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Obama vs. Romney: Fiscal Issues





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 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’ income of 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 and give manufacturers 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 deficit-reduction measures that he said amounted to more 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 privately indicated a willingness to go further on entitlement cuts during last summer’s debt-ceiling negotiations if Republicans would 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 on household income above $250,000. He agreed to an extension in 2010, however, given the poor economy.

In February 2009, the president promised to cut the deficit in half by the end of 2012. Instead, it has exploded to record levels during his watch, with the recession as a big contributor.



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 and the Corporate Executive Board.

This article appears in the August 25, 2012 edition of National Journal Magazine.

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