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Billions in Hidden Riches for Family of Chinese Leader

Petar Kujundzic/Reuters

Bo Bor/Reuters


ChinaTopix, via Associated Press

Xinhua, via Agence France-Presse — Getty Images



Many relatives of Mr. Wen became wealthy during his leadership.

By DAVID BARBOZA
Published: October 25, 2012 578 Comments


BEIJING — The mother of China’s prime minister was a schoolteacher in northern China. His father was ordered to tend pigs in one of Mao’s political campaigns. And during childhood, “my family was extremely poor,” the prime minister, Wen Jiabao, said in a speech last year.


The People’s Premier



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Obtaining Financial Records in China (October 27, 2012)
The Lede Blog: Ask About the Wealth of Chinese Officials (October 25, 2012)
China Blocks Web Access to Times After Article (October 26, 2012)

But now 90, the prime minister’s mother, Yang Zhiyun, not only left poverty behind, she became outright rich, at least on paper, according to corporate and regulatory records. Just one investment in her name, in a large Chinese financial services company, had a value of $120 million five years ago, the records show.

The details of how Ms. Yang, a widow, accumulated such wealth are not known, or even if she was aware of the holdings in her name. But it happened after her son was elevated to China’s ruling elite, first in 1998 as vice prime minister and then five years later as prime minister.

Many relatives of Wen Jiabao, including his son, daughter, younger brother and brother-in-law, have become extraordinarily wealthy during his leadership, an investigation by The New York Times shows. A review of corporate and regulatory records indicates that the prime minister’s relatives — some of whom, including his wife, have a knack for aggressive deal making — have controlled assets worth at least $2.7 billion.

In many cases, the names of the relatives have been hidden behind layers of partnerships and investment vehicles involving friends, work colleagues and business partners. Untangling their financial holdings provides an unusually detailed look at how politically connected people have profited from being at the intersection of government and business as state influence and private wealth converge in China’s fast-growing economy.

Unlike most new businesses in China, the family’s ventures sometimes received financial backing from state-owned companies, including China Mobile, one of the country’s biggest phone operators, the documents show. At other times, the ventures won support from some of Asia’s richest tycoons. The Times found that Mr. Wen’s relatives accumulated shares in banks, jewelers, tourist resorts, telecommunications companies and infrastructure projects, sometimes by using offshore entities.

The holdings include a villa development project in Beijing; a tire factory in northern China; a company that helped build some of Beijing’s Olympic stadiums, including the well-known “Bird’s Nest”; and Ping An Insurance, one of the world’s biggest financial services companies.

As prime minister in an economy that remains heavily state-driven, Mr. Wen, who is best known for his simple ways and common touch, more importantly has broad authority over the major industries where his relatives have made their fortunes. Chinese companies cannot list their shares on a stock exchange without approval from agencies overseen by Mr. Wen, for example. He also has the power to influence investments in strategic sectors like energy and telecommunications.

Because the Chinese government rarely makes its deliberations public, it is not known what role — if any — Mr. Wen, who is 70, has played in most policy or regulatory decisions. But in some cases, his relatives have sought to profit from opportunities made possible by those decisions.

The prime minister’s younger brother, for example, has a company that was awarded more than $30 million in government contracts and subsidies to handle wastewater treatment and medical waste disposal for some of China’s biggest cities, according to estimates based on government records. The contracts were announced after Mr. Wen ordered tougher regulations on medical waste disposal in 2003 after the SARS outbreak.

In 2004, after the State Council, a government body Mr. Wen presides over, exempted Ping An Insurance and other companies from rules that limited their scope, Ping An went on to raise $1.8 billion in an initial public offering of stock. Partnerships controlled by Mr. Wen’s relatives — along with their friends and colleagues — made a fortune by investing in the company before the public offering.

In 2007, the last year the stock holdings were disclosed in public documents, those partnerships held as much as $2.2 billion worth of Ping An stock, according to an accounting of the investments by The Times that was verified by outside auditors. Ping An’s overall market value is now nearly $60 billion.

