Obama vs. Romney Economic Programs


The overwhelming impression from watching the Republican and Democratic conventions is that this may be the first national election in which voters are being told by both parties not to vote for their candidate but to vote against their opponent. That essentially negative theme is not surprising, given that the Romney economic program is largely recycled Reagan-George W. Bush policies that gave us the economic crash of 2008-09, while the Obama economic proposals are either rehashed rhetoric from his 2008 campaign or a promised continuation of his three economic programs of 2009 to 2012 that produced the weakest and most lopsided economic recovery of all the 11 post-1947 recessions in the U.S. Voters are left with a choice of once again choosing Bush III (Romney) or supporting the Obama stop-go, faltering economic recovery policies of the past four years that:

 

  • produced record corporate profits
  • more than doubled returns for stock and bond investors
  • raised incomes for the wealthiest 10 percent households while leaving the rest of us with continuing declines in real disposable income
  • left more than 23 million still jobless, more than 12 million foreclosures and 10 million homeowners in “negative equity”
  • had a record number of people resort to food stamps
  • reduced net worth (wealth of media U.S. housholds by 47 percent

The Romney alternative amounts to trillions of dollars more in tax cuts for corporations and the wealthiest 1 percent—all paid for by the rest of us with the gutting of Medicaid, voucherization of Medicare, a two-tier social security system where those younger than 50 subsidize those now retired, and the elimination of middle class tax credits in order to lower top tax rates for corporations and investors from the current 35 percent to 25 percent.

 

Both parties and candidates are now proclaiming that this election will mean choosing two fundamentally different paths for years—perhaps decades—to come with regard to jobs, taxes, deficits, housing, state and local governments, and other economic indicators. A closer examination reveals, however, that while there are a some clear differences between the two candidates on economic matters, the similarities are both striking and disturbing.

 

Obama – Jobs

 

Obama promised to create 6 million jobs if his $787 billion stimulus bill of (mostly business) tax cuts and spending subsidies to states and the unemployed were passed. But after 18 months, neither the tax cuts nor subsidies resulted in any appreciable job creation. Between June 2009, when the recession was officially declared over, and 18 months later in December 2010, an additional 1.1 million private sector jobs were lost. By year end 2010 the president had to resort to the claim he had at least saved further millions of jobs. With the effects of the $787 billion stimulus mostly spent, his job creation strategy then shifted in mid-2010. A second recovery program passed in late 2010 was composed of an additional $800 billion in tax cuts—including $450 billion in extended Bush tax cuts Obama promised in 2008 he would not do.

 

This $800 billion more in tax cuts was supplemented by a new policy focus on manufacturing and promoting exports as the primary program to create jobs. Multinational corporate CEOs like General Electric’s Jeff Immelt, were put in charge of this job creation program. That meant more free trade agreements, more deregulation for business, and more subsidies for U.S. export companies.

 

In 2011, tens of billions more was allotted for small businesses to hire unemployed and/or the JOBS program (Jump Start Our Business Startups). JOBS was nothing more than a cover for more tax breaks and financial deregulation for start up companies, but Obama praised it as a “game changer” for employment. More subsidies to the states to hire teachers and emergency responders, now being laid off in the hundreds of thousands, were also proposed but never passed Congress. Obama’s jobs programs over the past 42 months amount to the following:
 

  • More tax cuts for businesses
  • Manufacturing-centric policies driven by more free trade agreements, more manufacturing export subsidies, and more business deregulation
  • More subsidies to the states to hire teachers and emergency responders 

These programs have proved pretty much a total bust. After $3 trillion in tax cuts and spending, total private sector employment has risen by only 2 million, or about 50,500 per month, well less than half that needed just to absorb new entrants to the labor force. Total unemployment, as measured by the labor department’s U-6 rate, has fallen from 24.6 million in June 2009 to 23.3 million in July 2012. Between June 2009 and July 2012 a paltry 200,000 manufacturing jobs were created, for an average of 5,000 per month. Obama’s much-vaunted recovery of the auto industry has produced 157,000 auto jobs, which is still 180,000 fewer than existed at the start of the recession in December 2007.

