May 5, 2012 - In a new column for iPolitics, MLI's Jason Clemens discusses why the U.S. presidential election might actually matter. The column was also reprinted in the Ottawa Citizen and Vancouver Sun. The full column is below:
By Jason Clemens, iPolitics, May 5, 2012
It seems every four years the U.S. election is dubbed as the most consequential and important in a generation. For those involved in the campaigns there is a legitimate sense of significance and history. However, for most Americans and those outside the country influenced by its political decisions, most U.S. elections have actually been a question of subtle differences. The stark contrasts in policy and direction between President Obama and the now presumptive Republican nominee, former Massachusetts Governor Mitt Romney, indicates that the coming November election may indeed be a consequential one, perhaps more so than any in recent memory.
Nowhere are the contrasts between the two candidates and their parties more plain than in fiscal policy, which includes spending, taxes, and borrowing. Since the recession, the U.S. has been mired in deficits. The independent Congressional Budget Office (CBO) estimates the current year deficit at $1.3 trillion, representing a little over 8 percent of GDP. The Obama administration, using fairly optimistic assumptions, plans to reduce the deficit over 10 years to 3 percent of GDP, bringing it to $728 billion. The accumulation of deficits between now and then means the President's plan would see the national debt balloon from $11.4 trillion to $18.8 trillion. As a share of the economy, the debt would rise from 74 percent this year to 76.3 percent in 2022.
The Republicans (GOP) have offered an alternative, formed largely by the budget plan crafted by Wisconsin Congressman and Chair of the House Budget Committee Paul Ryan. The GOP plan reduces the deficit to $287 billion or 1.2 percent of GDP over the same period. While the national debt also increases under the GOP plan, it does so far less than under the President's plan. The national debt reaches $15.4 trillion or 62.3 percent of GDP under the GOP plan.
There are two differences imbedded within the spending and taxing plans of the President and the GOP that result in the contrasts in deficit reduction and debt accumulation. First, the GOP plan calls for slower increases in government spending over the next decade, from $3.7 trillion in 2012 to $4.9 trillion in 2022. As a share of the economy, however, the GOP plan would reduce government spending to roughly 20 percent of GDP. (Under President Clinton, federal spending stabilized at 18 percent of GDP and the U.S. economy soared.)
President Obama's plan calls for spending to reach $5.6 trillion by 2022, which is $725 billion higher than the GOP plan. The slower increase in spending in the GOP budget has been characterized as a "gutting" of the government and "Social Darwinism". The rhetoric arguing that reductions in the growth of spending are analogous to actual cuts in spending obfuscate the true nature of the proposals and impede honest debate about alternatives.
In addition to borrowing more in order to finance the additional spending, President Obama has also proposed a litany of tax increases, including higher personal income taxes for households with income over $250,000, higher estate and gift taxes, restricting deductions for middle and upper-income households, and increased capital gains and dividend taxes.
The GOP on the other hand, has proposed no increases in any tax rates but rather large-scale tax reform, including the closing of loopholes. The GOP would stabilize federal tax revenues at roughly 18.5 percent of GDP, which is their long-term historical norm.
Finally with respect to the budget, President Obama has consistently for three years avoided any serious reform of Medicare (health for the aged), Medicaid (health care for the poor), or Social Security. These programs along with other mandatory spending now account for 58 percent of the federal budget. The long-term deficit crisis in the U.S. is largely explained by these three programs. Paul Ryan and his GOP budget propose genuine reforms. While not everyone agrees with the reforms, at the very least the GOP deserves credit for advancing ideas on how to resolve the insolvency of the programs and thus attempt to deal with the country's longer-term deficit problem.
Another area of stark contrast is health care. Indeed, the President's signature legislative accomplishment was the passage of Obamacare. Assuming the legislation is upheld by the U.S. Supreme Court in June, which is not at all a given, health care will inevitably be a front and centre debate in the fall election with the President defending his legislation and the GOP promising to repeal it.
The blatant differences between the President and the GOP are rooted in different visions for the role of government in society. The size and nature of government spending, how it is to be financed (taxes and borrowing), the risk of debt, health care, and a host of other issues will be debated this fall as the United States moves towards electing its next president. Such differences and the resulting policies will have an influence on American society and its economy, perhaps a profound one. Such is the consequence of the coming election.
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