Ping An said in a statement that the company did “not know the background of the entities behind our shareholders.” The statement said, “Ping An has no means to know the intentions behind shareholders when they buy and sell our shares.”

While Communist Party regulations call for top officials to disclose their wealth and that of their immediate family members, no law or regulation prohibits relatives of even the most senior officials from becoming deal-makers or major investors — a loophole that effectively allows them to trade on their family name. Some Chinese argue that permitting the families of Communist Party leaders to profit from the country’s long economic boom has been important to ensuring elite support for market-oriented reforms.

Even so, the business dealings of Mr. Wen’s relatives have sometimes been hidden in ways that suggest the relatives are eager to avoid public scrutiny, the records filed with Chinese regulatory authorities show. Their ownership stakes are often veiled by an intricate web of holdings as many as five steps removed from the operating companies, according to the review.

In the case of Mr. Wen’s mother, The Times calculated her stake in Ping An — valued at $120 million in 2007 — by examining public records and government-issued identity cards, and by following the ownership trail to three Chinese investment entities. The name recorded on his mother’s shares was Taihong, a holding company registered in Tianjin, the prime minister’s hometown.

The apparent efforts to conceal the wealth reflect the highly charged politics surrounding the country’s ruling elite, many of whom are also enormously wealthy but reluctant to draw attention to their riches. When Bloomberg News reported in June that the extended family of Vice President Xi Jinping, set to become China’s next president, had amassed hundreds of millions of dollars in assets, the Chinese government blocked access inside the country to the Bloomberg Web site.

“In the senior leadership, there’s no family that doesn’t have these problems,” said a former government colleague of Wen Jiabao who has known him for more than 20 years and who spoke on the condition of anonymity. “His enemies are intentionally trying to smear him by letting this leak out.”

The Times presented its findings to the Chinese government for comment. The Foreign Ministry declined to respond to questions about the investments, the prime minister or his relatives. Members of Mr. Wen’s family also declined to comment or did not respond to requests for comment.

Duan Weihong, a wealthy businesswoman whose company, Taihong, was the investment vehicle for the Ping An shares held by the prime minister’s mother and other relatives, said the investments were actually her own. Ms. Duan, who comes from the prime minister’s hometown and is a close friend of his wife, said ownership of the shares was listed in the names of Mr. Wen’s relatives in an effort to conceal the size of Ms. Duan’s own holdings.

“When I invested in Ping An I didn’t want to be written about,” Ms. Duan said, “so I had my relatives find some other people to hold these shares for me.”

But it was an “accident,” she said, that her company chose the relatives of the prime minister as the listed shareholders — a process that required registering their official ID numbers and obtaining their signatures. Until presented with the names of the investors by The Times, she said, she had no idea that they had selected the relatives of Wen Jiabao.

The review of the corporate and regulatory records, which covers 1992 to 2012, found no holdings in Mr. Wen’s name. And it was not possible to determine from the documents whether he recused himself from any decisions that might have affected his relatives’ holdings, or whether they received preferential treatment on investments.

For much of his tenure, Wen Jiabao has been at the center of rumors and conjecture about efforts by his relatives to profit from his position. Yet until the review by The Times, there has been no detailed accounting of the family’s riches.

His wife, Zhang Beili, is one of the country’s leading authorities on jewelry and gemstones and is an accomplished businesswoman in her own right. By managing state diamond companies that were later privatized, The Times found, she helped her relatives parlay their minority stakes into a billion-dollar portfolio of insurance, technology and real estate ventures.

The couple’s only son sold a technology company he started to the family of Hong Kong’s richest man, Li Ka-shing, for $10 million, and used another investment vehicle to establish New Horizon Capital, now one of China’s biggest private equity firms, with partners like the government of Singapore, according to records and interviews with bankers.

The prime minister’s younger brother, Wen Jiahong, controls $200 million in assets, including wastewater treatment plants and recycling businesses, the records show.

As prime minister, Mr. Wen has staked out a position as a populist and a reformer, someone whom the state-run media has nicknamed “the People’s Premier” and “Grandpa Wen” because of his frequent outings to meet ordinary people, especially in moments of crisis like natural disasters.