 

Despite this embarrassing record Obama, in his September 6 convention speech, indicated he would “stay the path” with business tax cuts, plus manufacturing promotion, plus free trade as his basic approach to job creation. He made it clear his second term’s strategy would be to “export more products” and that he would continue to work with business leaders to “create one million more manufacturing jobs over the next four years.” He also proudly proclaimed he had signed free trade agreements for “bringing jobs back” and declared he would sign still more—a clear reference to his proposal for creating a Trans-Pacific Partnership (TPP), a free trade agreement with the countries of the pacific rim, an even bolder goal than George W. Bush’s Free Trade of the Americas—a free trade zone throughout all of north and south America.

 

Romney – Jobs

 

Romney’s view on how to create jobs focuses even more heavily on tax cuts as the primary approach. Romney proposes to create 12 million jobs by 2017. The primary engine would be extending the entire $3.4 trillion in Bush tax cuts of the last decade for another decade (minus extending the cuts for those households earning less than $40,000 a year; Obama would extend the Bush tax cuts for all but the top 3 percent households). So Obama cuts out part of the top tier of households, while Romney cuts out the bottom tier of households. Both support, however, reducing the top corporate tax rate.

 

To create the 12 million jobs, however, Romney proposes more than just extending the Bush cuts: he calls for even more tax cuts for corporations (as does Obama), reduced business regulations and more free trade agreements (ditto Obama), but adds more oil drilling and some token worker retraining as addenda to his jobs program. However, Romney’s 12 million jobs goal is somewhat of a sham. It amounts to creating 180,000 jobs a month on average—i.e. just 50,000 more than needed for new entrants to the labor force each month. That means reducing the current 23 million jobless by 50,000 a month, which would leave 20 million still unemployed by 2017. So the Romney program is not really a program to eliminate the massive jobless overhang today—apart from the question of whether more business tax cuts, free trade, oil subsidies, etc. will even create the 12 million jobs in the first place.

 

In short, the relationship between job creation programs and business tax cutting is just a matter of degree between the two presidential candidates. Romney advocates Bush tax cuts on steroids to create jobs, while Obama exempts the top 3 percent. Both strongly propose free trade and more business deregulation as job creation measures. Obama proposes subsidies to states to hire teachers and firefighters, while Romney doesn’t and proposes token job retraining. Romney wants still more cuts and subsidies to oil companies; Obama does not. Both support multiple handouts to small businesses. But all these programs have been proven failures to date, so the unemployed have little to expect from either candidate once elected.

 

Obama – Taxes

 

As previously mentioned, Obama proposes to discontinue the Bush tax cuts for the wealthiest 3 percent. The top marginal tax rate for individuals would be allowed to rise from 35 percent to the 39.6 percent level of the Clinton years, impacting wealthiest households earning more than $250,000 a year. Taxes on the wealthiest 1 percent (earning more than $600,000 a year) would rise $93,000 a year. (For millionaires a tax hike of $296,000 a year). The tax on capital gains, now at only 15 percent, would also increase to 20 percent under Obama proposals. Oil and gas industry tax breaks would be reduced.

 

But what Obama proposes to take away from the top tier of the personal income tax, he proposes to give to their corporations, including reducing the top corporate tax rate from the current 35 percent to the 28 percent it was under Reagan. This shift is proposed despite the fact that in 2011 corporate taxes amounted to only 12.1 percent of profits—compared to the 1987-2008 period when corporate taxes averaged 25.6 percent of profits. For all businesses—corporate and non-corporate—the super-generous bonus depreciation provision of the past two years—in which businesses can write off the cost of all capital investment in the first year of purchase—would also be continued despite its costing $55 billion a year.

 

Obama also favors reducing taxes on U.S. multinational corporations’ offshore profits, even though that group is currently hoarding $1.4 trillion in their offshore subsidiaries and are refusing to pay U.S. taxes on it. In exchange for this tax reduction, Obama proposes to raise taxes in a yet unspecified way on those multinationals with offshore jobs.

