MITT Romney’s strong performance in this week’s first US presidential debate served to remind everyone that a victory for the incumbent, Barack Obama, in the election cannot be taken for granted.
It will take some days before national polling will reveal whether people’s reactions to Romney on Wednesday amounts to something more than just a blip.
However, traders on Wall St, leaning towards the Republicans, reacted by pushing stock prices higher following the broadcast.
The Republican challenger has attracted much bad press in recent weeks — most notably, after he appeared to dismiss 47% of the US electorate, mainly the less well off, in casual remarks at a dinner attended by wealthy backers. The former Bain Capital executive has on numerous occasions appeared to live up to his opponents’ caricature of him as an out of touch fat cat.
But poor economic data has served to throw some grit in the Obama electoral bandwagon in recent months.
Yesterday’s small drop in the unemployment rate represents a boost of sorts, but the US electorate remains in grumpy form despite evidence that the president is ahead in key states such as Ohio, Michigan, and Pennsylvania.
If Romney does manage to pull off a surprise victory on Nov 6, where would this leave Ireland, a country which enjoys close relations with the US?
A key proposal is a reduction in the US corporation tax rate from 35% — among the highest in the world — to a much more competitive 25%.
The Republicans are also proposing a 20% cut in the marginal rate of income tax while maintaining the current rate on interest, dividends and capital gains for those earning over $200,000 (€150,000) a year. They claim this will all be paid for through a clampdown on tax deductions.
Of particular interest from an Irish perspective is the commitment to “act immediately to alter those of our tax laws that encourage US multinationals to park their profits permanently overseas”.
The US operates a worldwide system of taxation under which business income is taxed at the 35% rate regardless of whether the income is earned at home or overseas.
The Obama team has proposed a gradual increase in taxes on those earning over $250,000 a year, combined with a $1,000 tax cut for ordinary working families. They would fund 5m jobs in green energy and launch a further programme to boost infrastructure.
The Republicans slate the Obama administration for dramatically increasing spending over the past four years through a series of “temporary programmes”.
Obama’s defenders claim that such moves, combined with accommodative monetary policies, have kept the US and by extension much of the global economy afloat during the most severe downturn since the 1930s.
A Republican administration is likely to favour tax cuts over government spending. It would also be much less likely to reappoint Ben Bernanke as chairman of the Federal Reserve when his term of office expires. Bernanke has been a major supporter of quantitative easing.
Such moves have boosted stock prices and the wider economy, but have also promoted commodity price speculation and led to fears of a rise in inflation down the road.
A Republican victory would likely represent a comeback for supply side, trickle down economics with a greater emphasis on privatisation.
Cultural and policy differences between the US and Europe would probably grow further, too.
However, friends of Romney insist he would be more likely to start tackling some of the healthcare and social spending imbalances; but at what cost to social cohesion in the US?
Perhaps the least welcome outcome from the point of view of the global economy would be an extremely close result followed by deadlock between the White House and congress over the renewal of measures designed to stimulate the US economy.
Fears about the looming US fiscal cliff could well grow towards the end of the year as the deadline looms.
If no action is taken (which seems hardly conceivable) a hefty 2% would be knocked off US GDP and the country’s credit rating would be called into question.
Some analysts here have been studying the implications of the upcoming poll.
Alan McQuaid, economist with Merrion Stockbrokers, suggests that Romney’s emphasis on lower taxes over economic growth is more likely to produce growth. He doubts if Bernanke’s mandate will be renewed, with the prospect of a less benign monetary regime being in place, should Romney win.
“His successor would be less likely to adopt an easy policy stance,” said McQuaid.
Whether this is of concern depends on one’s view as to whether deflation or inflation is the real bogey.
McQuaid is less concerned at the likelihood of a corporate tax crackdown in relation to Ireland. “After every election, we discover that the bark is worse than the bite,” he said.
A narrow victory for Obama makes agreement between congress and the White House less likely.
Deadlock is the greatest cloud on the horizon, according to Dermot O’Leary, economist with Goodbody Stockbrokers.
O’Leary fears the impact of the uncertainty that this deadlock would generate.
He is sceptical about concerns that increases in taxes, reportedly favoured by the Obama team, will damage the US economy.
O’Leary points to the strong growth registered during the 1990s despite moves by Bill Clinton and his team to raise taxes in a largely successful effort to cut the deficit.
A failure by the eventual victor to tackle the growing US deficit will certainly impact us all as it will increase investor uncertainty and ultimately damage business and consumer confidence. A fiscally rampant US — by sucking in global savings — serves to boost interest rates across the board. Irish borrowers, too, would feel a further chill.
For what it is worth, the leading commentator Paul Krugman has described Romney as a “closet Keynesian” whose key advisers, Glenn Hubbard and Gregory Mankiw, professors from Harvard and Columbia, are economic moderates. However, his vice-presidential nominee, Paul Ryan, is a fiscal hawk who has talked of the evil of “debasing the currency”.
It remains to be seen whether Romney’s managerial pragmatism will dominate government should he prise power from the grip of Barack Obama.