While it is unclear how much the prime minister knows about his family’s wealth, State Department documents released by the WikiLeaks organization in 2010 included a cable that suggested Mr. Wen was aware of his relatives’ business dealings and unhappy about them.

“Wen is disgusted with his family’s activities, but is either unable or unwilling to curtail them,” a Chinese-born executive working at an American company in Shanghai told American diplomats, according to the 2007 cable.

China’s ‘Diamond Queen’

It is no secret in China’s elite circles that the prime minister’s wife, Zhang Beili, is rich, and that she has helped control the nation’s jewelry and gem trade. But her lucrative diamond businesses became an off-the-charts success only as her husband moved into the country’s top leadership ranks, the review of corporate and regulatory records by The Times found.

A geologist with an expertise in gemstones, Ms. Zhang is largely unknown among ordinary Chinese. She rarely travels with the prime minister or appears with him, and there are few official photographs of the couple together. And while people who have worked with her say she has a taste for jade and fine diamonds, they say she usually dresses modestly, does not exude glamour and prefers to wield influence behind the scenes, much like the relatives of other senior leaders.

The State Department documents released by WikiLeaks included a suggestion that Mr. Wen had once considered divorcing Ms. Zhang because she had exploited their relationship in her diamond trades. Taiwanese television reported in 2007 that Ms. Zhang had bought a pair of jade earrings worth about $275,000 at a Beijing trade show, though the source — a Taiwanese trader — later backed off the claim and Chinese government censors moved swiftly to block coverage of the subject in China, according to news reports at the time.

“Her business activities are known to everyone in the leadership,” said one banker who worked with relatives of Wen Jiabao. The banker said it was not unusual for her office to call upon businesspeople. “And if you get that call, how can you say no?”

Zhang Beili first gained influence in the 1990s, while working as a regulator at the Ministry of Geology. At the time, China’s jewelry market was still in its infancy.

While her husband was serving in China’s main leadership compound, known as Zhongnanhai, Ms. Zhang was setting industry standards in the jewelry and gem trade. She helped create the National Gemstone Testing Center in Beijing, and the Shanghai Diamond Exchange, two of the industry’s most powerful institutions.

In a country where the state has long dominated the marketplace, jewelry regulators often decided which companies could set up diamond-processing factories, and which would gain entry to the retail jewelry market. State regulators even formulated rules that required diamond sellers to buy certificates of authenticity for any diamond sold in China, from the government-run testing center in Beijing, which Ms. Zhang managed.

As a result, when executives from Cartier or De Beers visited China with hopes of selling diamonds and jewelry here, they often went to visit Ms. Zhang, who became known as China’s “diamond queen.”

“She’s the most important person there,” said Gaetano Cavalieri, president of the World Jewelry Confederation in Switzerland. “She was bridging relations between partners — Chinese and foreign partners.”

As early as 1992, people who worked with Ms. Zhang said, she had begun to blur the line between government official and businesswoman. As head of the state-owned China Mineral and Gem Corporation, she began investing the state company’s money in start-ups. And by the time her husband was named vice premier, in 1998, she was busy setting up business ventures with friends and relatives.

The state company she ran invested in a group of affiliated diamond companies, according to public records. Many of them were run by Ms. Zhang’s relatives — or colleagues who had worked with her at the National Gemstone Testing Center.

In 1993, for instance, the state company Ms. Zhang ran helped found Beijing Diamond, a big jewelry retailer. A year later, one of her younger brothers, Zhang Jianming, and two of her government colleagues personally acquired 80 percent of the company, according to shareholder registers. Beijing Diamond invested in Shenzhen Diamond, which was controlled by her brother-in-law, Wen Jiahong, the prime minister’s younger brother.

Among the successful undertakings was Sino-Diamond, a venture financed by the state-owned China Mineral and Gem Corporation, which she headed. The company had business ties with a state-owned company managed by another brother, Zhang Jiankun, who worked as an official in Jiaxing, Ms. Zhang’s hometown, in Zhejiang Province.

