The slow U.S. economic recovery and persistently high unemployment rate have made the economy the central issue in the 2012 presidential campaign. With job creation the top priority for most U.S. voters, President Barack Obama and GOP contender Mitt Romney have outlined competing policy proposals they say would stimulate the economy and boost hiring.
In September 2011, Obama proposed a $447 billion stimulus bill to create new jobs through public investment in infrastructure and education, along with payroll tax cuts for the middle class. At the same time, Obama has called for raising income taxes on the top 2 percent of earners, while extending the Bush-era tax cuts for the rest of the population--a plan passed by the Senate in July 2012.
Meanwhile, Romney and many other Republicans have advocated extending the Bush tax cuts for all Americans as a way to stimulate the economy and facilitate job creation. The Romney economic plan is largely centered on cutting taxes at the corporate and personal levels, while balancing the budget through federal spending and entitlement cuts. Romney has vowed to repeal the two signature pieces of legislation from Obama’s term--the health-care and financial reforms laws of 2010--which he argues hurts the United States economically. In the summer of 2012, the Obama and Romney campaigns battled over the role of entitlements and other federal programs, with both sides accusing the other of seeking to destroy Medicare.
At the Republican National Convention on August 28-30, the GOP outlined a platform for using "free market policies"--including deregulation, lower taxes, and increased free trade--to "boost employment and create job growth and economic prosperity," while criticizing Obama’s handling of the economic crisis.
Editor’s Note: Click here for more CFR Issue Trackers and other 2012 campaign resources, which examine the foreign policy and national security dimensions of the presidential race.
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Democratic Incumbent, Running Mate Joe Biden
Upon taking office at the peak of the global financial crisis Obama extended the $700 billion Troubled Asset Relief Program--also known as the bank bailout--that President George W. Bush enacted in October 2008. In February 2009, Obama signed into law a $787 billion economic stimulus package to create new jobs, extend unemployment benefits, and cut taxes. In March 2010, Congress passed Obama’s signature healthcare law--the Patient Protection and Affordable Care Act--that will expand coverage to an estimated 32 million U.S. citizens. The legislation will cost $940 billion over ten years (CBS), and the Congressional Budget Office estimates it will reduce the deficit by $143 billion during that period. In July 2010, Obama pushed a financial reform bill through Congress known as the Dodd-Frank Wall Street Reform and Consumer Protection Act (PDF). The law gives the federal government new powers to regulate Wall Street and creates a Consumer Financial Protection Bureau.
In September 2011, Obama introduced a $447 billion stimulus bill--The American Jobs Act--to tackle the country’s then 9.1 percent unemployment rate. The proposed legislation includes an extension and expansion of the payroll tax, along with investments in infrastructure and education. That month, the president also signed off on formerly stalled free trade agreements with South Korea, Colombia, and Panama, which Congress ratified in October.
During his 2012 State of the Union address, Obama cited the need to bring manufacturing back to the United States, proposing tax incentives for companies that keep jobs in the country. He also cited education as key to ensuring a skilled workforce and proposed that every state require all students to stay in high school until they graduate or turn eighteen.
President Obama sent Congress a legislative plan (WashPost) in January 2012 aimed at boosting small business growth and removing roadblocks for start-ups. He also announced a mortgage housing plan (LAT) to give the opportunity to refinance to 3.5 million homeowners with good credit who owe more than their house is worth.
In February, the Obama administration released the president’s proposals for overhauling corporate tax codes (PDF). At the centerpiece of his proposal is a reduction of the top corporate tax rate to 28 percent (NYT), down from 35 percent, with dozens of loopholes and subsidies eliminated in exchange. It also would establish a minimum tax on multinational corporations’ foreign earnings to discourage relocation of production overseas or shifting of profits abroad.
In May, Obama presented a checklist at the White House website that asks Congress to pass measures to allow homeowners to refinance at lower interest rates; provide a tax cut for businesses that bring manufacturing jobs back from overseas and a tax credit for companies that hire workers and increase wages; create a job corps for veterans; and invest in clean-energy manufacturing.
