The Five Worst Ideas Romney and Obama Agree On
Mitt Romney and President Barack Obama disagreed a lot in last night's debate, but they don't disagree on everything. Unfortunately, Romney and Obama share affection for a number of terrible, terrible ideas.
Here are the five worst:
1. Coal is awesome. Last night, the two candidates fell over each other in claiming their support of coal.
First Obama bragged about "increases in coal production and coal employment." Then Romney complained that Obama isn't pro-coal enough: "What we don't need is to have the president keeping us from taking advantage of oil, coal and gas. ... I was in coal country. People grabbed my arms and say, please, save my job."
But Obama said it's Romney who is the real enemy of coal:
When I hear Governor Romney say he's a big coal guy -- and keep in mind when -- Governor, when you were governor of Massachusetts, you stood in front of a coal plant and pointed at it and said, this plant kills, and took great pride in shutting it down. And now suddenly you're a big champion of coal.
Obama is even running a radio ad in Ohio, touting his record of increasing coal production and attacking Romney for shutting down that coal plant.
In fact, coal is the dirtiest major fuel we use. Its use is on the downswing because natural gas is a cleaner and, increasingly, cheaper alternative. Letting coal production fall would be a good thing for the environment and the economy. But neither candidate wants to say so.
2. Let the payroll tax holiday expire. This is such an area of agreement that it didn't even come up in last night's debate.
For the last two years, the payroll tax has been reduced by 2 percentage points in order to encourage job creation and stimulate consumer demand. That tax holiday is set to expire at the end of December, and as Annie Lowrey reported last month for the New York Times, nobody seems eager to extend it.
Treasury Secretary Tim Geithner told the Senate Budget Committee in February, "I don't see any reason to consider supporting its extension," and the White House has not signaled support since. Romney and other Republicans also are not calling for an extension.
Allowing the payroll tax holiday to expire will shrink consumer demand and therefore the economy. Mark Zandi of Moody's estimates it will take 0.6 percentage points off of GDP; the Economic Policy Institute, a liberal think tank, bets on a larger Keynesian multiplier and says it will cost GDP 0.9 percent.
With interest rates in the basement, this is essentially a free lunch: The federal government can borrow almost for free to replace the lost revenue. So why won't any candidate stand up for this tax cut?
Sean West, the head of U.S. research for Eurasia Group, the global political risk firm, says it's because neither side sees political advantage in this good policy:
For Democrats, supporting the tax cut opens them up to claims of relying on "sugar high" stimulus measures and to accusations of destabilizing Social Security (which is funded by the payroll tax). For Republicans, supporting the cuts would entail endorsing a signature Obama measure and reopening wounds between House and Senate Republicans, who had a showdown over the issue last year.
Unfortunately, neither Candy Crowley nor Jim Lehrer pressed the candidates to explain what they would do on the issue. (Disclosure: I am a consultant to Eurasia Group on fiscal issues.)
3. Don't raise income taxes on anyone making less than $200,000. While both candidates are overly willing to let payroll taxes rise in the short term, they also inappropriately rule out a medium-term increase in income taxes for the middle class.
Obama attacked Romney for wanting to continue the fiscally irresponsible legacy of the Bush tax cuts. "The centerpiece of his economic plan are tax cuts. That's what took us from surplus to deficit." Yet Obama wants to make the portion of the Bush tax cuts applying to incomes under $200,000 -- about 80 percent of the total -- permanent.
Romney insists, with increasing vociferousness, that his tax plan won't raise taxes on the middle class, either -- indeed, he says he'll cut taxes on them.
Our long-term budget gap is simply too large to be closed with tax increases just on the rich. And if the activities of the federal government are truly valuable, politicians should be able to make the case that the middle class should pay for them. Telling 97 percent of Americans that they can have more government and not pay more taxes is irresponsible and unsustainable.
4. We need to "get tough" on China. Romney says he will label China as a "currency manipulator" and impose retaliatory tariffs if China does not let its currency, the renminbi, appreciate. Obama says his administration already is tough on China, applying "unprecedented trade pressure," including a tariff to stop China from flooding the U.S. market with cheap tires.
Picking a trade war with China is a terrible idea. Yes, the renminbi is undervalued, but as Evan Soltas notes, it's a lot less undervalued than it used to be because the Chinese have been gradually letting it rise.
That undervaluation is also a mixed bag for the U.S. -- it makes our manufacturers less competitive, but it also makes the products we buy cheaper. We shouldn't take costly steps to force China to adjust its currency faster.
As Matt Yglesias notes, if you impose tariffs on Chinese goods, "first you reduce Americans' real income by subjecting them to higher taxes, and second you'll hurt U.S. exports to China when the inevitable retaliation comes." For this reason, the tire tariff Obama touted cost U.S. consumers at least $900,000 for every job it saved, according to the Peterson Institute for International Economics. Romney opposed the tire tariff but is implicitly promising more, similar actions.
In their presidential debates in 1992, Bill Clinton attacked George H.W. Bush for coddling China in the wake of Tiananmen Square. Bush, to his credit, responded that pushing China too hard would be reckless and that it was important to foster a collaborative relationship with the world's most populous country. It would be nice if Romney or Obama would stand up for that idea today.
5. Housing policy isn't important. There was no discussion of housing policy in last night's debate. There was a little in the first debate, but it was incidental: a discussion of how Dodd-Frank has affected the mortgage market.
Don't blame the moderators. Yes, they didn't ask specifically about housing, but if the candidates thought it was important, they could have brought it up. For example, when Crowley asked how the candidates would bring unemployment down, "I will implement a better housing policy" would have been a good answer.
President Obama nominally favors government action to restructure home mortgages, but his administration's actions have been disappointingly tepid. One initiative was blocked by Federal Housing Finance Agency head Ed DeMarco, who is not an Obama appointee. But Obama passed on an opportunity to replace DeMarco with a recess appointment, which would have removed him as an obstacle.
One of Romney's top advisers, Glenn Hubbard, has his own aggressive mortgage restructuring plan. But Romney has not indicated that he supports such a plan or would implement one as president. His 59-point economic plan has a lot of detail in some areas, but says nothing about housing.
Homeowners trapped with underwater mortgages -- unable to relocate to take new jobs; devoting their income to deleveraging instead of consumption -- are a key reason the economy is lagging. But both candidates act like the issue isn't important. They are both wrong.
This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.