Econ recovery likely -- benefiting election winner

[October 02, 2012]  WASHINGTON (AP) -- Eventually, the economic recovery will pick up steam -- whether Barack Obama or Mitt Romney is in the White House.

That's what many economic outlooks project. And the president -- and the party occupying the Oval Office -- will reap some of the benefits.

But first, Obama or Romney, together with Congress, will have to pull back from the widely deplored "fiscal cliff," the politically created budget abyss facing the nation at year's end.

The betting on that ranges from mild optimism to nail-biting anxiety. But most economic analysts agree that if Washington resolves that looming crisis, Americans can expect faster economic growth and lower unemployment.

"Regardless of who is president, if the next president is able to nail down these fiscal issues, then I do think we're off and running," said Mark Zandi, chief economist at Moody's Analytics.

That would be welcome news for a nation that has been struggling through a slow comeback from the deepest recession and fiscal crisis since the Great Depression -- and needs to shore itself up quickly in the event Europe slips back into recession.

Six countries in the eurozone -- Greece, Spain, Italy, Cyprus, Malta and Portugal -- already are in recession. And the continent's struggles were underscored Monday by a report that unemployment remained at its record high rate of 11.4 percent in the 17 countries that use the euro.

Politically in the U.S., a strong rebound would be great news for a Romney presidency or an Obama legacy. And it would do much to enhance or repair the brand of either of the political parties, whichever holds the White House, before the 2014 congressional elections and the 2016 White House race.

Jared Bernstein, former chief economist for Vice President Joe Biden, said presidents actually have the greatest impact on economies when markets fail.

But, he added: "We will never live in a world where presidents don't take credit of for an improved economy on their watch."

Both Obama and Romney have placed great stock in their economic recovery plans during this year's campaign, Obama with his "balanced approach" of tax increases for the wealthy and spending reductions, Romney with his spending cuts and lower tax rates.

But many economists say the fate of the recovery rests not so much with those specific plans as it does with a bargain -- either at year's end or during the first several months of 2013 -- by the new or the re-elected president and Congress that avoids steep and immediate spending cuts and an immediate across-the-board tax increase.

Congress and Obama agreed that those drastic deficit-cutting measures would take effect in January unless lawmakers and the president worked out and approved other proposals in the meantime. That intense debate will resume in earnest almost immediately after the Nov. 6 election.

"If the cliff is resolved in a relatively benign fashion where there is modest fiscal austerity and serious compromise between the two parties, then the economy can go back to its recovery," said Ethan Harris, co-head of global economic research at Bank of America Merrill Lynch. "If they really do a poor job of handling the fiscal cliff, they may actually kill this potential rebound."

How will that question be resolved?

Republicans have been adamant that no solution should include a tax increase, even on higher income taxpayers. Romney has embraced that stance. But in a recent panel discussion, Romney economic adviser Kevin Hassett pointed out that the countries that have been most successful at reining in their deficits have been the ones that accomplished it with a mix of 85 percent cuts and 15 percent tax increases.

Obama has criticized Romney for proposing a 20 percent cut in marginal tax rates, arguing it would either lead to higher federal deficits or to higher taxes for the middle class. But Hassett indicated that if Romney and Congress were unable to find enough savings by eliminating tax loopholes and breaks to cover the lost revenue, the tax cut would be adjusted so it wouldn't be so steep.

Obama officials say they are optimistic that they can reach a sweet spot of compromise that restrains deficits over time but is not so austere that it damages the recovery. Obama and his aides insist they will not simply buy time or agree to a short extension of all Bush-era tax cuts. Obama has said the election will help resolve the issue.

"I'm hoping that after the smoke clears and the election season's over that that spirit of cooperation comes more to the fore," the president told CBS' "60 Minutes" last week.

But Harris, the Bank of America Merrill Lynch economist, said the election may not prove a decisive factor on a debt compromise. That's because Romney has not specified what government spending or tax loopholes he intends to eliminate, and Obama has not offered details on what entitlement cuts he would undertake.

"The two parties are offering all sugar and no medicine solutions," Harris said. "Neither party comes out of the election with a clear mandate. You only have a mandate if you have specific proposals."

The business sector is anxious -- and weighing in.

Boeing chairman and CEO Jim McNerney told reporters in a conference call that chief executives "wouldn't be uncomfortable" with some tax increases if the overall package included larger spending cuts. He specifically cited a proposal by a commission headed former Republican Sen. Alan Simpson and Democrat Erskine Bowles that would provide $3 in spending cuts for every $1 in additional revenues.

Success is critical.

The nonpartisan Congressional Budget Office has concluded that the drastic cuts and tax increases that Congress and Obama agreed to confront at year's end in order to force action on a more temperate debt-control package would lead to a recession in 2013 and drive up unemployment to 9 percent or more.

If the "cliff" is avoided with a more modest package that doesn't strike so fast, economists see a much rosier scenario. Moody's Analytics projects gross domestic product, the main measure of the economy, to grow at a 4 percent clip or more in 2014, compared to less than 2 percent so far this year, and unemployment to fall to 5.6 percent in 2016.

[Associated Press; By JIM KUHNHENN]

Associated Press Economics Writer Christopher S. Rugaber contributed to this article.

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