In a speech in Albany, Obama called on Congress, particularly congressional Republicans, to support his economic agenda. "The truth is, the only way we can accelerate the job creation that takes place on a scale that is needed is bold action from Congress," Obama said. "[W]e’re making progress, but everybody knows we need to do more."
In July 2012, Obama said he would extend the Bush-era tax cuts for the 97 percent of U.S. small business owners who fall under the $250,000 threshold. Obama noted that he has cut small business taxes eighteen times and lowered the tax bill for the typical U.S. middle class family by $3,600 since his election in 2008. At the end of July, the Senate passed Obama’s plan to extend the Bush-era income taxes for all individual Americans, except for the top 2 percent of earners (LAT).
Obama and Treasury Secretary Timothy Geithner have also focused significant attention on the ongoing eurozone sovereign debt crisis (Politico).The president believes that if left unchecked, Europe’s economic woes will undermine the U.S. economic recovery, and has urged European leaders to act more decisively.
In his convention speech in September, Obama again touted his tax policy and what he said was his work to finance education, secure health care, and create jobs.
In a 60 Minutes interview in September, Obama defended his economic record, pointing out that he has cut middle-class taxes and issued fewer regulations than his predecessor, despite the fact that Congress has not yet implemented the jobs bill he submitted last year.
He also claimed that under his administration, the federal government has grown at a slower pace than at any time since the Eisenhower years.
In the second presidential debate, Obama underscored the importance of education as an avenue to secure employment, and characterized debt reduction as "a moral obligation to the next generation."
Obama also criticized his GOP opponent over his tax plan and defense spending plans, which he estimated could cost $8 trillion. The president also said that despite the fact that his own tax plan would not increase taxes on 98 percent of U.S. families and 97 percent of small businesses, "Governor Romney’s allies in Congress have held the 98 percent hostage because they want tax breaks for the top 2 percent."
At the final presidential debate on October 22, Obama argued that the U.S. deficit is a "significant national security concern." He criticized Romney for allegedly wanting to increase military spending by $2 trillion and his opponent’s plan to enact $5 trillion in tax cuts. "The math simply doesn’t work," the president said.
Republican Candidate, Running Mate Paul Ryan
At the beginning of September, Romney unveiled a fifty-nine point economic plan (Politico) that includes cutting corporate tax rates, reducing government spending, eliminating free market regulations, and curbing the power of labor unions. He also outlined ten actions he would take--by submitting five bills to Congress and issuing five executive orders--to foster economic growth and create jobs on his first day in the White House. In total, the five bills would propose reducing the corporate tax rate from 35 to 25 percent; exploring for new energy reserves; consolidating federal retraining programs and putting them under the purview of the states; and cutting non-security discretionary spending by 5 percent.
Romney would use his executive authority to order the secretary of Health and Human Services to return power over health care to the state level in an effort to phase out the federal health-care law; direct federal agencies to eliminate "Obama-era regulations" that burden economic growth and job creation; issue immediate issuance of oil drilling permits to developers; list China as a currency manipulator and assess imposing countervailing duties on Chinese imports; and reverse the executive orders issued by Obama that favor organized labor.
During a January 2012 GOP primary debate, Romney touted his record as governor of Massachusetts, saying he cut taxes nineteen times and balanced the state’s budget each year he was in office. He said he also put in place a $2 billion "rainy day fund" as governor. In February, Romney released a tax plan that would cut marginal rates by 20 percent for individuals and broaden the tax base. His proposal also would zero out taxes on income from capital gains, interest, and qualified dividends for families with an annual income below $200,000. Romney touted the plan as part of his overall platform to improve the economy and spur job growth.
In a speech to the Detroit Economic Club in February, Romney proposed raising the eligibility age for Medicare (AP) and eventually tying the eligible age to life expectancy. "With these commonsense changes, we will have fixed our balance sheet," Romney said.
