The US economy debate

Occupy Wall Street protesters
Image caption The Occupy Wall Street movement raised plenty of questions, but do the candidates offer any answers?

As Americans prepare to go to the polls on 6 November, the issue at the front of most minds is the economy.

The US is still suffering from the aftermath of the great recession of 2007-09.

Unemployment, although falling, is still an uncomfortable 7.8%.

And while the latest quarterly growth figure was a surprisingly high 2%, this is still the slowest economic recovery since World War II.

So what exactly are the real differences between the candidates on key economic issues?

Tax and Spending

Whoever wins office, one of the biggest and most immediate jobs will be to negotiate a further raising of the "debt ceiling" - the legal cap on the Federal government's total borrowing.

Under a deal reached last year between President Barack Obama and the Republican-controlled Congress, existing stimulus measures - mostly tax cuts - will expire on 1 January, and obligatory cuts to defence, education and other government spending will automatically come into force.

This "fiscal cliff" is forecast to cut the budget deficit - the amount by which spending exceeds tax revenues - by $7 trillion over 10 years.

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However, it is also expected to do serious damage to the US economy.

According to the non-partisan Congressional Budget Office, if the new president and Congress fail to agree a deal to avert the cliff, it would cause a significant new recession with two million job losses.

The current president says he wants to let the Bush-era tax cuts for high income earners expire on 1 January.

He would also raise taxes on high earners even further, in particular by raising capital gains tax to be in line with income tax rates - a policy publicly endorsed by the billionaire investor Warren Buffett - although this would probably not make a huge difference to the overall deficit.

However, with the exception of these revenue-raising measures (which are opposed by Republicans), Mr Obama would ideally like to reach a deal with Congress to continue deficit spending to support the economy until unemployment has fallen to a more acceptable level.

In contrast, Mitt Romney - and even more so his running mate Paul Ryan - has positioned himself as a "fiscal conservative", determined to cut the deficit down to size.

According to their five-point plan, the Republican duo favour an immediate 5% cut in government spending, although with the significant exception of defence spending.

However, Mr Romney has also promised significant tax cuts: making the Bush-era tax cuts permanent, further cuts to individual income tax rates, eliminating taxes on investment income, repealing inheritance tax, and reducing the corporate income tax rate.

Mr Romney has said that he would pay for at least some of these cuts by closing tax loopholes, although he has not specified what these are.

Implicit in his five-point plan is the belief that the cuts would also partly pay for themselves, by stimulating economic growth.

However, the plan also makes clear that Mr Romney thinks that tax cuts that increase the budget deficit are an acceptable way to boost the economy.

Entitlement Programmes

Mr Obama's Democratic Party is generally opposed to cuts in entitlement programmes - the government-guaranteed healthcare and pension rights enjoyed by US citizens.

However, as the baby-boom generation retire and need greater medical care in their old age, these programmes are projected by the CBO to drive up annual government spending by $1.5tn a decade from now.

One of the greatest successes for President Obama during his first term was to pass a system of universal medical insurance.

But Republicans say that "Obamacare" will further add to the deficit - although this is not the view of the CBO - and Mitt Romney has vowed to repeal it.

Mr Romney also proposes to transform the existing Medicare system from one that provides direct health insurance for retirees into one that pays towards the cost of obtaining private health insurance.

Monetary Policy

The Federal Reserve - the US central bank - has implemented a variety of highly unorthodox policies since the financial crisis of 2008 in an attempt to improve the country's bitter economic conditions.

These include, above all, "quantitative easing" - the Fed's buying up of government and private sector mortgage debts with newly-created money.

President Obama has avoided comment on monetary policy, in order to respect the Fed's independence.

The Fed's policies have proved highly controversial among Republicans, who fear that they are debasing the currency and may lead to rampant inflation.

One of Mr Romney's rivals for the Republican nomination accused the Fed chairman of "treason".

Mr Romney has not offered such strident views, and has queried the logic of a return to the "gold standard" - backing the value of the US dollar with gold reserves - a policy favoured by many in his party.

Trade Relations

The two candidates do not differ greatly in their plans for international trade. Both are broadly in favour of maintaining existing free trade agreements.

However, Mr Romney has sought to portray himself as being tougher on China.

In the first presidential debate, Mr Romney promised to declare China a "currency manipulator" - something that would have opened the door to retaliatory trade sanctions.

It is a move that Mr Obama's administration conspicuously avoided during his first term in office.

This was despite the fact that many Republicans and Democrats in Congress favoured sanctioning China for its policy of buying up US dollars in order to keep its own currency, the yuan, competitively cheap.

Financial Reform

Another of President Obama's major reforms was the Dodd-Frank package of changes to the financial services sector.

The new laws came in response to the 2008 financial crisis, and among other things:

  • created a new agency responsible for protecting consumers against predatory lending and other unfair practices
  • regulated the enormous derivatives market
  • restricted banks' riskier activities, and demanded they hold much more capital to absorb potential future losses

Many Republicans oppose the reforms in their entirety.

But although Mr Romney has promised to repeal the act, he has also said he agrees with many of its provisions.

Energy Policy

During President Obama's first term, the debate on energy policy has been transformed by the discovery of an abundant new source that is expected to end US dependence on energy imports in the near future - shale gas.

Yet the two candidates argued in the second presidential debate about who would do more to defend jobs in the coal sector and increase oil drilling, even though the US economy can afford to be less reliant on both of these sources of energy in the future.

Mitt Romney, whose party is generally seen as more friendly to the fossil fuel lobby, has vowed to cut regulation of the coal and oil industries.

Neither candidate has mentioned the issue of global warming in any of the presidential debates.