Press Releases

News from EPI New EPI study assesses the macroeconomic impacts of the Obama and Romney budget proposals

For Immediate Release: Wednesday, September 26, 2012
Contact: Phoebe Silag or Donte Donald, 202-775-8810

New EPI study assesses the macroeconomic impacts of the Obama and Romney budget proposals

A new Economic Policy Institute study finds that if President Obama’s fiscal 2013 budget plan became law, it would create roughly 1.1 million jobs in 2013 and 280,000 jobs in 2014. The budget plan put forward by Republican presidential nominee Mitt Romney would lead to smaller job gains of 87,000 in 2013 and a loss of 641,000 jobs in 2014 if it became law. In Who would promote job growth in the near term? Macroeconomic impacts of the Obama and Romney budget proposals, EPI Research and Policy Director Josh Bivens and EPI/The Century Foundation Federal Budget Policy Analyst Andrew Fieldhouse model and analyze projected macroeconomic impacts of the candidates’ respective budget plans over calendar years 2013 and 2014 and estimate their likely effects on GDP and employment growth.

Based on the available descriptions and analysis of the proposals put forward by each campaign in the public realm, Bivens and Fieldhouse constructed budgetary impacts of each candidate’s major policy proposals relative to current policy. From there, they use standard macroeconomic multipliers to translate the budgetary impacts into economic impacts. They find:

  • The Obama employment gains would be driven by an increase in spending of $135 billion over the current policy baseline, which is the result of the temporary spending boost called for under his proposed American Jobs Act.
  • If Romney’s proposed individual income tax cuts and alternative minimum tax elimination were revenue-neutral rather than deficit-financed, his plans would lead to employment losses of 608,000 in 2013 and roughly 1.3 million in 2014. (Romney has said that the cuts would be revenue-neutral, but he has not specified what “base-broadening” adjustments he would make to the tax code to accomplish that.)
  • The weaker job performance under the Romney plan is driven by his proposal to cap government spending at 20 percent of gross domestic product, a move that requires very large cuts to overall spending.


President Obama’s proposals include enacting the portions of the American Jobs Act that Congress has not passed, including investments in surface transportation infrastructure, funds to rehire teachers and first responders, and school modernization, as well as a temporary business payroll tax credit for hiring and wage increases, extension of bonus depreciation, and credits for advanced energy manufacturing. President Obama’s budget proposals allow the upper-income Bush-era tax cuts to expire and cap the value of certain tax expenditures for upper-income households.

Romney’s economic plan, Believe in America: Mitt Romney’s Plan for Jobs and Economic Growth, cuts both taxes and spending. The plan would continue all Bush-era tax cuts, repeal the estate tax permanently, reduce the top statutory corporate income tax rate from 35 to 25 percent, and repeal taxes and spending associated with the Affordable Care Act. In addition, Romney proposes to cut non-security discretionary spending by 5 percent, cut federal Medicaid spending, and cap federal spending at 20 percent of GDP.

“The difference in job creation we estimate is driven by the respective approaches to federal spending in the near term – the Obama budget calls for temporary increases, while the Romney plan calls for steep cuts,” said Fieldhouse.

“Given that the primary constraint on economic recovery is insufficient spending, both public and private, budget plans that cut federal spending will slow recovery and plans that boost it will lead to more rapid growth,” said Bivens.