 

Romney – Taxes

 

Romney’s tax program is an extreme version of Obama’s but with many content similarities. In addition to extending all the Bush tax cuts of the past decade for yet another decade—which would cost the U.S. Treasury another $4.6 trillion, according to the Congressional Budget Office research arm—Romney also proposes the following tax changes:
 

  • Cut the personal income tax rate for the rich even further than Bush, by 20 percent across the board 
  • Cut the top corporate tax rate from 35 percent to 25 percent (vs. Obama’s 28 percent) 
  • Introduce a territorial tax for U.S. multinational corporations, which would, in effect, end the current foreign profits tax they pay (or, in fact, now refuse to pay) 
  • Repeal the Medicare 2.9 percent additional tax on the wealthy contained in Obama’s 2010 Affordable Care Act (Obamacare) by repealing the entire Act 
  • Allow tax credits for those earning less than $40,000 a year to expire (i.e., earned income, child care, and other tax credits) 
  • End all taxation on capital gains, dividends, and interest income for households earning less than $200,000 a year 
  • Keep the capital gains, dividends, and interest income taxed at the current 15 percent 
  • Bigger tax cuts for business research and development 
  • End the Alternative Minimum Tax (AMT) altogether, which impacts those earning around $150,000 a year and above
  • End the Estate Tax altogether 

In summary, apart from their respective positions on extending the Bush tax cuts, both Obama and Romney are largely in synch on introducing more massive cuts in corporate income taxes, despite corporations today paying the smallest share of taxes from profits in decades, now at only 12.1 percent compared to 25.7 percent between 1987 and 2008. Both have plans, as well, to provide multinational corporations even more tax concessions. Romney differs by proposing to give upper middle class households bigger incentives to invest in stocks, bonds, and other interest bearing securities—an ultimate boon to his stock-bond market buddies. He also proposes to give the wealthy big tax bonuses by ending the Estate, Alternative Minimum, and forthcoming Medicare 2.9 percent taxes. Both propose more tax cuts that will not reduce the projected U.S. budget deficits over the coming decade, but actually make them worse—much worse in the case of Romney.

 

Obama – Budget Deficits

 

Obama’s policy with regard to U.S. deficits is his pledge to reduce the deficit by $4 trillion over the next decade. That has been Obama’s stated goal since the deficit debates in 2011, leading to the debt ceiling crisis of August 2011. That $4 trillion goal, moreover, is the same as proposed by his Deficit Commission (Simpson-Bowles), as well as Paul Ryan in the House of Representatives, and various other Senate and ex-government officials. Details of the president’s reduction plan are to be found in his 2012 budget. It is perhaps of some interest to note that Obama’s budget projections include a $5.8 trillion bill for defense spending over the decade, 23 percent greater, on an annual average, than defense spending during the Bush years.

 

The Congressional Budget Office (CBO) has issued a different estimate of Obama’s likely budget deficits over the next decade. Given current tax cuts and spending projections, the CBO estimates the Obama deficits will amount to $6.4 trillion from 2013-2022. In January 2013, government spending will decline by $1.2 trillion over the coming decade, based on the debt ceiling deal agreed on by Obama and the Republican House of Representatives in August 2011. Raising the debt ceiling once again will become a major issue in early 2013. That means major tax increases and/or further spending cuts will be on the agenda immediately after the November elections—regardless of who is elected president. Republican insistence on no tax increases and on raising defense spending even higher than projected by law or in the Obama budget, will mean an historic confrontation between deficit reduction and massive cuts in social program spending, including not only Medicaid, but Medicare, education, Social Security, and other discretionary spending programs. As this writer has been predicting, the confrontation will start immediately, within days, after the upcoming November 2012 elections—again, regardless of who is elected president.