In the summer of 1999, after securing agreements to import diamonds from Russia and South Africa, Sino-Diamond went public, raising $50 million on the Shanghai Stock Exchange. The offering netted Ms. Zhang’s family about $8 million, according to corporate filings.

Although she was never listed as a shareholder, former colleagues and business partners say Ms. Zhang’s early diamond partnerships were the nucleus of a larger portfolio of companies she would later help her family and colleagues gain a stake in.

The Times found no indication that Wen Jiabao used his political clout to influence the diamond companies his relatives invested in. But former business partners said that the family’s success in diamonds, and beyond, was often bolstered with financial backing from wealthy businessmen who sought to curry favor with the prime minister’s family.

“After Wen became prime minister, his wife sold off some of her diamond investments and moved into new things,” said a Chinese executive who did business with the family. He asked not to be named because of fear of government retaliation. Corporate records show that beginning in the late 1990s, a series of rich businessmen took turns buying up large stakes in the diamond companies, often from relatives of Mr. Wen, and then helped them reinvest in other lucrative ventures, like real estate and finance.

According to corporate records and interviews, the businessmen often supplied accountants and office space to investment partnerships partly controlled by the relatives.

“When they formed companies,” said one businessman who set up a company with members of the Wen family, “Ms. Zhang stayed in the background. That’s how it worked.”

The Only Son

Late one evening early this year, the prime minister’s only son, Wen Yunsong, was in the cigar lounge at Xiu, an upscale bar and lounge at the Park Hyatt in Beijing. He was having cocktails as Beijing’s nouveau riche gathered around, clutching designer bags and wearing expensive business suits, according to two guests who were present.

In China, the children of senior leaders are widely believed to be in a class of their own. Known as “princelings,” they often hold Ivy League degrees, get V.I.P. treatment, and are even offered preferred pricing on shares in hot stock offerings.

They are also known as people who can get things done in China’s heavily regulated marketplace, where the state controls access. And in recent years, few princelings have been as bold as the younger Mr. Wen, who goes by the English name Winston and is about 40 years old.

A Times review of Winston Wen’s investments, and interviews with people who have known him for years, show that his deal-making has been extensive and lucrative, even by the standards of his princeling peers.

State-run giants like China Mobile have formed start-ups with him. In recent years, Winston Wen has been in talks with Hollywood studios about a financing deal.

Concerned that China does not have an elite boarding school for Chinese students, he recently hired the headmasters of Choate and Hotchkiss in Connecticut to oversee the creation of a $150 million private school now being built in the Beijing suburbs.

Winston Wen and his wife, moreover, have stakes in the technology industry and an electric company, as well as an indirect stake in Union Mobile Pay, the government-backed online payment platform — all while living in the prime minister’s residence, in central Beijing, according to corporate records and people familiar with the family’s investments.

“He’s not shy about using his influence to get things done,” said one venture capitalist who regularly meets with Winston Wen.

The younger Mr. Wen declined to comment. But in a telephone interview, his wife, Yang Xiaomeng, said her husband had been unfairly criticized for his business dealings.

“Everything that has been written about him has been wrong,” she said. “He’s really not doing that much business anymore.”

Winston Wen was educated in Beijing and then earned an engineering degree from the Beijing Institute of Technology. He went abroad and earned a master’s degree in engineering materials from the University of Windsor, in Canada, and an M.B.A. from the Kellogg School of Business at Northwestern University in Evanston, Ill., just outside Chicago.

When he returned to China in 2000, he helped set up three successful technology companies in five years, according to people familiar with those deals. Two of them were sold to Hong Kong businessmen, one to the family of Li Ka-shing, one of the wealthiest men in Asia.

Winston Wen’s earliest venture, an Internet data services provider called Unihub Global, was founded in 2000 with $2 million in start-up capital, according to Hong Kong and Beijing corporate filings. Financing came from a tight-knit group of relatives and his mother’s former colleagues from government and the diamond trade, as well as an associate of Cheng Yu-tung, patriarch of Hong Kong’s second-wealthiest family. The firm’s earliest customers were state-owned brokerage houses and Ping An, in which the Wen family has held a large financial stake.

