. In an ad, Romney states that “my tax reform plan to lower rates for the middle class and for small business creates seven million [jobs]” out of the twelve million total he says his policies will produce. “Our entire premise of these tax reform plans is to grow the economy and create jobs,” Ryan said at the vice-presidential debate. “It’s a plan that’s estimated to create seven million jobs.”
The basic conceptual framework of Romney’s tax plan is to cut marginal tax rates for every income bracket, then cut deductions in the tax code in order to avoid losing revenue. (Though the specific numbers Romney has laid out cannot go together mathematically.) In defense of this framework, the campaign often cites the 1986 tax reform deal hammered out by President Ronald Reagan and then Speaker Tip O’Neill, which also cut the top marginal rate to 28 percent and closed loopholes to keep revenue.
But the history of the 1986 deal shows it doesn’t double as a jobs plan, as Bruce Bartlett, a senior economic policy advisor in the Reagan and George H.W. Bush administrations, pointed out in The New York Times today:
Real gross domestic product growth was about the same after the 1986 act took effect in 1987 as it was before, and tax reform obviously did nothing to forestall the 1990–91 recession. Unemployment fell, but it had been trending downward before tax reform, and the 1986 act probably had nothing to do with it. Within a couple of years it was trending upward again.
By the mid-1990s, it was the consensus view of economists that the Tax Reform Act of 1986 had little, if any, impact on growth. […] Compositional changes in income are not unimportant and may be worth the effort of doing tax reform, even if there is no growth effect whatsoever. For example, it may improve fairness, simplicity and tax administration. But it appears that even in a best-case scenario in which the top rate comes down a lot — the 1986 act lowered the top rate 22 percentage points from 50 percent — the real economic effects are at best very modest.
Romney’s claim of seven million new jobs from his tax plan, and 12 million new jobs from his policies in total, is also less impressive than it sounds. Both Moody’s Analytics and Macroeconomic Advisors have predicted the economy will create roughly that amount by 2016 no matter who is president.
Even more embarrassingly, the study that Romney cited to show his tax plan will create seven million new jobs predicts those gains over a ten-year window, not a four-year one.
The problem with Romney’s solution to the jobs crisis is that it’s a giant non sequitur. Cleaning up the tax code and making it more efficient is certainly a worthwhile goal. But it has nothing to do with the country’s current problem, which is a short-term economic collapse that has driven up unemployment.