 

Romney – Budget Deficit

 

As frightening as the upcoming budget deficit confrontation will be with the Obama budget as the starting point, the Romney budget-deficit proposals represent a deficit crisis of far greater magnitude. Romney tax cut proposals include the major elements of a continuation of the Bush tax cuts for another decade, at a cost of $4.6 trillion, plus adding trillions more in business-investor tax cuts. The result is deficits for the next decade equivalent to approximately $10 trillion. To address this massive deficit, Romney proposes cutting federal spending from its current 24 percent of GDP to 18-20 percent. That 6 percent of GDP in 2013 equals an immediate reduction in spending and/or increase in working poor and middle class tax cuts amounting to $300 billion. (By 2015 the estimate is $500 billion, presumably rising further thereafter.) In addition, he proposes to reverse the sequestered scheduled $500 billion in defense spending cuts agreed to in Congress in August 2011. (The increases in working poor and middle class tax cuts were noted above.) The spending cuts would mostly come from discretionary non-defense spending on items like education, transportation, healthcare, etc., for which Romney proposes a 5 percent cut across the board—the 5 percent cut represents no more than $60 billion a year. As others have pointed out, the Romney proposals do not add up and it is unclear how the 5 percent discretionary cuts, no defense cuts, retaining Bush tax cuts, adding trillions more in corporate-wealthy individual tax cuts can cover the $10 trillion. Proposing to reduce federal spending by 6 percent of GDP means spending cuts and/or tax increases totaling at least $900 billion a year. It can only mean unmentioned additional massive cuts in Medicaid-Medicare-Social Security and historic reversals in middle class tax breaks  conveniently unmentioned.

 

The Romney deficits therefore mean not only massive social spending cuts but hundreds of billions more in middle class tax increases as well. High on the list of the latter would have to include the elimination of tax deductions for health care and pension contributions by workers, virtually ending the mortgage interest and state income tax deductions, new taxation on Medicare benefits, and ending most of the earned income tax deduction for the working poor. Sharply reducing, or even ending, these deductions would be necessary to accommodate Romney’s proposed business and investor tax cuts. Romney would additionally end Obama’s Affordable Healthcare Act, reducing the deficit by another $.9 trillion. The rest presumably would come from other spending cuts in education, Medicaid, Medicare, and Social Security.

 

In summary, the deficit reduction proposals of both candidates envision historic cuts in social spending. Both envision more tax cuts for corporations that would additionally have to be made up from spending cuts and/or middle class tax hikes. Obama’s deficit reduction plan envisions some tax increases on the wealthiest individuals, while Romney’s envisions trillions of dollars more in tax cuts for the wealthy, paid for by tax hikes by the poor and middle class as well as historic cuts in social spending of even greater magnitude than Obama’s.

 

Obama/Romney – Free Trade

 

There is virtually no difference between the two candidates on trade policy and free trade agreements in particular. Both strongly supported recent free trade agreements with Panama, Columbia, and South Korea. And Romney supports Obama’s current drive to implement the biggest expansion of free trade with the TPP pacific rim free trade policy, a development that will dwarf in scope and magnitude Bill Clinton’s passage of NAFTA and his opening of China trade.

 

According to the Economic Policy Institute, China trade alone has cost the U.S. 2.7 million jobs just in the past decade—NAFTA millions more. Neverthless, both candidates advocate accelerating free trade agreements. The battle between Romney and Obama on trade amounts to token differences on how to show they are tough on China. Both candidates talk in vague generalities about the offshoring of U.S. jobs that has occurred by the tens of millions in recent decades, but neither offers any specific proposals for addressing the issue.

 

Obama – Healthcare/Medicare/Medicaid

 

The heart of Obama’s healthcare policy is, of course, the retention of his 2010 Affordability Care Act. Costing nearly $1 trillion over the rest of the decade, the Act does provide a number of meaningful benefits for the general populace. However, it has two great flaws: first, it amounts to a health insurance company subsidy bill with health insurers receiving hundreds of billions of dollars of extra business. The second flaw is that it fails to control health insurance and other health care costs. The problem of runaway health care costs will thus continue under the ACA, a problem which has already emerged, as health insurance premiums and other costs have once again begun surging in 2011-12.

