As America’s elections approach, withPresident Barack Obama slightly in front of his Republican challenger, formerMassachusetts Governor Mitt Romney, pollstersstill rate the races for control of thepresidency and the United States Senate too close to call, with the House ofRepresentatives likely to remain in Republican hands. The differences betweenthe candidates are considerable, and highly consequentialfor American economic policy and the global economy, although enactment of their programs will depend on the makeup of Congress.

The most important differences between the two candidates can besummarized as follows:

Spending. Obama has dramaticallyincreased spending. He would likely continue many of his temporary programs (asMilton Friedmanonce observed, “There is nothing so permanent as a temporary governmentprogram.”); double down on having governmentpick winners and losers in green energy; expand spending on education andinfrastructure; and substantially reduce defense expenditures.

Romney, by contrast, favors limiting overall federal spending, currently24% of GDP, to 20%, and keeping defense at 4%. He wants private markets, notgovernment, to choose winning firms and technologies.

Democrats oppose most nondefensespending cuts, arguing that reductions would cause the economy to contract.That case is strongest if the spending reductions are large and abrupt in a weak economy. If phased in over a multi-year period as the economyrecovers, as Romney proposes, thrift wouldlikely be expansionary. For example, federal spending relative to GDP fell byfive percentage points from the mid-1980’sto the late 1990’s in theUS, and by an even largermargin in recent decades in Canada– that is, through periods of strong economic growth.

Taxes. Obama would raise the topmarginal tax rates on wages, capital gains, dividends, interest, and estates,especially on higher-income individuals and small businesses. Yet he has neverproposed comprehensive reform of either the personal or corporate income tax.

By contrast, Romney would reduce America’s corporate tax rate (thehighest in the OECD) to 25% and tax American multinationals on a territorial, rather than a worldwide, basis inorder to increase their tax competitiveness. He would also lower personal taxrates by 20%, and make up lost revenue by limiting tax deductions and credits,particularly at the upper end, therebyraising about 18.5% of GDP, just above the historical average, at fullemployment. Romney’s fiscal plan thus reduces deficits sufficiently to decreasethe debt-to-GDP ratio. He favors abalanced-budget amendment to theConstitution, and hopes to balance the budget over eight years.

Obama, by contrast, would run larger deficits – his spending increase ismuch larger than his tax increase – which imply large taxhikes in the future. Moreover, he would run far larger debt ratios thanRomney, because the main driver of the debt is entitlement spending.

Entitlements. Obama hasremained silent about reform of Medicare andSocial Security, whose long-run deficits are severaltimes the national debt. Vice President Joe Biden has even said that “nochanges” to Social Security are to be made.

Romney supports gradually increasing retirement ages, a premium-supportmodel for Medicare, and shifting Medicaid (health insurance for the poor) tothe states via block grants. The Obamacampaign is pummeling Romney on Medicare,and the Romney campaign is hammering Obamafor his refusal to negotiate or even propose a solution.

The Obama policy would thus lead to ever-higher deficits and debt ratioswell over 100% of GDP, a level that numerousstudies imply would reduce USeconomic growth by one-third or more and might induce a sovereign-debt crisis.Some observers suggest that Obama’s unspoken plan is ever-growing entitlementseventually paid for by a European-style value-added tax.

Trade. Obama is the first US president ina long time who has not played a leading role on global trade liberalization.The Doha Round of global trade talks remains stalled,and Obama delayed the three bilateral free-trade agreements that awaitedapproval when he came into office. Romney is a proponentof free trade, but has said that he would be tougher on China’s trade practices andcurrency policies.

Regulation. Obama wants to expand federalcommand-and-control regulation further (though the courts have stopped hisextension of some regulatory powers). Romney vows an economically balancedapproach that would reform Obama’s major health-care, environmental, and financial-servicesregulations.

Appointments. Every US presidentappoints thousands of officials, many with considerable power. Romney has saidthat he would not reappoint Ben Bernanke as Fed Chairman (likely candidates:economists Glenn Hubbard, Greg Mankiw, John Taylor, and MartinFeldstein). Other presidential appointeesexert considerable influence on firms, industries, or the entire economy. Forexample, Obama’s appointees to the obscure National Labor Relations Board tried toprevent Boeing from expanding in South  Carolina, despite the state’s anti-union “right towork” legislation.

These policies would affect US economic growth, the budget deficit,national saving, and hence global trade and capital flows. With larger deficitsunder Obama than under Romney, America would need more capital from Europe,Latin America, and Asia, while higher taxes and debt would impede US growth andthus undermine these regions’ exports. Obama would steer America in thedirection of European social-welfare states; Romney’s agenda is designed toprevent that.

Whoever wins, a fiscal cliff looms atthe end of 2012. Previous legislation, if not reversed, will lead to largeabrupt tax hikes and spending cuts, which the Congressional Budget Officeforecasts would likely cause a recession in 2013. While a post-election, lame-duck session of Congress will address thefiscal cliff, the deep differences between Republicans and Democrats on taxesand spending remain wide and difficult to bridge.

With uncertainty plaguing Europe’sfinances and China slowing,the last thing the global economy needs is a stagnantor shrinking US economy. But it will take strongleadership by the president-elect to avoid it.