My Chat with Mitt on Economic Policy: The Expanded Director's Cut

Romney speaks on tax reform, innovation, and China.

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I chatted with Mitt Romney by telephone last night (he was in New Hampshire) on a variety of economic issues, including taxes, trade, and government spending. (Romney's economic plan can be found here.) Since it's going to be "all Mormonism, all the time" as of Thursday when he gives his big speech on religious liberty, I thought I would ask all the substantive policy questions now. You know, the ones that would never make it into another YouTube debate.

Since the Civil War, every presidential election during a recession has meant defeat for the incumbent party. If nominated, can you win in 2008 if we have an economic downturn?

There are some statistics which don't have a great basis in causal effect, and that may well have some basis, but I actually think that in a setting like we have, where we face real competitive challenges, particularly from Asia and the weakened dollar and high energy prices, that people are going to want someone who understands how the economy works, someone who understands what drives employment, what brings good jobs and what scares jobs away. And so far as I know, I'm the only candidate whose almost entire career was in the private sector, who has done business in well over 20 countries around the world, and I think Americans are going to want somebody who understands the economy. Why so much economic angst out there? Some blame perceived rising income inequality.

Well, clearly the subprime mortgage crisis and its spread to the overall credit market has spooked the stock market and is being widely reported, and some people have concerns. And there's no question that the media shapes a good deal of public perception, and there is nothing that sells like fright. Clearly, those things affect the national mood. I don't think we have to go into a recession. I think we can see a return of growth. I do recognize that families also are concerned that the value in their homes may not be what they thought it was, and that is another factor in the assessment of a person's wealth and well being. ... I also think what's important is that people see rising prospects for their own future. I hope that we as a people are most concerned about whether we are doing better than whether someone else is doing better than us. How about boosting the child tax credit as a way to help families?

There is a lot going for having a substantial child tax credit. What I have proposed to help middle-income families is a tax savings plan where people earning $200,000 a year or less would be able to save their money tax free, so [there would be] no taxes on interest, dividends, or capital gains, and that lowers taxes for middle-income families. But I also support the continuation of a high child tax credit, and that obviously would be something that would be disappearing if the Bush tax cuts were allowed to expire. How can we make America more innovative and competitive?

I think there are a number of things we need to do to make ourselves more competitive. One, lower the corporate tax rate. As you know, we and Japan have the highest corporate taxes in the world. Two, provide regulatory relief. Regulations grow like weeds, so you got to get a weed whacker and regularly pull them out. We need national tort reform. Last year American corporations spent more money on tort claims than they spent on R&D, and that is unacceptable. We have to strengthen our education system, particularly in math and science. We are falling behind the world. We need to invest in science and technology in our country, and I am talking not only private sector but also public-sector investment in basic science. We are going to have to make investments in infrastructure because we are becoming an expensive place to do business. We are going to have to get ourselves independent of foreign oil, and that's going to require a substantial investment. By "investment" you mean "spending." In the past you have mentioned an "Apollo Project" for energy independence. The original Apollo program cost $100 billion. What will yours cost?

I wish we could become energy independent for only $100 billion. But energy independence is going to take a long-term commitment, and the public and private investment will most likely be quite substantial, but the return will be even more substantial. We send over a billion dollars a day out of our country to buy oil and energy from other countries. Building nuclear power plants, developing carbon sequestration, liquefied coal, or gasified coal will be the more expensive efforts, but the payback is enormous. Can government successfully invest billions of dollars?

The answer is no. The government should not be picking winners and losers. The government should not be getting behind companies and say we are going to play venture capitalist. Venture capital is a tough industry. I know. I've been in it, and I wasn't perfect either. And government doesn't play that role. But in basic science, we invest $50 billion a year in healthcare research. The total investment that we have been able to come up with on new technologies for energy efficiency or energy production is roughly $4 billion a year, and we send a billion dollars a day outside the country. Private consultants will tell you that the key to innovation is subjecting America to as much competition, such as through light regulation and free trade, as possible. You buy that?

I know that our Democratic friends are 180 degrees off on this front. It's really sad but none of the leaders on the Democratic side and almost no one on our side has any significant experience in the private sector, and that's why I began with regulatory relief. ... [Over-regulation] kills small businesses, and they are the source of a good deal of jobs. And the other is keeping our markets open. That's something which a lot of people fear, but if we are vigilant in protecting a level playing field, we not only can compete with the rest of the world, we have to compete with the rest of the world. The option of saying, "We can't compete, we're too expensive, so let's put up protective barriers," that would virtually assure that we go the way of the Soviet Union, that we get outcompeted by other people and become a second-tier economy. And if we became a second-tier economy, we would become a second-tier military. You really have no choice but to compete with the world. I realize that with the [World Trade Organization] there are many features that are not advantageous to us. It doesn't deal with manipulation of currencies as it should. It doesn't deal with protection of intellectual property as it should. We're treated unfairly relative to people with a Value Added Tax. And so we are going to have to establish either better rules at the WTO or launch what I call a Reagan Zone of Economic Freedom, invite other countries to trade with us, but they are going to have to abide by high standards and enforcement. Would implementing Mike Huckabee's "fair tax" idea be better than our current system?

Before I would jettison our current system, which of course needs fundamental reform, I would want to have a thorough and complete vetting of new tax proposals, and that should be done by professionals and not by politicians. But I noted that the Wall Street Journal concluded that the fair tax would cause an increase in the tax burden that the middle class would pay. That's not a good idea. They may be wrong, but we surely need to determine where the tax burden would fall before we put in place a new plan. And by the way, the fair tax has a lot going for it. It gets rid of embedded taxes, the unfair tax treatment we get in foreign competition. It gets rid of the IRS. There are some great features about a consumption tax, but let's also recognize that the supporters of the fair tax want a constitutional amendment banning any other tax, and those things take a long time, so let's move with something immediate if we can. Any interest in a carbon tax offset by a cut in payroll taxes?

I am not going to be talking in this campaign about new taxes. Would America be better off if China was still a closed society?

The world is where it is. But you have over a billion people in the world, particularly in India and China, that have been in poverty, that are coming out of poverty, and that is a good thing. You also have a billion people who can buy goods and services from America, and that's a good thing. But it's going to be tougher competition, and you know America can rise to the occasion. We have no choice. I can't wish China away. What about making Social Security solvent by linking future benefit increases to inflation rather than wages?

The idea has merit if you apply that lower inflation rate to the benefits of high-income individuals. I think it would be a mistake, as Fred Thompson has proposed, to do that for all Social Security recipients. People at the low end of the income scale would find it difficult to live on the sharp benefit reduction that a lower inflator would lead to. This is [finance executive] Bob Pozen's plan, to use the CPI inflation for higher-income people and the wage inflator for lower-income people. And that's something which has some merit. The economy has been booming almost uninterrupted for a quarter century. How do we keep it going for another 25 years?

Keep our taxes down and our spending down. ... Deregulate, deregulate, deregulate. Invest in technology, and sharply improve the standards in our schools.