In a May speech in Michigan, Romney said the United States is at an economic crossroads, with President Obama allegedly leading the United States toward the sovereign debt woes akin to those in Europe. "I propose a different course, a new course unlike any of our past. It will draw on the creativity and invention of the world’s most innovative citizenry," Romney said. "Government will be their partner, not their master. And government will be small enough for businesses to grow fast enough--fast enough to exploit the global opportunities in our changing world, fast enough to create better jobs, fast enough to provide our children with a future brighter than our past."
In an op-ed that month, Romney wrote he would cut individual tax rates "to jump-start job creation, grow the economy, and help Americans keep more of their hard-earned dollars."
"I will reform a corporate tax system that drives American jobs overseas," he said. "I will slash the needless regulations that crimp our energy supply and inhibit so many different kinds of businesses."
With the mounting U.S. debt and deficit of great concern to voters, Romney, in an Iowa speech May 15, compared the growth of federal spending and debt to a fast-moving fire threatening to engulf the country, and touted his proposals for austerity, including entitlement reform, "streamlining" federal bureaucracy, and limiting government spending to 20 percent of GDP, down from the current 24.3 percent.
In an interview in May, Romney argued against the notion that any one bank is "too big to fail," while discussing both the U.S. debt situation and the unfolding eurozone crisis. "My own view is that if a large bank gets in difficulty, why, it can fail," he said. "There’s no reason why the shareholders or bondholders of a bank can’t lose their funds if a bank were to get in trouble." However, he also said that the move to bail out banks during the 2008/2009 crisis was the right one because when bad mortgages threatened virtually all of the major lenders with collapse, it meant there was a systemic problem that had to be fixed or face "complete collapse of our economic or our currency system." In June, Romney said on CBS’s Face the Nation that the United States should not help beleaguered EU banks.
In August, the Romney campaign claimed Obama’s health-care plan would wipe out Medicare by cutting $718 billion (NYT) from the program for senior citizens over the next decade, savings the Obama campaign said would help extend Medicare’s solvency by around eight years.
In his convention speech in August, Romney again touted his plan to create twelve million jobs and criticized Obama for his handling of the economy.
In a 60 Minutes interview in September, Romney reiterated his plan to cut tax rates by 20 percent. He said that the tax rate paid by higher income individuals will not be decreased because he will also close tax loopholes and eliminate deductions.
Speaking at the Clinton Global Initiative in September, Romney suggested that foreign aid would be more effective if partnered with private enterprise and structured so that it creates self-sustaining employment which would quell political and social unrest.
"To foster work and enterprise in the Middle East and in other developing countries, I will initiate ’Prosperity Pacts,’" Romney said. "Working with the private sector, the program will identify the barriers to investment, trade, and entrepreneurialism in developing nations. In exchange for removing those barriers and opening their markets to U.S. investment and trade, developing nations will receive U.S. assistance packages focused on developing the institutions of liberty, the rule of law, and property rights."
In the second presidential debate, held on October 16, Romney said that he intends to expand the federal Pell grant program to help students pay for college. He also repeated his promise not to raise taxes on the middle class or cut taxes for the wealthy.
"The top 5 percent of taxpayers will continue to pay 60 percent of the income tax the nation collects," he said. "So that’ll stay the same. Middle-income people are going to get a tax break. And that is every middle-income taxpayer no longer will pay any tax on interest, dividends or capital gains, no tax on your savings."
As far as trade, besides "cracking down" on China, Romney said that he would pursue increased trade with Latin America, in addition to signing new free-trade agreements.
At the final presidential debate on October 22, Romney said he could achieve a balanced budget within eight to ten years by "reducing spending in a whole series of programs," including the Affordable Healthcare Act. At the same time, he argued against any cuts to defense spending. He also stressed the correlation between a strong domestic economy and national security, saying, "[I]n order to be able to fulfill our role in the world, America must be strong. America must lead. And for that to happen, we have to strengthen our economy here at home."