 

On the positive side, the ACA raises taxes on the wealthy by another 2.9 percent—which is the real source of much of the opposition by the wealthy, transmitted through their manipulation of the Tea Party on the issue. But it also includes a reduction in payments to doctors and health providers in the amount of more than $700 billion. That will inevitably lead to doctors and providers refusing to provide services to Medicare patients. The ACA is thus a form of income shift that promises to reduce health care access. That is the price to be paid for the subsidization of health insurers and coverage extension to the tens of millions without any coverage.

 

It should further be noted that Obama signaled in July 2011—as he sought an agreement with Republicans on the debt ceiling debate—that he was willing to cut Medicaid and Medicare by $700 billion, despite the proposed expansion of Medicaid in his ACA. That public proposal provoked a near revolt by Democrats in Congress and was withdrawn. Nevertheless, it remains on the table, as they say. Voters will not hear of this during the election campaign, but will most certainly once the election is over.

 

Romney – Healthcare/ Medicare/ Medicaid

 

Romney’s priority health program is to repeal Obama’s health care act of 2010 and a complete embracing of Paul Ryan’s plan to voucherize Medicare, which would provide payments to seniors who would then buy private health insurance—an even bigger windfall for insurance companies than Obama’s ACA. Ryan has projected this will save the federal government $700 billion. However, not all seniors will receive the same voucher payment. Some will get less than others, thus creating a two-tier voucher system. Moreover, there are no assurances that the value of the vouchers will increase annually with the rising cost of health care services, thus requiring seniors to increasingly pay more out of pocket for healthcare insurance. The main beneficiary from this, apart from health insurance companies, is the federal government, which Ryan estimates will save $700 billion over the next decade. The Romney-Ryan Medicare voucher plan thus represents an income transfer of hundreds of billions from seniors to both insurers and the government. Romney-Ryan are also major proponents of massive reductions in the Medicaid program, proposing to cut federal and state Medicaid costs by turning it into block grants to the States—many of which would refuse to participate or would take the money in the block grant and spend it elsewhere.

 

Obama/Romney – Social Security

 

Proposals by both candidates are almost identical with regard to social security. Romney proposes, vaguely, that the age for eligibility for retirement benefits should be raised, as does Obama. Neither say raised to what or how quickly. Both suggest annual cost of living adjustments should be lowered. Obama implies changing the way the consumer price index is applied. Romney goes further and recommends the two tier system in the future (similar to Medicare) in which seniors with a certain level of retirement income would receive less social security benefits. What’s left unsaid by both is their agreement to target social security disability benefits for major reductions.

 

Obama – Housing Crisis

 

Apart from the failure to create jobs, the next greatest economic policy failure of Obama’s first term has been his reluctance to directly confront the housing crisis. The housing sector has languished in a veritable depression for three and a half years, with homebuilding and jobs stuck at only a third to half of pre-recession levels. More than 12 million of the 54 million mortgaged homeowners in the U.S. have been forced into foreclosure, often illegally by the banks, more than 8.5 million on Obama’s watch, while more than 10 million similarly languish with mortgages in negative equity.

 

From the beginning of 2009, Obama’s policies have focused on subsidizing mortgage lenders and mortgage servicers (big 5 banks), to help them move foreclosed homeowners out of their homes and to resell to new buyers. Early 2009 Obama programs like HAMP (Home Affordability Modification Program) are acknowledge failures, providing tens of billions of dollars of subsidies to banks and homebuilders and token assistance to homeowners.

 

In 2010, Obama then ignored the robo-signing scandal that broke that summer, leaving it to state attorneys general to deal with. However, when it appeared legal suits would cost the banks potentially hundreds of billions of dollars, only then did the Obama administration intervene in 2011. That intervention was designed to help the banks—not homeowners—by limiting banks’ liability to homeowner and state legal suits. As part of that compromise, banks’ liability from legal suits arising out of robo-signing illegal foreclosures was capped at a mere $25 billion. Payments to homeowners illegally foreclosed have averaged only $1,500 each in the settlement and less than a billion of the $25 billion. Recent reports show that the $25 billion is not going to reducing loan balances for homeowners in negative equity, but is being deducted by banks against the $25 billion in the form of charges against short sales of homes in negative equity. In other words, homeowners are not being assisted to remain in their homes, but assisted in vacating them—which the banks then resell to new buyers at still further profit.

