Getting the economy growing again is a pivotal issue for most voters in this year’s election. The candidates offer two wildly different proposals for how to reignite the economy, which essentially come down to a choice between increasing government spending and lowering taxes and reducing regulations.
The third in Money magazine’s three-part series on voting your wallet, here’s where the candidates stand on stimulating the economy and why their proposals may not be quick fixes.
Getting growth back
What’s at stake: The normal ups and downs of the economy aren’t always an urgent personal concern to every voter. But we aren’t in a normal economy.
Even if you’re working, years of weak growth and stubbornly high unemployment rates have taken more than a psychological toll. You haven’t had a lot of leverage with your boss to get better pay or a promotion.
For retirees, the Federal Reserve’s efforts to keep things from getting worse, combined with investors’ flight to safe Treasury bonds, have meant rock-bottom rates on savings. So getting the economy growing is many voters’ top priority. Yet Washington has rarely been more polarized when it comes to how to accomplish that.
The promise: Think Reaganomics. Romney wants less regulation.
He’d work to repeal Dodd-Frank, the post-crisis law that aims to rein in Wall Street. He wants lower, flatter taxes on corporations (a point on which Obama agrees). He also says he wouldn’t reappoint Fed chairman Ben Bernanke when his term ends in 2014; spokesman Burks says Romney would seek someone committed to “sound money.” That could mean a chairman who’s less activist about stoking the economy.
And then there are the lower individual income tax rates, which Republicans believe are important for rewarding work and investment. On the other side of the ledger, Romney vows to make the budget math work by getting spending down to 20% of GDP by 2016, from about 24% today.
The catch: Past Republican administrations — Reagan, the younger Bush — have proved very good at cutting taxes. Reducing the deficit? Not so much.
Low taxes are good for growth, but they have to be weighed against the potential drag from higher debt.
Romney’s case turns in part on whether he can get Congress to pass the spending cuts that pay for lower taxes. Analysts at the liberal Center on Budget and Policy Priorities say Romney’s tight spending cap leaves safety-net programs such as Medicaid open to painful cuts.
The potential impact: Romney’s pro-business attitude might stoke some extra growth, but don’t look for a zooming turnaround. Regulation and taxes are hardly the only things weighing on the minds of CEOs deciding whether or not to hire these days. Consumers remain deep in debt and housing is still weak; Romney offers no quick fixes there.
The promise: If Romney’s economic plan is a reboot of a 1980s franchise, Obama’s is the muted sequel to last season’s expensive blockbuster.
Since taking office, the President has focused his economic revival efforts on quick injections of government spending and getting more cash into the hands of lower- and middle-income consumers. These jump-starts included cash for clunkers, “shovel-ready” construction projects, and temporary tax cuts.
Many economists believe the stimulus kept the country from going into an even deeper recession, but it hasn’t been enough to create a strong recovery. Obama’s 2013 budget proposal looks for more stimulus, but the scale is smaller. There’s aid to financially strapped states so that they can hire more teachers and cops, and money for building roads and rails.
The catch: Set aside the debate over whether stimulus spending works. A practical question to ask about Obama’s plan: The President and what Congress?
Even if Obama wins, he’ll probably have to negotiate with a Republican-controlled House to avoid a looming anti-stimulus, in the form of the”fiscal cliff” of automatic tax hikes and the spending cuts agreed to in last year’s debt-ceiling deal.
“We will certainly have a recession if we hit the full fiscal cliff,” says Jeff Vanke of the Committee for a Responsible Federal Budget.
The potential impact: As with Romney, it’s hard to see Obama delivering a quick economic bounce. And over the longer run, even after his stimulus programs tail off, he sets course for a higher level of spending than Romney — at 22.3% of GDP — which demands higher taxes.
While the President often frames his case for more spending as a way to boost growth, the truth is that a lot of his economic agenda is about his vision of what a good society should look like. The Affordable Care Act is not a jobs program.
On the other side of the divide, likewise, many voters would choose Romney’s vision of lower taxes on wealthy high achievers but fewer government services even if it left them worse off personally. As much as you may be voting your wallet, it’s hard to avoid voting your values.
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