How Romney and Obama Differ on the Economy

The next president will face unprecedented decisions on taxes, spending, and the role of government.

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To liberals, Mitt Romney is a laissez-faire corporate aristocrat. To conservatives, he's a "Massachusetts liberal" scarcely distinguishable from President Obama. So who's right?

The campaign rhetoric makes it hard to tell, of course, since attacks on Romney up till now have been intended to caricature his record, not illuminate it. But as Romney comes closer to winning the Republican nomination, the internecine warfare among Republicans will die down, and Romney vs. Obama will begin in earnest.

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Romney is, in fact, less of a bomb-thrower than some of the Republicans he's been competing against for the GOP nomination. He doesn't want to throw out the whole tax code, shackle the Federal Reserve, or turn Washington into a ghost town. But Romney differs from Obama in many substantive ways, and if he ends up as the GOP nominee, voters will have a clear choice between two distinct philosophies on how to manage the economy.

To highlight their differences, I focused mostly on each candidate's policy proposals for the future, rather than their actions in the past, because the next president is likely to face momentous and perhaps unprecedented decisions on taxes, spending, job creation, and the entire role of government. Romney has outlined many of his ideas in a detailed plan that's available on his website, while filling in a few blanks in recent speeches and policy statements. Obama released his own set of economic proposals last September, and he, too, continues to refine his economic policies while stumping.

Voters should keep in mind that many campaign ideas don't survive the legislative gantlet in Congress, and that candidates often withhold the fine print about costs or tradeoffs. Yet the ideas they spout while campaigning give clear indications of how they'd govern. Here's how Romney and Obama differ on 10 key economic issues:

Jobs. In general, Obama's plan for creating jobs relies on temporary tax breaks, federal spending to hire teachers, cops and firefighters, federal backing for new infrastructure projects, and subsidized retraining for those chronically out of work. Romney prefers less direct spending by the government and instead favors looser regulation, lower taxes on business, more free trade, and a faster permitting process to boost domestic energy production. He would also pressure China to change its trade practices in ways that might make Chinese goods more expensive and U.S.-based manufacturers more competitive.

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Income taxes. Both men have called for comprehensive tax reform. Obama wants to raise tax rates and reduce deductions for individuals who earn $200,000 or more, and households that earn more than $250,000, while keeping current tax rates intact for everybody else. Romney wants to keep all tax rates where they are, while eliminating the estate tax. He'd also eliminate taxes on dividends, interest, and capital gains for those earning less than $200,000.

Analysis by the nonpartisan Tax Policy Center shows that the bottom 40 percent of earners would pay lower taxes under Obama's plan, while the next 40 percent would fare roughly the same under both plans. The top 20 percent of earners would pay less under Romney's plan. If Obama got his way, the average American's annual tax bill would fall by about $1,373, compared with the tax rules now on the books (which include the expiration of the Bush-era tax cuts at the end of this year). Under Romney, the average decline would be $3,566. Voters should be skeptical of any proposed tax cuts, however, because they would add to the mushrooming national debt and Washington can scarcely afford them.

Corporate taxes. Without giving a number, Obama has said he'd support a reduction of the 35 percent corporate tax rate, if it were accompanied by the elimination of tax breaks for certain businesses and other reforms. He has also proposed some temporary tax breaks to boost hiring. Romney says that lowering the corporate tax rate from 35 percent to 25 percent is a "day one" priority. He also supports a few other corporate tax breaks meant to encourage more investment and stronger growth in the United States.

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Government spending. Obama has proposed about $1.2 trillion in spending cuts over 10 years, including nearly $600 billion from defense, $300 billion from Medicare and Medicaid reforms, and the rest from an array of smaller programs. Romney supports the "cut, cap, and balance" plan that's become a Republican staple. He'd cap government spending at 20 percent of GDP or less, shrink the federal workforce by 10 percent, and pursue a balanced-budget amendment that would restrain federal borrowing, and therefore, spending.

Debt reduction. Obama's overall plan calls for cutting the national debt by $3 trillion over 10 years, with one third of it coming from new tax revenue and two thirds coming from spending cuts. Romney hasn't established a debt-reduction target, with his proposals for reining in the debt limited mostly to spending cuts. The Tax Policy Center, however, found that Romney's proposed tax cuts would increase the national debt by about $600 billion per year, which theoretically would require even deeper offsetting spending cuts to be debt-neutral.

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Obamacare. This landmark 2010 reform, meant to expand healthcare coverage to most Americans, will undergo a key test this year as the Supreme Court decides whether a core "individual-mandate" requirement is constitutional. If it isn't, the whole law may have to be overhauled. Romney signed a similar law in Massachusetts in 2006, when he was governor, but now says that Obamacare should be repealed. Instead of a federal plan to expand healthcare coverage, he says states should choose whether to do it on their own.

Tort reform. Obama's huge healthcare law contained no provisions for reining in medical malpractice lawsuits and other types of litigation that most experts believe drive up prices. Romney supports reforms that would prevent "spurious litigation."

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Medicare. Obama would preserve Medicare in its current form, while making "modest adjustments" to lower costs, such as encouraging better use of digital medical records, requiring wealthier seniors to pay more for their care, and giving the government more power to force down medical costs. Romney would revamp Medicare in a way that keeps the existing structure intact for current beneficiaries, but eventually replaces that with a "premium support" plan that gives seniors a fixed benefit each year that they can use to purchase private insurance. Lower-income seniors would get a more generous benefit than wealthier ones. Romney hasn't provided details for what the benefit structure might be or when it would go into effect.

Social Security. Obama has said virtually nothing about reforming Social Security, one of the costly federal programs that will need some changes in the future to stay solvent. Romney has suggested several changes, such as raising the retirement age or reducing benefits for wealthier enrollees. He also insists there should be no new taxes to help pay for Social Security.

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Medicaid. As with Medicare, Obama would keep this program that provides healthcare for the poor largely intact, but change some rules to save about $7 billion per year. Romney would be more aggressive, converting Medicaid into a "block grant" program in which fixed payments from Washington are managed by the states as they wish. Romney claims that eventually, this could save Washington $200 billion per year.

  • Check out our editorial cartoons on President Obama.
  • See a collection of political cartoons on Mitt Romney
  • See a collection of political cartoons on the economy.
  • Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success , to be published in May. Follow him on Twitter: @rickjnewman