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Tax Cuts, Deregulation Among Republican Economic Priorities for 2012 Election

August 24, 2012 at 12:00 AM EDT
Ahead of the Republican National Convention, Paul Solman goes to Tampa, Fla., to talk to Douglas Holtz-Eakin, former director of the Congressional Budget Office, as well as some conservative business owners about their economic priorities going into the 2012 Election, which include tax cuts and deregulation.
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JEFFREY BROWN: And now to a question: How might Mitt Romney’s policies impact the economy?

Our economics correspondent, Paul Solman, went to the city hosting next week’s GOP Convention to find out.

It’s part of Paul’s ongoing reporting Making Sense of financial news.

PAUL SOLMAN: At the Tampa Bay Times forum this week, lights, cameras, and lots of action, as workers put the finishing touches on the set for next week’s Republican Convention.

John McCain’s economic adviser four years ago, Douglas Holtz-Eakin, agreed to fly to Tampa to explain this election’s agenda.

What’s the essence of — I’m going to use the old gag — the economic platform of the Republican Party this time around?

(LAUGHTER)

DOUGLAS HOLTZ-EAKIN, former Congressional Budget Office director: Well, it’s a return to reliance on the private sector, a return to a government that is small, contained and knows its role in society.

PAUL SOLMAN: So does that mean shrinking government?

DOUGLAS HOLTZ-EAKIN: Well, in some cases, it’s addition by subtraction, quite frankly. We have seen an enormous regulatory expansion in the four years of the Obama administration.

Republicans are interested in rolling that back and making the regulatory environment far more benign to the average business.

PAUL SOLMAN: Isn’t deregulation, lack of regulation what caused or helped precipitate the crash of ’08 to begin with?

DOUGLAS HOLTZ-EAKIN: Much like the crash of 2008, where there was some under-regulation, but also some over-regulation.

We forced Fannie Mae and Freddie Mac to issue mortgages to people who couldn’t afford them.

PAUL SOLMAN: Folks argue over Fannie and Freddie’s role in the crash. But a crash, there was, and the housing market is only now stabilizing in Tampa.

The president’s efforts didn’t exactly right the ship, says broker Ken Harrelson, who calls himself Dr. Real Estate.

KEN HARRELSON, “Dr. Real Estate”: The home loan modification program was a disaster.

PAUL SOLMAN: And you’re still suffering from that here in Tampa?

KEN HARRELSON: Current homeowners that can’t modify would be suffering. They’re forced into either selling at a short sale or being forced into a foreclosure situation.

PAUL SOLMAN: So the critical policy, says Holtz-Eakin, is not too little regulation or too much.

DOUGLAS HOLTZ-EAKIN: The issue is smart regulation, and to actually be very disciplined in the places where you get into the regulatory initiatives and make sure that the regulations make sense.

PAUL SOLMAN: And every four years, people from both parties tell me it will be smarter regulation the next time around.

(LAUGHTER)

DOUGLAS HOLTZ-EAKIN: Hope springs eternal. But there’s also just magnitudes involved. The Obama administration exceeded the regulatory output of the Bush administration when it was doing all the post-9/11 anti-terrorism efforts.

I never thought we’d see a regulatory impetus bigger than that. If you talk to the average businessman, they’re drowning in it.

PAUL SOLMAN: In fact, we did talk to a few average Republican businessmen here in Tampa. Kevin Wright turns out T-shirts for the faithful.

KEVIN WRIGHT, Thundershirts: Yes, the local Republican Party generally comes to us each year and orders more shirts for different events that they have, and it’s mostly for volunteers to wear in the field.

PAUL SOLMAN: And the other T-shirt you had over there you were showing me?

KEVIN WRIGHT: Well, this shirt is Oba-Mao.

PAUL SOLMAN: Obam…

KEVIN WRIGHT: And it might come to — Oba-Mao.

PAUL SOLMAN: Oba-Mao.

KEVIN WRIGHT: Yes. I ripped this design off of a Chinese entrepreneur.

PAUL SOLMAN: Reverse piracy.

KEVIN WRIGHT: Yes, reverse piracy.

PAUL SOLMAN: It’s the support of small business that makes Wright, who campaigned for Al Gore in 1988, a Republican in 2012.

KEVIN WRIGHT: I really think that the president doesn’t get the amount of determination and tenacity it takes to survive in business.

PAUL SOLMAN: Big government is keeping this small businessman down, says Wright. He dreams of expanding to 50 employees.

How many people you got here?

KEVIN WRIGHT: Right now, three.

PAUL SOLMAN: And if you go to 50?

KEVIN WRIGHT: Then a whole new set of regulations kick in. I have got to go to school with an accountant and a bunch of other people to advise and to, you know, move me through that step.

PAUL SOLMAN: As difficult as investing to enlarge the business:

KEVIN WRIGHT: You can see from this piece of equipment here it’s desperately in need of refurbishment.

PAUL SOLMAN: It could probably use a little bit of cleaning, too, if you don’t mind my saying.

KEVIN WRIGHT: Cleaning is not a problem.

