Unpacking 'Romneyomics': how Mitt would adjust dials on the US economy

There is something to be said for addressing uncertainty, says Moody’s Mr. Zandi. “If you nail down the fiscal outlook, you provide a lot of juice to the economy,” he says. “But the same could be said for Obama, too.”

 A proving ground?

Other Republican chief executives have implemented some of the economic and fiscal policies that Romney espouses. One whose approach comes close to Romneyomics is Gov. Luis Fortuño of Puerto Rico, who has been on a tax-cutting, budget-slicing streak in the US territory since his election 3-1/2 years ago.

“We [in Puerto Rico] could be a microcosm of what could be done at the national level,” says Governor Fortuño, during a recent interview in his San Juan office. “What is interesting about our tax situation is that ... we have a mirror image of the federal government tax code.”

Comparisons between the financial situation of the island territory of 3.7 million and that of the United States, a global superpower of at least 300 million residents with an economy 213 times Puerto Rico’s, need to be taken with several grains of salt. But Fortuño, a Romney supporter, nonetheless sees his fiscal fixes as instructive.

There’s little doubt that Puerto Rico was in dire straits in 2008: Bond-rating agencies were poised to downgrade its status to junk, and its budget deficit was the worst in the nation, measured by the share of spending actually covered by revenue.

Fortuño’s prescription was to shrink the government workforce by 35,000 jobs (a 17 percent reduction), and to merge agencies, consolidate office space, and computerize services.

He also reduced individual and corporate tax rates – something that is on the Romney agenda. The number of corporate tax brackets shrank from seven to three, and the top tax rate for businesses went from 41 percent to 30 percent. He slapped multinational corporations with an excise tax, though, on their income outside Puerto Rico.

At the same time, Puerto Rico reduced tax rates for individuals by 11 percent the first year and 25 percent this year. Those rates will continue to drop through 2016 – but only if the island has a balanced budget and meets economic growth targets.

Many tax deductions have been eliminated in a bid to do what Republicans call “broadening the base,” just as Romney would do. “We had a deduction for the interest you pay on car loans,” says Fortuño. “But come on, you shouldn’t be allowed to deduct interest payments on the car – it could be a Ferrari.”

After three-plus years, Puerto Rico’s deficit has shrunk from $3.3 billion to $332.7 million. Within a year, Fortuño hopes to have a balanced budget. He says his goal is surpass the national average in terms of growth. “I believe we can do that,” says the governor.

As for Fortuño’s targets for economic growth, upon which lower tax rates for individuals depend? There is a lot of skepticism that Puerto Rico will meet them, says Mike Soto, president of the Center for the New Economy, a nonpartisan think tank in San Juan. He gives the governor mixed grades for his handling of the island’s economy.

“He has done a good job of getting the fiscal house in order,” says Mr. Soto. “But we feel there should be more of a focus on growing the economy.”

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