He made an even bolder move in 2005, by pushing into private equity when he formed New Horizon Capital with a group of Chinese-born classmates from Northwestern. The firm quickly raised $100 million from investors, including SBI Holdings, a division of the Japanese group SoftBank, and Temasek, the Singapore government investment fund.

Under Mr. Wen, New Horizon established itself as a leading private equity firm, investing in biotech, solar, wind and construction equipment makers. Since it began operations, the firm has returned about $430 million to investors, a fourfold profit, according to SBI Holdings.

“Their first fund was dynamite,” said Kathleen Ng, editor of Asia Private Equity Review, an industry publication in Hong Kong. “And that allowed them to raise a lot more money.”

Today, New Horizon has more than $2.5 billion under management.

Some of Winston Wen’s deal-making, though, has attracted unwanted attention for the prime minister.

In 2010, when New Horizon acquired a 9 percent stake in a company called Sihuan Pharmaceuticals just two months before its public offering, the Hong Kong Stock Exchange said the late-stage investment violated its rules and forced the firm to return the stake. Still, New Horizon made a $46.5 million profit on the sale.

Soon after, New Horizon announced that Winston Wen had handed over day-to-day operations and taken up a position at the China Satellite Communications Corporation, a state-owned company that has ties to the Chinese space program. He has since been named chairman.

The Tycoons

In the late 1990s, Duan Weihong was managing an office building and several other properties in Tianjin, the prime minister’s hometown in northern China, through her property company, Taihong. She was in her 20s and had studied at the Nanjing University of Science and Technology.

Around 2002, Ms. Duan went into business with several relatives of Wen Jiabao, transforming her property company into an investment vehicle of the same name. The company helped make Ms. Duan very wealthy.

It is not known whether Ms. Duan, now 43, is related to the prime minister. In a series of interviews, she first said she did not know any members of the Wen family, but later described herself as a friend of the family and particularly close to Zhang Beili, the prime minister’s wife. As happened to a handful of other Chinese entrepreneurs, Ms. Duan’s fortunes soared as she teamed up with the relatives and their network of friends and colleagues, though she described her relationship with them involving the shares in Ping An as existing on paper only and having no financial component.

Ms. Duan and other wealthy businesspeople — among them, six billionaires from across China — have been instrumental in getting multimillion-dollar ventures off the ground and, at crucial times, helping members of the Wen family set up investment vehicles to profit from them, according to investment bankers who have worked with all parties.

Established in Tianjin, Taihong had spectacular returns. In 2002, the company paid about $65 million to acquire a 3 percent stake in Ping An before its initial public offering, according to corporate records and Ms. Duan’s graduate school thesis. Five years later, those shares were worth $3.7 billion

The company’s Hong Kong affiliate, Great Ocean, also run by Ms. Duan, later formed a joint venture with the Beijing government and acquired a huge tract of land adjacent to Capital International Airport. Today, the site is home to a sprawling cargo and logistics center. Last year, Great Ocean sold its 53 percent stake in the project to a Singapore company for nearly $400 million.

That deal and several other investments, in luxury hotels, Beijing villa developments and the Hong Kong-listed BBMG, one of China’s largest building materials companies, have been instrumental to Ms. Duan’s accumulation of riches, according to The Times’s review of corporate records.

The review also showed that over the past decade there have been nearly three dozen individual shareholders of Taihong, many of whom are either relatives of Wen Jiabao or former colleagues of his wife.

The other wealthy entrepreneurs who have worked with the prime minister’s relatives declined to comment for this article. Ms. Duan strongly denied having financial ties to the prime minister or his relatives and said she was only trying to avoid publicity by listing others as owning Ping An shares. “The money I invested in Ping An was completely my own,” said Ms. Duan, who has served as a member of the Ping An board of supervisors. “Everything I did was legal.”

Another wealthy partner of the Wen relatives has been Cheng Yu-tung, who controls the Hong Kong conglomerate New World Development and is one of the richest men in Asia, worth about $15 billion, according to Forbes.

