FISCAL ISSUES: OBAMA
SPECIFIC POLICY POSITIONS
Economic stimulus now, deficit reduction over the long term. Tax the wealthy to raise additional revenues. Trim military spending, Medicare, federal pensions, and farm subsidies. This litany sums up the gist of the Obama administration’s approach to taxes, spending, and the federal deficit as outlined in the president’s fiscal 2013 budget. These policy proposals are part and parcel of the administration’s creed of tax fairness and progressivity: mainly, the principle that the wealthy should shoulder a greater burden of taxes than lower-income Americans. When it comes to the budget, the Obama administration is less concerned with reducing the deficit in the short run than with reviving the economy.
Much of the administration’s rhetoric on taxes involves ensuring that the wealthy pay their “fair share.” In addition to allowing the Bush tax cuts to expire for families who earn more than $250,000 a year, the president would also institute the so-called Buffett Rule, which would limit the amount of deductions that high-income earners can claim and attempt to set up what amounts to a minimum tax rate for millionaires. The president has proposed to reduce the corporate tax rate from 35 percent to 28 percent, except for manufacturers, which would receive a special rate of 25 percent. Obama would also institute a minimum tax on the earnings that multinationals make overseas.
When the president unveiled his budget in February, Jeff Zients, the acting director of the Office of Management and Budget, was quick to tout its bevy of deficit-reduction measures that he said amounted to than $5 trillion in savings over 10 years—from the $1.5 trillion in tax increases, to the $1 trillion in spending caps from the Budget Control Act, to the $850 billion in war savings from the military drawdown in Iraq and Afghanistan. The president’s budget does little to reduce spending on Medicare, Medicaid, and Social Security—the biggest drivers of federal spending in the coming decades.
The president’s surrogates, such as White House Chief of Staff Jacob Lew, have emphasized that now is not the time for austerity. Obama proposes to increase spending on transportation projects, nondefense research, and teacher training. He also calls for a tax break for manufacturers that bring jobs back to the U.S. and for small businesses that hire new workers. Unlike Romney, he opposes a cap on spending as a share of GDP, arguing that such a cap would restrict the government’s flexibility to increase spending in tough times.
Obama’s budget tweaks Medicare and Medicaid, while promising bigger health care savings to come from the 2010 health care reform law. The president has privately indicated a willingness to go further on entitlement cuts if Republicans agree to tax increases.
The president wants to lower the corporate rate from 35 percent to 28 percent, saying that anything lower is a money loser.
Since 2008, Obama has pushed to end the Bush-era tax cuts for households earning more than $250,000 a year. He agreed to an extension in 2010, however, given the poor economy.
In February 2009, he promised to cut the deficit in half by the end of 2012. Instead, it has exploded to record levels during his watch, exceeding $1.2 trillion every year. The recession has been a big factor.
Gene Sperling: As assistant to the president on economic policy, Sperling runs the National Economic Council (as he did during the Clinton administration). He is also a big defender of the Obama budget blueprint and gave a lengthy speech in mid-April attacking the House GOP’s budget plan.
Timothy Geithner: Before becoming Treasury secretary in 2009, Geithner was president and CEO of the Federal Reserve Bank of New York. He has held a number of positions at Treasury and at the International Monetary Fund. Under his watch, Treasury issued its corporate tax reform draft.
Jacob Lew: Although Lew left the Office of Management and Budget this year to become Obama’s chief of staff, he remains a key adviser on all budget and spending matters. He also served as OMB director under President Clinton.
Jeff Zients: After a lengthy career in business, he is the acting director of OMB. In the private sector, Zients was chairman of the Advisory Board Co. and the Corporate Executive Board.
FISCAL ISSUES: ROMNEY
SPECIFIC POLICY POSITIONS
Although some Republicans have fretted that Romney is a RINO—“Republican in Name Only”— his fiscal proposals tell a different story. In fact, they closely follow prominent conservative thinking, down to support of Rep. Paul Ryan’s controversial budget that calls for deep cuts in domestic spending, broad changes in Medicare and Medicaid, and lower tax rates, all while protecting defense spending. Romney believes that lower marginal tax rates for individuals and lower capital-gains rates will stimulate the economy and, in turn, boost economic growth and lift the country out of its economic doldrums. He says he is the person to lead this turnaround, citing his business background and especially his role at private-equity firm Bain Capital.
As president, Romney would tackle taxes two ways: reduce rates and overhaul the tax code. In addition to making the Bush-era tax cuts permanent, he has proposed slashing the corporate tax rate from 35 percent to 25 percent; reducing individual income-tax rates by 20 percent across the board; and eliminating the estate tax, the alternative minimum tax, and some tax provisions from the 2010 health care reform law. He would end taxes on long-term capital gains, dividends, and interest for families who earn under $200,000. To pay for such large reductions, Romney has said he would make the tax code less complex by eliminating some yet-to-be-determined breaks. He also proposes to switch to a territorial tax system.
To reduce the deficit, Romney would make deep spending cuts and cap federal spending at 20 percent of GDP by the end of 2016—with the goal of eventually bringing it down to between 18 percent and 20 percent--well below its level in recent decades. Recently, he has made the country’s mounting debt a key point in his case against Obama. “A prairie fire of debt is sweeping across Iowa and our nation,” he said at a campaign stop in Des Moines, “and every day we fail to act, we feed that fire with our own lack of resolve.”
Many of Romney’s spending proposals echo the budget proposals of Rep. Paul Ryan, chairman of the House Budget Committee. Like Ryan, Romney would cap federal spending; repeal the 2010 health care law; cut the size and salaries of the federal workforce; and turn Medicaid into a block-grant program that would give control to the states, shifting it from an open-ended entitlement and limiting its funding. Romney has said he would follow the House GOP budget and cut nondefense discretionary spending by 5 percent immediately.
Massachusetts’ state spending fell by at least $350 million on Romney’s watch as governor from 2002 to 2007, according to The Washington Post’s fact-checker.
During his governorship, Romney balanced the budget and bolstered the state’s rainy-day fund. Only problem for GOP voters? He did so by increasing state fees and closing tax loopholes.
Romney’s campaign says that he did not raise taxes as governor, but, according to the Massachusetts Taxpayer Foundation, he did close 22 loopholes, which raised between $850 million and $1.2 billion. The Club for Growth graded his tax record as a C. Romney declined to sign activist Grover Norquist’s antitax pledge as governor, but as a presidential contender he signed on in 2006.
Gregory Mankiw: Although his career has been primarily in academia, Mankiw served as the chairman of President Bush’s Council of Economic Advisers from 2003 to 2005. He is on leave from an economics professorship at Harvard University.
R. Glenn Hubbard: Like Mankiw, Hubbard served as economics-council chairman under Bush. He is the dean of the Columbia Business School, where he has taught since 1988. He is also a director at several companies, including ADP, BlackRock Closed-End Funds, KKR Financial, and MetLife.
Jim Talent: A former senator from Missouri, Talent worked on Romney’s 2008 campaign and is now a key economic-policy adviser. He is also a fellow at the Heritage Foundation, where he studies welfare reform and military issues.
Vin Weber: Weber, a former House member from Minnesota, is the managing partner at Clark & Weinstock, a Washington-based consulting firm. In the early 1990s, he was an acolyte of then-Rep. Newt Gingrich.
This article appears in the May 26, 2012, edition of National Journal Magazine.