Jobs and the economy, by a huge margin, top the list of issues that will determine how people vote. It’s not much of an overstatement to say that this is a one-issue election. As the latest Economist magazine put it, “Barack Obama won in 2008 largely because of the economy. He may lose this year for the same reason.”
Friday’s employment report gave Obama a shot of good news, with the jobless rage dropping below 8 percent after 42 consecutive months above. But the overall economy remains the president’s biggest vulnerability. Obama’s challenge is to convince voters that he is making progress, and that what Romney offers is a return to the policies that created today’s problems. Romney’s challenge is to convince voters not just that the president’s policies have failed but also that he has the experience and the policies to do what Obama hasn’t.
Because the recovery has been sluggish, Obama has been running against stiff head winds all year. But there are signs that voters are beginning to feel better about the future. They remain split, however, on which candidate they would trust more to fix the problems.
— Dan Balz
Here are Obama and Romney’s positions on the economy, broken down by subject:
Obama has called for spending hundreds of billions of taxpayer dollars to try to reduce the unemployment rate, which stands at 7.8 percent. He wants to offer tax credits to companies that hire more workers and give money to states and localities to hire more teachers and first responders. He also wants Congress to agree to legislation that would overhaul job training and unemployment programs that would better ease the jobless back into work — by continuing to pay unemployment benefits, for example, if workers get part-time jobs or apprenticeships.
To revive U.S. manufacturing and prevent jobs from leaving the country, Obama advocates tax breaks for companies that keep positions in the United States and penalties for firms that move work abroad. To make U.S. employees more competitive, he wants to create government-backed hubs that connect community colleges and businesses, making sure people are trained for open positions. Cumulatively, he says, these programs would create 1 million new factory jobs by the end of a second term.
Obama also wants to spend $210 billion over six years to rebuild the nation’s roads, bridges and railroads. He says that money represents half of the money the government will save as a result of the wars in Iraq and Afghanistan winding down.
Romney wants to lower taxes and reduce regulation in hopes of giving the private sector more flexibility to spend, invest and hire. He doesn’t like the idea of spending taxpayer money to stimulate hiring and has disparaged efforts to do so.
Romney would reduce individual tax rates by 20 percent and seek to offset the lost federal revenue by eliminating deductions, although he has not specified which ones. He also wants to end capital gains taxes (paid when stocks and bonds are sold) for people making less than $200,000 and eliminate the tax that heirs pay on estates valued at more than $5 million.
Romney has proposed reducing the corporate tax rate from 35 percent to 25 percent, a change that would bring corporate tax rates in the United States more in line with what they are abroad. As a result, he says, companies would be more likely to keep their operations here, saving U.S. jobs. He also would transition to a “territorial” tax system, so companies pay taxes where they operate rather than requiring that American firms operating abroad pay a tax on foreign profits in the United States.
Romney says his policies would create 12 million new jobs during his first term and lead to faster economic growth.
Faced with a national debt that exceeds $16 trillion, Obama has proposed a plan that would cut $5.3 trillion from the budget over a decade, roughly in line with what economists say is necessary to keep the debt from getting out of hand.
The president proposes raising taxes on Americans who make more than $200,000 per year to the rates in effect during the Clinton era. That means 39.6 percent, compared with 35 percent now. He also wants to scale back deductions and loopholes that benefit the wealthy and specific industries, such as finance and energy.
Obama also would dramatically cut domestic spending, although he would exempt Medicare and Medicaid. Defense spending also would be reduced.
Finally, Obama says he would tackle health-care and retiree costs by modestly lowering spending on Medicare and Medicaid. He would not reduce benefits. He says some savings would grow out of his health-care legislation.
In the summer of 2011, Congress and Obama agreed on deep budget cuts that would result in big tax increases for most Americans as well as major military and domestic spending reductions, starting in 2013, if they didn’t come up with a better plan. They haven’t been able to agree on one. But many believe that after the election, they would find a way to avoid letting the country fall off a “fiscal cliff.”
Romney, who believes Congress should delay the “fiscal cliff” and wait until next year to forge a new agreement, has ruled out raising taxes and cutting defense spending as ways to improve the nation’s budget situation. Instead, he recommends cutting domestic spending and restructuring entitlements to generate savings.
Overall, Romney would seek to limit federal spending to 20 percent of all economic activity in a given year. It’s 24 percent today. He says he would immediately cut domestic spending by 5 percent and seek to shrink the federal workforce by 10 percent. Romney has not given a precise target for how much he would reduce the debt, but he has said he would seek to balance the budget in a decade or less.
Romney has pledged a comprehensive overhaul of entitlements. He promises that people in or near retirement wouldn’t be affected.