 

In exchange for the limits on liability, the banks were encouraged to participate in the latest Obama housing recovery program, his 2012 program called HARP 2.0. The HARP program was a quid pro quo for relief from pending massive liability action by the States. But HARP 2.0 is, in the final analysis, just another banker subsidy program. Not only are the big mortgage banks protected from further legal suits, but they are profiting nicely from the program. In exchange for refinancing homeowners in negative equity, the banks involved receive a commission of five points (each point equals 1 percent of the value of the mortgage) from the quasi government mortgage agencies, Fannie Mae and Freddie Mac. Five points on a $500,000 mortgage refinancing amounts to a generous $25,000 fee paid to banks by the federal government for each refinancing. In turn, the costs incurred by Fannie and Freddie will have to be restored with funding from Congress and thus the taxpayer. HARP 2.0 is Obama’s latest centerpiece program for rescuing the millions of homeowners illegally foreclosed or in negative equity.

 

Romney – Housing

 

Romney’s program for ending the housing crisis includes first, selling the 200,000 estimated local government-owned homes. Somehow that is supposed to help raise home values, according to Romney, but will actually increase the excess supply of homes on the market and thus further depress home prices in most cases. Another Romney proposal is a vague demand to restart lending to credit worthy borrowers. How to force banks to lend to homeowners, when they have been clearly reluctant to lend to small-medium businesses, is not explained in the Romney proposals. Romney’s housing solution also calls for major reform of the Fannie Mae-Freddie Mac government mortgage institutions, as well as still further deregulation of mortgage lenders and banks—i.e., two long-time conservative demands designed to further privatize and deregulate the housing market.

 

Conclusions

 

While there are several dramatic differences between the Obama and Romney economic programs, there are also several almost identical programs shared by both. Both favor major reductions in corporate taxes. Both advocate hundreds of billions in social spending cuts, including entitlement programs. Both are almost identical in their positions on free trade.

 

Concerning tax policies, both propose to extend much of the Bush tax cuts—Obama suspending the cuts for the top 3 percent and Romney eliminating tax credits for the working poor and lower middle class. Obama has proposed some minor tax loophole closings, while Romney proposes additional, massive tax cuts for investors and businesses on top of the Bush tax cuts. Obama’s deficit over the decade amounts to a sizeable $4-$6 trillion but Romney’s is more than $10 trillion. Both will have massive cuts in social programs come immediately after the November elections, with Romney requiring major middle class tax hikes as well. Obama’s budget is very generous to defense, and Romney’s even more so. A big difference between the two exists with regard to healthcare programs, including Medicare and Medicaid. Romney wants to destroy Obama’s ACA immediately and Medicare eventually. Both appear quite willing to gut Medicaid spending, with Romney cutting other discretionary spending by additional trillions over the decade.

 

These comparisons mean that, regardless of who is elected president, an historic reduction in social program spending is on the agenda following the November 2012 elections. Defense spending will be either totally or partly protected from the cuts and taxes will be further reduced for corporations, tokenly raised for wealthy individuals, and most likely significantly raised for middle class and the working poor. Nothing of any significance will be done to address the housing crisis and programs to create jobs will continue to fail to have much impact. It is this scenario that enables this writer to predict the likelihood of a double dip recession in 2013, especially if the Eurozone crisis continues to deteriorate and China and the rest of the global economy continue on a path to an economic “hard landing.” It is possible, if Obama is re-elected, that the fiscal austerity coming in early 2013 may be delayed a year and be effectively “backloaded” to start taking its greatest effect in 2014. But if Romney is elected and Republicans control either, or both, houses of Congress the more draconian austerity programs will take effect earlier in 2013. That alone will ensure a double dip recession. If the Eurozone slides deeper in recession and banking instability, it will virtually guarantee a double dip.

Z


Jack Rasmus is the author of Obama’s Economy: Recovery for the Few (April 2012) and host of ALTERNATIVE VISIONS on the Progressive Radio Network, in New York (Wednesdays at 2:00 PM). His website is at www.kyklosproductions.com.