In the 1990s, New World was seeking a foothold in mainland China for a sister company that specializes in high-end retail jewelry. The retail chain, Chow Tai Fook, opened its first store in China in 1998.

Mr. Cheng and his associates invested in a diamond venture backed by the relatives of Mr. Wen and co-invested with them in an array of corporate entities, including Sino-Life, National Trust and Ping An, according to records and interviews with some of those involved. Those investments by Mr. Cheng are now worth at least $5 billion, according to the corporate filings. Chow Tai Fook, the jewelry chain, has also flourished. Today, China accounts for 60 percent of the chain’s $4.2 billion in annual revenue.

Mr. Cheng, 87, could not be reached for comment. Calls to New World Development were not returned.

Fallout for Premier

In the winter of 2007, just before he began his second term as prime minister, Wen Jiabao called for new measures to fight corruption, particularly among high-ranking officials.

“Leaders at all levels of government should take the lead in the antigraft drive,” he told a gathering of high-level party members in Beijing. “They should strictly ensure that their family members, friends and close subordinates do not abuse government influence.”

The speech was consistent with the prime minister’s earlier drive to toughen disclosure rules for public servants, and to require senior officials to reveal their family assets.

Whether Mr. Wen has made such disclosures for his own family is unclear, since the Communist Party does not release such information. Even so, many of the holdings found by The Times would not need to be disclosed under the rules since they are not held in the name of the prime minister’s immediate family — his wife, son and daughter.

Eighty percent of the $2.7 billion in assets identified in The Times’s investigation and verified by the outside auditors were held by, among others, the prime minister’s mother, his younger brother, two brothers-in-law, a sister-in-law, daughter-in-law and the parents of his son’s wife, none of whom is subject to party disclosure rules. The total value of the relatives’ stake in Ping An is based on calculations by The Times that were confirmed by the auditors. The total includes shares held by the relatives that were sold between 2004 and 2006, and the value of the remaining shares in late 2007, the last time the holdings were publicly disclosed.

Legal experts said that determining the precise value of holdings in China could be difficult because there might be undisclosed side agreements about the true beneficiaries.

“Complex corporate structures are not necessarily insidious,” said Curtis J. Milhaupt, a Columbia University Law School professor who has studied China’s corporate group structures. “But in a system like China’s, where corporate ownership and political power are closely intertwined, shell companies magnify questions about who owns what and where the money came from.”

Among the investors in the Wen family ventures are longtime business associates, former colleagues and college classmates, including Yu Jianming, who attended Northwestern with Winston Wen, and Zhang Yuhong, a longtime colleague of Wen Jiahong, the prime minister’s younger brother. The associates did not return telephone calls seeking comment.

Revelations about the Wen family’s wealth could weaken him politically.

Next month, at the 18th Party Congress in Beijing, the Communist Party is expected to announce a new generation of leaders. But the selection process has already been marred by one of the worst political scandals in decades, the downfall of Bo Xilai, the Chongqing party boss, who was vying for a top position.

In Beijing, Wen Jiabao is expected to step down as prime minister in March at the end of his second term. Political analysts say that even after leaving office he could remain a strong backstage political force. But documents showing that his relatives amassed a fortune during his tenure could diminish his standing, the analysts said.

“This will affect whatever residual power Wen has,” said Minxin Pei, an expert on Chinese leadership and a professor of government at Claremont McKenna College in California.

The prime minister’s supporters say he has not personally benefited from his extended family’s business dealings, and may not even be knowledgeable about the extent of them.

Last March, the prime minister hinted that he was at least aware of the persistent rumors about his relatives. During a nationally televised news conference in Beijing, he insisted that he had “never pursued personal gain” in public office.

“I have the courage to face the people and to face history,” he said in an emotional session. “There are people who will appreciate what I have done, but there are also people who will criticize me. Ultimately, history will have the final say.”