For Medicare and Medicaid, he recommends moving away from unlimited forms of spending toward fixed grants.
On Social Security, Romney says he would consider raising the eligibility age or reducing benefits over time, but he has ruled out increasing Social Security taxes.
Obama has proposed building on measures he has already introduced to make it easier for underwater borrowers — those who owe more than their homes are worth — to refinance, taking advantage of low interest rates.
The administration is pressuring independent federal housing regulators to partly forgive the debts of some underwater homeowners. Regulators have declined, saying it would be too costly for taxpayers.
The president also wants to spend more money to rehabilitate communities hit hard by foreclosures — hiring workers to clean up neighborhoods and renovating dilapidated buildings.
While supporting a bigger role for the government in helping struggling homeowners, Obama also has suggested reducing its role in housing.
He wants to shutter Fannie Mae and Freddie Mac, the mortgage finance giants, and he hasn’t said whether or how he would replace them. He has said he sees a future role for government in housing, particularly in helping lower- and middle-income people afford their first homes. Still, he has called for higher minimum down payments and other measures to reduce risk in mortgage lending, steps that would make it harder for some people to buy a home.
Romney says he wants to dramatically reduce the government’s role in housing. He says that although the government can help those facing foreclosure, the housing market must be allowed to bottom out before it can experience renewed prosperity.
He has been critical of Obama’s approach of providing taxpayer aid to homeowners and has preferred private-sector solutions, such as allowing a borrower who is facing loss of a home to reach an agreement with the lender. This would allow the borrower to give up ownership of the home without going through a foreclosure, which can damage a person’s credit record. Romney wants to sell as quickly as possible the 200,000 foreclosed properties the government owns.
He also says he supports plans that would allow homeowners to refinance at low rates, but he has not offered his own proposal.
Romney wants to overhaul Fannie Mae and Freddie Mac so that they no longer pose a risk for taxpayers, although he has not specified how. He also wants to reduce and simplify regulation overseeing the financial sector, which he says would make it easier for home buyers to receive bank loans.
Obama has pledged to continue to promote free trade and is developing a new wide-scale agreement for open trade with about a dozen countries, including Chile, Peru and Vietnam. At the same time, Obama argues that workers who might be displaced by free trade should receive job training and financial aid from the government.
While an advocate of open trade, Obama says it must benefit U.S. workers and businesses. He supports subsidizing sales of American goods overseas by offering low-interest-rate loans to foreign companies that buy U.S. products. The effort is part of a plan to double U.S. exports by 2014.
He has pledged to defend U.S. workers and businesses by filing cases with the World Trade Organization protesting unfair trade practices by China and other countries.
Obama also says his administration would put more pressure on China to allow its currency to appreciate, which would make U.S. goods and services cheaper for Chinese consumers and businesses. But he is not planning to declare China a currency manipulator, which could trigger tariffs on Chinese-made goods.
Romney is a strong supporter of free trade and has said he would seek more open-trade agreements than Obama, who has pursued fewer new pacts than his predecessor.
He argues that the president should have the power to send trade proposals to Congress for an up-or-down vote — making the approval process faster. He says trade agreements should be considered separately from whether aid should be offered to affected workers.
With China, however, Romney takes a harder line. He considers China a trading foe and says he would increase enforcement actions when authorities determine that the country is unfairly subsidizing its industries or taking other steps that inappropriately benefit its companies. He accuses the country of stealing U.S. technology and software.
He says that he would declare China a currency manipulator and would impose tariffs if it did not take responsive action.
Obama says he wants to relax regulations where possible to make it less costly for companies, particularly small businesses, to operate. He has focused in the past on reducing regulations for new and growing companies. He has created an office in the White House to further analyze proposed regulation to assess potential costs to business.
Obama plans to preserve the Dodd-Frank Wall Street Reform and Consumer Protection Act, which aims to prevent financial institutions from misleading consumers and taking excessive risks that can hurt the economy. The legislation was his primary way to toughen oversight of Wall Street after the financial crisis.
As federal agencies now seek to use the authorities granted to them under Dodd-Frank, Obama supports tight rules to govern the largest banks and regulation of previously untouched areas, such as hedge funds and exotic financial instruments known as derivatives. He also defends the Consumer Financial Protection Bureau, a new creation that polices lending to consumers.
Romney would seek to scale back regulations that he says impose undue burdens on companies. He says he would limit how much new regulations could cost companies in a range of areas, including how much industrial companies can pollute and what telecommunications companies can charge their customers.
Romney would eliminate the Dodd-Frank overhaul of financial regulation and replace it with a more “streamlined” version, although he hasn’t said what he would eliminate in the legislation. Still, he has given hints.
