What does an extra 1% of growth mean?

The latest big deal on the campaign trail is the analysis by a former Obama staffer of the impact of the Romney tax proposal. According to this analysis, Romney's tax plan is actually a way to shift the tax burden from the wealthy to the middle class. This analysis is not only flawed, it is dishonest.

First, the dishonesty. Obama bills this study as non-partisan and unbiased. Huh? The author of the study actually worked for Obama for years. The study is about as unbiased as one by Debbie Wasserman Schultz, the chair person of the DNC. Would Obama consider a study of his honesty (or lack thereof) by Karl Rove to be non-partisan and unbiased? This is just the same thing in reverse.

Second, more dishonesty. The point of the Romney tax plan is to get the economy growing again, something that Obama has failed to do after nearly four years. The analysis of Romney's tax plan by the "unbiased" former Obama staffer completely ignores the effects of this growth. Indeed, the point of the "analysis" is that there will be about an 80 billion dollar shortfall in tax revenues unless middle class tax deductions are reduced. But if the economy just grows by 1% faster each year, this 80 billion dollar shortfall will quickly be made up. In the first year, the taxes on the extra GDP ought to bring in another 35 billion dollars, and the federal expenditures ought to decline as well. Forgetting the decline in expenditures, however, that reduces the shortfall to 45 billion dollars in year one. In the second year, there will be another 1% of extra growth off of the higher base number. That means about an extra 70 billion dollars of tax revenues. Now the shortfall is 10 billion dollars. By year three, the shortfall changes to a 25 billion dollar surplus. In the fourth year, we have a surplus of 60 billion dollars. That means that during the first term of the Romney presidency, there will be a surplus of 30 billion dollars due to the tax changes without raising the burden on the middle class.

It is amazing that the partisan hack who did the study decided to ignore the economic growth that is the whole point of the Romney plan. Moreover, if the economy grows an extra 2% rather than 1%, the surplus will go from 30 billion to 170 billion dollars. And, remember, this surplus ignores the reduction in federal expenditures that will stem from improving economic conditions. As people get back to work, the welfare payments from the feds will decline.

In short, the study is a partisan hit piece done by a hack. It has about as much validity as the horoscope in today's paper.