comMITTed to Romney!

Calling it like it is

Mitt Romney stands head and shoulders above McCain when it comes to the economy.

End of story. Well, okay, here’s some background.

McCain and the Bush Tax Cuts

John McCain is constantly being asked about why he voted against the Bush tax cuts (twice), an act Mitt called “failing Reagan 101.” His explanation is that the cuts needed to be accompanied by cuts in spending. He continues to justify his actions with this rationale, prompting George Will to encourage Governor Romney to make the following question central to his campaign: “When the Bush tax cuts expire in 2010, who do you want to be President: Mitt Romney or John McCain?” I personally am hoping to keep my taxes low, thanks, so I’m voting for Mitt. But it’s clear: tax cuts help the economy, and restraining spending in the short term will harm the economy. McCain gets an F for his first (and second) tries at Reagan 101.

Mitt vs. McCain on Today’s economic issues.

But there’s more to this story. The economy is teetering on the brink of potential disaster. We’ve all seen the signs: financial markets tumbling; oil prices surging; a mortgage market meltdown; banks writing down huge amounts of assets; American manufacturing jobs being lost to overseas competitors who aren’t playing fair; the trade deficit; the weak dollar. The list goes on and on, prompting the head of the Federal Reserve to nearly use the R word (recession) in front of Congress a few days ago, and prompting the Fed to slash rates early yesterday. But hope is not lost: we have a presidential candidate with experience in the economy, having made his investors hundreds of millions of dollars. And he has a few good ideas.

Mitt’s Economic Stimulus Package

To these troubling economic signs Mitt Romney has responded with a stimulus package of nearly a quarter of a trillion dollars. It includes rebates like President Bush’s plan, but also exempts seniors from paying social security taxes. And in a stroke of pure genius that’s truly Reagan-esque, highlighting why we need a man of Mitt’s expertise and intellect in the White House, Mitt’s plan also includes a proposal that would give the economy the kick in the shorts it needs: it would allow companies to expense capital purchases for two years.

Why expensing capital expenditures is a brilliant idea (or, a brief primer on expense accounting, taxes and why they matter).

While it doesn’t sound like much, think about this: one of the changes made back in Reagan’s day was the acceleration of depreciation of capital assets. Certain assets that were depreciated on the books of companies over decades could now be written off much more quickly. Why was that important? Depreciation is a non-cash expense on the books of companies, meaning that when depreciation is accelerated the related accounting entry is increased, companies pay less taxes (because their profits are nominally lower), but they actually have just as much cash as before. So after this acceleration in depreciation, companies were actually more profitable (cash-wise), could spend more in the economy and capital purchases became more attractive, building jobs. Brilliant.

Mitt’s Proposal to Expense Capital Purchases

Mitt’s idea is similar. Expensing capital purchases for two years does the same thing, essentially accelerating the amount of expense companies can take for large purchases (rather than depreciating over a number of years, the entire amount would be an expense in one year). Again taking the expense faster results in lower taxes to corporations. So companies have more money to put into the economy. On top of that, because this is essentially a complete acceleration of depreciation, companies will have every reason to make all capital purchases they’re considering NOW, while the getting is good.

And that’s the genius. Companies will spend more money, capital orders will go up (one of the key indicators economists look at for whether the economy is in recession), and jobs will be created. That’s a benefit for everyone, but particularly in the manufacturing sector. Again, genius.

McCain’s Position on the Economy: Failing Reagan 101 a Second Time

Where I went to college you could re-take classes if you got a bad grade the first time around. But if you failed the second time, it was probably a message this course just wasn’t for you. So keeping in mind that McCain has already failed Reagan 101, even though he got a chance to re-take the test, let’s look at what McCain has said about economic stimulus. He’s in favor of rebates. So far so good (the President and Mitt have already suggested that, so he gets no points for creativity). But here’s the catch: in his refusal to renounce his Bush tax cut veto, he’s insisting AGAIN that any tax cuts be accompanied by spending cuts. You’ll see a number of videos posted on this site showing economists’ and commenters’ incredulity at this suggestion. The problem is this: you don’t stimulate the economy by taking money out of it. That’s “Reagan 101.” George Will in particular noted the irony in this suggestion. Withholding spending from the economy about to go into recession would be like withholding sugar from a hypoglycemic about to have an episode. And the economy needs some sugar right about now.

So What’s the Deal?

So why did McCain say he wants to make spending cuts? At best, he doesn’t know any better, and actually thinks that’s prudent. He’s said himself he “doesn’t know as much about economics as he should” (that’s a quote–google it). It’s also possible he’s taking this position to continue to rationalize his vote on the Bush tax cuts, proving the point Mitt has been making about Washington being broken. McCain is a Washington insider with 24 years of decisions to justify. He’s going to be hampered from doing the right thing, and we don’t want a guy like this in the White House. In any event, McCain’s position on this shows McCain’s lack of leadership and that he’s stuck in his legislator’s mentality. Pork barrel spending originates in Congress. And John’s still fighting that battle in his head instead of planning on leading as the President. If he wants to fight that battle, I say let him, but send him back to Congress where that war is waged. I don’t have any confidence he’ll have any more success getting along with Congress as President than he’s had the last 24 years in the Senate, where, as he’s said himself recently, he hasn’t won any congeniality contests.

Why I’m Voting for Mitt

So if the economy is a big issue to you, as it is to me, there’s no real choice here. Drop McCain like a bad habit, and jump on board with Mitt Romney. Our economy needs this guy.

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