Romney says he would take aim at how Dodd-Frank grants regulators the power to declare certain large banks and financial firms as “systematically important.” He suggested that this provision makes these firms seem too big to fail.
However, he would retain some key parts of the law, including standards such as minimum down payments for most mortgages. He also supports limiting how much banks can borrow without holding money in reserve.
WHAT THEY’VE DONE ON THE ECONOMY
Obama came into office during the worst financial crisis since the Great Depression. His first action as president was to pass an economic stimulus package to stop the economy’s slide. The $831 billion plan included tax cuts, spending on construction projects and clean energy, and local and state aid. Independent economists say the stimulus funding saved between half a million and several million jobs over several years.
Today, 1 million more people are employed than during Obama’s first full month in office. The unemployment rate has fallen to 7.8 percent from a high of 10 percent. But the percent- age of the population that’s working is still low compared with the historical average.
General Motors and Chrysler were on the brink of collapse four years ago. Obama invested tens of billions of dollars and helped restructure the companies to stabilize them, and today both are doing well. Chrysler has paid back its investment, but GM and its lending affiliate still owe $25 billion in taxpayer money.
To deal with the downturn in the housing market, Obama launched programs to modify mortgages to make them more affordable. But the programs did not come close to reaching the goals he set. Obama promised to spend $50 billion to $100 billion on foreclosure relief, but only about $5 billion was used, even as millions of homeowners faced foreclosure.
Largely because of the recession, Obama broke his promise to cut in half the budget deficit — a measure of how much more the government spends than it raises through taxes. It is now more than $1 trillion.
Obama was the first president to see the nation’s debt downgraded by a credit-rating firm on his watch, although the firm cited as its top reason the political paralysis in Washington. He tried to achieve a “grand bargain” with Republicans to curb the mushrooming federal debt. The negotiations broke down, however, as the two sides could not come to terms on how much more in tax revenue would be necessary as part of a deal.
Romney became governor of Massachusetts in 2003, when the state was recovering from a recession. The bubble in the technology sector — the dot-com boom — had burst, leaving the state’s economy in a shambles.
Romney pledged to use his business acumen to turn around Massachusetts’s fortunes. He had developed that experience at Bain Capital, a private-equity firm.
There, he followed a philosophy known as “creative destruction” to buy weak companies, overhaul them and then sell them. In the best cases, this process led to vibrant businesses hiring thousands of workers, but in other cases it involved laying off employees.
As governor, Romney responded to the slow-going recovery with a $131 million stimulus bill, consisting of a one-day sales tax holiday and a rebate for companies that created technology jobs.
A year into Romney’s term, Massachusetts stopped losing jobs. The state continued to add jobs until his final month in office. During his term, Massachusetts’s unemployment rate declined from 5.6 percent to 4.7 percent. About 50,000 jobs were created.
That achievement came during a prosperous time for the nation’s economy, and other states did better. During Romney’s term, Massachusetts created fewer positions than all but three other states.
By 2008, when the recent financial crisis hit and Massachusetts began to lose jobs again, it was one of only four states that had never reclaimed all the jobs lost in the 2001 recession. And although the unemployment rate had declined, that was largely because people abandoned the state to look for work.
A big challenge for Romney was filling a $3 billion budget shortfall under the state’s requirement that the legislature balance its budget every year. Romney eliminated corporate tax loopholes to raise the money.
WHO ARE THEIR ADVISERS?
Timothy F. Geithner: As Treasury secretary, he has been Obama’s longest-serving economic adviser and is set to step down at year’s end. He wrote the financial rescue plan and discouraged Obama from nationalizing banks, which several prominent economists favored. Later, he was the president’s key man in trying to prevent Europe’s financial trouble from spilling over into the United States. He was one of the top advocates for aggressive steps to control the U.S. debt.
Gene Sperling: As director of the National Economic Council, which coordinates economic policy in the White House, he led the development of the American Jobs Act, Obama’s signature initiative to jump-start job growth in 2011. He is well liked on Capitol Hill. Sperling is a liberal who favors aggressive government spending to boost the economy and has urged a more gradual overhaul of entitlements.
Glenn Hubbard: He is dean of Columbia University’s business school and was a chairman of the Council of Economic Advisers under President George W. Bush. Some think he might be a candidate for Federal Reserve chairman in a Romney administration. Hubbard is a strong advocate of using tax cuts to support economic growth and is one of the primary authors of Romney’s economic plan.
N. Gregory Mankiw: Chairman of Harvard’s Economics Department, he was a chairman of the Council of Economic Advisers under Bush. A major proponent of free trade and low taxes, he has been skeptical of efforts to stimulate economic growth through government spending. On other issues, however, he has been less conservative, such as supporting interventionist Fed policy and a carbon tax.
— Zachary A. Goldfarb