A version of this article appeared in print on October 26, 2012, on page A1 of the New York edition with the headline: Billions Amassed in the Shadows By the Family of China’s Premier.
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広東原発がニジェールのウラン鉱山株を買う

Guangdong Nuclear Power expected to take stake in Niger uranium miner

Updated: 2012-10-26 08:05

By Li Xiang in Paris (China Daily)

Areva SA, the French nuclear group, is expected to reach agreement soon on the sale of a 13 percent stake in its Niger-based uranium mining operation Imouraren SA, to China Guangdong Nuclear Power Holding Co Ltd, according to French media reports on Thursday.

The likely deal - for "several hundred million euros"- will allow the Chinese company to gain access to the world's second-largest uranium reserves with a planned production of 5,000 metric tons of uranium per year, reports said.

Areva currently owns 57 percent of Imouraren while the remaining 43 percent is held by Niger, and an investment consortium led by South Korea.

The mining company is scheduled to start producing uranium in 2013.

Areva refused to comment on the deal when contacted by China Daily, but experts were quoted in Paris as suggesting the sale could yield about 220 million euros ($289 million) for the seller based on present valuations, which will help Areva finance its initial investment of 1.2 billion euros in the operation.

News of the sale came a day after China announced it has decided to resume construction of new nuclear power plants in the country, which had been suspended since the Fukushima earthquake in Japan in March 2011.

China's nuclear industry has been actively seeking uranium mining opportunities for a while, as it looks to expand its nuclear capacity.

Some 26 new reactors are expected to be built, which experts suggest will represent 40 percent of the world's ongoing nuclear power plant construction.

Earlier this year, the China-Africa Development Fund and Guangdong Nuclear Power agreed to buy Australian explorer Extract Resources Ltd for $2.3 billion, to gain access to the world's fourth-biggest uranium deposits, in Namibia.

Industry experts say that China's decision to resume the approval of new nuclear projects has been met with relief by Western nuclear companies such as Areva, which have suffered since the Fukushima crisis due to safety concerns over using nuclear energy.
Areva has been increasingly counting on emerging markets, particularly China, to export its reactor technology and nuclear power equipment.

The French company and Guangdong Nuclear Power are currently cooperating on the construction of two nuclear reactors at Taishan nuclear power plant in Guangdong province.

"The relative importance of nuclear power will remain country specific in the future, with France or the US still having an important share of their electricity production coming from nuclear, and China remaining a very strong contributor to the upcoming development of nuclear capacity," said Charles-Emmanuel Chosson, an energy expert at accounting firm Ernst & Young in France.

China on Wednesday issued a white paper for the energy sector, which maintained its previous target of increasing nuclear power capacity to 40 million kilowatts by 2015.
The government also vowed to invest $12.8 billion to upgrade its nuclear facilities to meet international safety standards.
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チャイナ原発建設を再開する

China to ‘Steadily’ Resume Nuclear Power Project Construction

By Bloomberg News - Oct 24, 2012 6:53 AM CT

China will approve a small number of nuclear power projects along its coast by 2015 as it seeks to “steadily” resume normal construction of nuclear power facilities.

The Asian nation won’t plan for nuclear power projects inland and will raise entry requirements for the industry, according to a statement on the central government’s website that cited a State Council meeting presided over by Premier Wen Jiabao.

The government banned new nuclear power projects and ordered a nationwide inspection of existing plants after an earthquake and tsunami crippled the Fukushima Dai-Ichi plant in Japan and prompted a global review of atomic energy projects.

New plants must be built based on the strictest global safety standards and equipment must conform to third-generation safety requirements, the government said in today’s statement.

The meeting mapped out “immediate and future” planning for the construction of nuclear power facilities, the statement said, without specifying when the new plant approvals will resume.

Nuclear power capacity will reach 40 million kilowatts by 2015, Xinhua News Agency reported today, citing a government white paper for the energy sector. Currently, nuclear power accounts for 1.8 percent of the nation’s total power generating capacity, below the global average of 14 percent, Xinhua reported.

