The Obama campaign has recently resorted to a peculiar tactic: putting forth the current president as a paragon of fiscal conservatism and deriding Mitt Romney as a profligate executive. The source of this criticism suffices to discredit it, but the details of Romney’s fiscal record add to the evidence in Romney’s favor. They stand in stark contrast to President Obama’s meager accomplishments these last three and half years.
When Mitt Romney took office as governor of Massachusetts in 2003, the recent recession had hit Massachusetts particularly hard, leaving the state’s budget in tatters. But the governor faced a deep-blue wastrel of a legislature that expected more government whenever it pleased.
His predecessor had left him, even after huge tax hikes, a $450–$600 million budget deficit remaining in the fiscal year. Knowing that the legislature would push for tax increases instead of spending cuts, Romney won more expansive “9C” budgetary powers from the legislature, enabling him to make midyear reductions in areas that previous governors couldn’t touch, such as Massachusetts’s $5.5 billion in local-government aid.
Then, in Romney’s first full fiscal year, he faced a $3 billion deficit (based on projected spending growth). For 2004, Romney proposed $22.8 billion in spending, a real decrease from his predecessor’s $23.5 billion proposal in 2003 (which required an increase in the capital-gains tax rate).
By contrast, in Barack Obama’s first full fiscal year in office, he faced a projected deficit of $1.186 trillion. His 2010 budget, rather than beginning to close that gap, instead expanded it, running a deficit of $1.29 trillion, which increased the federal debt by 12 percent of GDP in one year (despite revenues that were greater than expected).
In order to close the gap, Romney made cuts in almost all areas of state government. He cut health-care spending, closed obsolete state offices, and consolidated redundant departments and cabinet agencies. However, facing a huge deficit, a veto-proof legislature, and billions in mandatory spending, Governor Romney also had to raise some revenues. He did so mostly by increasing fees, rather than tax rates, to the tune of $501 million. As an Urban Institute study puts it, “There was no new borrowing, pension recapitalization, or securitizing of tobacco revenues — which the administration disdained as ‘fiscal gimmicks.’”
Many of the increases were merely sensible: for instance, raising greens fees at state golf courses and charging higher rents for highway billboards, prices that hadn’t changed in years. Some of these fees, as critics on the right and left have argued, of course fell on the ordinary, middle-class taxpayers (golfers are people, too), but such is the case for any form of government-revenue increase, especially at the state level, where taxes tend to be flatter.
Many anti-tax zealots, including Romney’s Republican-primary opponents, have also criticized fee hikes as back-door tax increases, but they are preferable to tax-rate increases. Fee hikes work far better than increases in income-tax or corporate-tax rates because they don’t distort incentives as significantly, and they pose less of a threat to businesses that are assessing a return on investing in the state. Romney also closed a variety of business-tax loopholes in order to raise revenues — again, a method much preferable to raising marginal rates. It’s worth comparing how Romney managed his budget crisis with the methods favored recently in California and Illinois: Tax rates have increased substantially in these two states, scaring away investors while barely improving the states’ fiscal picture.
Romney’s record of fiscal discipline continued throughout his tenure as governor. After his cuts for FY 2003, government spending did rise eventually, though he managed to cut it again in real terms from 2004 to 2005. Between 2004 and 2006, in fact, Massachusetts’s economy rebounded so energetically that even in years when the state increased spending, it also ran a surplus, allowing the state to shore up its “rainy day” stabilization fund, a key element of state fiscal stability.
The orthodox fiscal-conservative Club for Growth has criticized Romney for “loosening the purse strings” after the 2003 budget crisis had been resolved. However, this spending was the result of the rapidly improving revenue situation: In a nod to the happy days, the legislature overrode even more of Romney’s spending vetoes than they had before. Overall, Club for Growth praises Romney for enforcing “much-needed fiscal discipline,” keeping the rate of spending growth to 2.22 percent, well below the benchmark of population growth plus inflation.