PAUL SOLMAN: The problem is confidence, says Wright. Deregulate, cut taxes, and he’d invest.

KEVIN WRIGHT: It would cost me about $4,000 to replace this piece of equipment. I’m not willing to make a $4,000 expense until I’m certain that I have the confidence going forward for at least six years that the equipment cost would take to pay back.

PAUL SOLMAN: Back at the convention hall, Douglas Holtz-Eakin said such confidence depends on the prime mover of Republican economics, across-the-board tax cuts, which both Mitt Romney and his vice presidential pick, Paul Ryan, have separately proposed.

DOUGLAS HOLTZ-EAKIN: The first objective has to be growth. This is where America is failing right now. It’s the worst recovery from a recession we have experienced since the Great Depression.

PAUL SOLMAN: But the tax plan, either Romney’s plan as it was originally articulated, Ryan’s plan as embodied in the House, legislation that passed the House, is a huge cut in the top marginal rate, which has been scored to cost more than $4 trillion over the next 10 years.

DOUGLAS HOLTZ-EAKIN: I take all of those numbers with a grain of salt. I have made up a lot of numbers in my career.

(LAUGHTER)

DOUGLAS HOLTZ-EAKIN: I don’t pay too much attention to that.

I look at the quality of the reforms being proposed, and all of them are very close cousins to the Bowles-Simpson commission, which I think is fabulous.

Because Bowles-Simpson was the one moment in a very partisan environment where we got Republicans and Democrats to agree on a package. And that package included lower marginal rates, broader bases, and they raised more revenues as well.

PAUL SOLMAN: I haven’t been covering economics for quite this long, but over the last 100 years, this is close to the lowest top marginal rate we have ever had, a little lower for a few years under Reagan…

DOUGLAS HOLTZ-EAKIN: Post-’86.

PAUL SOLMAN: Right.

DOUGLAS HOLTZ-EAKIN: Twenty-eight percent.

PAUL SOLMAN: Twenty-eight percent, but only for a few years. And it’s been as high as 90 percent or north of 90 percent from the mid-’40s all the way to Kennedy, all the way through the Eisenhower administration. Right?

DOUGLAS HOLTZ-EAKIN: Right.

PAUL SOLMAN: So are we really going to get more growth by cutting the marginal top rate?

DOUGLAS HOLTZ-EAKIN: No single policy, in and of itself, is the magic for growth.

If we knew the one lever to pull, we would have pulled it. There’s a lot of evidence that higher marginal rates deter people from working as much, from investing efficiently. It leads to a premium on having a clever tax attorney, instead of doing your job. That’s the reason you want to get rates down.

PAUL SOLMAN: Of course, Democrats contend that lower rates wouldn’t solve any problems, would add to them, in fact, by swelling the deficit, forcing us to cut spending.

LAHNIE JOHNSON, Acoustiblok: And this is all destined to go to Saudi Arabia.

PAUL SOLMAN: Really? This — all of this is going to Saudi Arabia?

LAHNIE JOHNSON: In Saudi Arabia, it’s absolutely almost a sin to hear through a wall. And so when you hear a man and woman on the other side of a wall, it’s not allowed.

PAUL SOLMAN: Lahnie Johnson makes Acoustiblok. Sheets of the rubbery product are encased in walls. Acoustiblok dazzles with its ability to muffle the loud.

All right, so I’m going to be as loud as I can now.

(SCREAMING)

PAUL SOLMAN: Wow.

It can even mute the 120 decibels blaring continuously from Johnson’s Senor Wences-like demo device. Johnson favors tax cuts, says they surely shouldn’t stop at President Obama’s proposed $250,000 limit. That would penalize small business owners like him, he says, who report profit as personal income.

LAHNIE JOHNSON: And a lot of that may have gone back into the business, you know, to expand the business, which still shows up as profit. And every businessperson keeps putting money back in. So it’s — $250,000 is not that much for a corporation and a personal income.

PAUL SOLMAN: Worse still, he sees his taxes funding government programs that create perverse incentives not to work.

LAHNIE JOHNSON: I have had people that we have had to lay off, and I have called them back. And justfully so, they’re kind of like saying, well, you know, I would have to put in 40 hours a week, and I would be making only a little bit more than what I am now, and I would lose all my subsidies and all the entitlements.

PAUL SOLMAN: People have said that to you?

LAHNIE JOHNSON: Oh, absolutely.

PAUL SOLMAN: And if a Republican administration came in, what do you expect would happen?

LAHNIE JOHNSON: I think you would see an immediate turnaround.

PAUL SOLMAN: Johnson lauds other features of the Republican economic policy, more drilling for fossil fuels, no subsidies for green energy, which he calls brown, no government programs like high-speed rail meant to modernize travel here in Tampa, which Gov. Rick Scott nixed, even though Johnson said he stood to make millions selling his sound panels to reduce the noise. The station would have gone next to this bus depot.

But, in the end, it all adds up to the theme of this convention: an anti-big-government, pro-small business philosophy we will be hearing a lot about in Tampa next week.