Let’s take Mitt Romney at his word, and see how the numbers he cited during Wednesday night’s debate add up. We can begin with a pop quiz in Presidential arithmetic:
If you have a $1.3 trillion annual deficit, and you are going to make it shrink to zero without raising any tax, how many new jobs will the economy have to create? Show your work.
Starting with Romney’s assertion that his policies will lead to 12 million new jobs over four years and provide the government with fresh tax revenue, how close will that come to plugging the gaping hole in the federal budget? Answer: Not very close.
If we assume that those jobs pay $40,000 per year and that each new job pays 20 percent in Federal taxes, the total additional revenue comes to just $96 billion in 2016.
That $96 billion obviously doesn’t come close to the $1 trillion currently projected deficit — not to mention the $300 billion in additional spending Romney proposes for the military and the insurance company subsidies he’s “returning” to Medicare.
Never mind that there’s a problem lowering the top tax rate to 28 percent from 35 percent, which will cost $250 billion in revenues. Plugging that hole by taking away the $165 billion in deductions used by top earners simply doesn’t work. Then there’s an even bigger problem making his tax cut of $5 trillion “revenue neutral” while giving the middle class “tax relief.”
But let’s continue taking Romney at his word, even if it’s not worth the paper it isn’t printed on.
Let’s imagine those new jobs are really, really good jobs. How good do they have to be to provide enough new tax revenue to cover the deficit?
At a 25 percent Federal tax rate on all the new income, the average new job would have to pay a mere $433,333 per year to fill the gap. Sign me up for one of those new jobs, please.
The other possibility is that Romney’s policies will magically create even more jobs than he’s assuming. If the new jobs were those $40K per year jobs each paying 20 percent in taxes, we’d need 162.5 million new jobs. For those playing along at home, that’s more jobs than the total current civilian labor force, which stood at 154.6 million last month.
The bottom line?
Romney’s real problem is that when he talks numbers, the numbers never add up.
Howard Hill is a retired investment banker who created a number of groundbreaking deal structures and analytic techniques on Wall Street, and later helped manage a $100 billion portfolio. He writes and blogs at mindonmoney.wordpress.com. Follow on Twitter: @hhill61
Photo Credit: AP/David Goldman