Moody's warned Tuesday that it will cut the U.S. credit rating unless Washington passes a plan next year to stabilize the debt, which means regardless of who wins the White House, the issue must be confronted.
The two fiscal visions on offer in November reflect starker differences than usual. Quite simply, more is on the line.
President Obama's plan is to raise taxes on the better-off to keep the government funded at a historically high level. Mitt Romney would constrain the size of government to allow for pro-growth tax reform.
Yet voters must choose between Obama's tax and spending blueprint, which the Senate rejected 99-0, and Romney's broad policy outlines.
Moving Left From '08
Obama's tax proposals are well to the left of where they were in 2008. Back then, he intended to use the revenue from the Bush upper-bracket tax cuts to pay for his plan to expand health coverage.
Instead, ObamaCare funding relied on other revenue sources, including the individual mandate tax, a Medicare tax hike for higher earners, a tax on expensive health care policies and taxes on health equipment providers.
Obama's 2013 budget would sunset the Bush tax cuts for couples earning over $250,000 and further raise taxes on that group by reducing their deductions. The combination would raise $1.4 trillion over a decade.
By comparison, Obama's budget proposed targeted tax incentives for small businesses for health care coverage and start-up expenses totaling $22 billion over 10 years.
Obama's convention speech echoed Occupy Wall Street's "We are the 99%" theme: "If you reject the notion that this nation's promise is reserved for the few, your voice must be heard in this election.
The Romney campaign argues that Obama's income tax hikes would hurt job creation by hitting high-income entrepreneurs who file under the regular tax code.
"His plan to raise taxes on small business won't add jobs, it will eliminate them," Romney said in his convention speech.
The Joint Committee on Taxation has said about 3% of small businesses would be impacted by the higher income tax rates.
43.4% Dividend Tax Looms
Back in 2008, Obama ran on raising the tax rate on long-term capital gains and dividends from 15% to 20%. But now, including the 3.8% Medicare tax on investment income that passed as part of ObamaCare, he would raise the capital gains rate to 23.8% and the dividend rate to 43.4%.
Without offsetting changes elsewhere in the tax code, such tax increases would raise the cost of capital for business.
Romney's plan calls for cutting income tax rates by one-fifth (meaning the top 35% bracket would become 28%) and offsetting the lower revenue by reducing tax breaks.
Economists believe that tax breaks for mortgage interest, health care coverage and the like, distort incentives in a way that is negative for growth.
Because getting rid of popular tax breaks can be politically dicey, Romney has left blank the details of how he would make his tax reform pay for itself.
Romney has said the plan will be revenue neutral and won't make the tax code any less progressive. But he hasn't put proof to paper, and economists on both sides of the aisle have raised questions.
"I don't believe that another round of tax breaks for millionaires will bring good jobs to our shores, or pay down our deficit," Obama said in Charlotte, N.C.
The Congressional Budget Office has said Obama's plan would raise revenue equal to 19.6% of GDP in 2016, while the Romney campaign has targeted revenue of 18% of GDP.
The difference over spending is somewhat greater. Outlays under Obama would be 22.4% of GDP, while Romney has said he would cut spending to 20% of GDP by the end of his first term, matching the post-World War II average.
Yet Romney has said he would protect all Social Security and Medicare benefits for those 55 and up, while spending more on defense. The liberal Center on Budget and Policy Priorities calculates that Romney's plan would require a 40% cut in all other spending, covering areas such as Medicaid, education and veterans. Romney has said that ending ObamaCare would provide some of the savings.