To contact Bloomberg News staff for this story: Aipeng Soo in Beijing at asoo4@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
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カルガリーからオクラホマへ

Oil Advances From Two-Week Low; Keystone Pipeline Set to Start

By Sherry Su and Jacob Adelman - Oct 22, 2012 3:47 AM CT

Oil rose from a two-week low in New York on speculation last week’s losses were excessive. TransCanada Corp. planned to start its Keystone pipeline today after a second delay.

Futures climbed as much as 0.6 percent after falling the most in two weeks on Oct. 19. Prices also advanced after the White House denied a New York Times report that administration officials agreed to one-on-one talks with Iran’s government over its nuclear program. TransCanada originally planned to resume operations Oct. 20 on the line that runs from Alberta to the main U.S. oil-storage hub in Cushing, Oklahoma.

“I would expect a small rebound after heavy losses on Friday, given continued supply risks,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt. Geopolitical tensions in the Middle East and delays in loadings of North Sea Forties crude lent some support to prices, he said.

Crude for November delivery rose as much as 52 cents to $90.57 a barrel in electronic trading on the New York Mercantile Exchange and was at $90.28 at 9:31 a.m. in London. Oil fell 2.2 percent on Oct. 19 to $90.05, the lowest close since Oct. 8. The contract expires today. The more actively traded December futures were 24 cents higher at $90.68 a barrel.

Brent for December settlement added 1 cent to $110.15 on the London-based ICE Futures Europe exchange. The European benchmark crude was at a premium of $19.43 to New York-traded West Texas Intermediate grade, compared with $19.70 on Oct. 19.

Technical Support

Oil in New York is rising after rebounding from long-term technical support at $89.83 a barrel, data compiled by Bloomberg showed. On the weekly chart, that’s the 50 percent Fibonacci retracement of the decline to $32.40 in December 2008 from an intraday record high of $147.27 in July that year. Buy orders tend to be clustered near chart-support levels.

While the U.S. remains open to negotiations with Iran, there was no deal to meet with officials after the Nov. 6 presidential election, National Security Council spokesman Tommy Vietor said yesterday.

International sanctions against the Persian Gulf nation in response to its nuclear program have removed 1 million barrels a day of oil from the global markets, Maria van der Hoeven, the executive director of the International Energy Agency, said at a conference in Singapore today.

Hedge Funds

Hedge-fund managers and other large speculators increased their net-long position in crude futures in the week ended Oct. 16, according to Commodity Futures Trading Commission data.

Managed money bets that prices will rise, in futures and options combined, outnumbered short positions by 166,278 futures, the Washington-based regulator said in its weekly Commitments of Traders report. Net long positions rose by 5,274 contracts, or 3.3 percent, from a week earlier.

The 590,000 barrel-a-day Keystone pipeline will resume today, James Millar, a TransCanada (TRP) spokesman, said in an e-mail yesterday. The company shut down Keystone on Oct. 17 after routine maintenance testing revealed an “anomaly” on the outside of the line. The Calgary-based company had estimated the pipeline inspections would be complete in three days, and initially planned a resumption of operations on Oct. 20.

The U.S. imported 1.65 million barrels of oil a day into the midcontinent, or PADD 2 region, in the week ended Oct. 12, according to the Energy Department. Most of the crude imported into the Midwest comes from Canada, which is the U.S.’s largest source of overseas oil.

Brent may decline as the Buzzard field in the North Sea resumes production, according to Morgan Stanley.

The price difference between the first and second month futures, or time spread, for Brent has also narrowed, pushing prices lower, Hussein Allidina, the bank’s head of commodities research, said in a note dated today.

The 200,000 barrel-a-day Buzzard field has had its return from maintenance delayed by two days past its Oct. 21 resumption date, the note said.

To contact the reporters on this story: Jacob Adelman in Tokyo at jadelman1@bloomberg.net; Sherry Su in London at lsu23@bloomberg.net
To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net
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ヒラリー「エネルギー外交」

Clinton Cites Energy in Diplomacy From Oil to Climate

By Flavia Krause-Jackson - Oct 18, 2012 2:04 PM CT


U.S. Secretary of State Hillary Clinton today promoted energy as a foreign-policy priority, citing Iran and the South China Sea as oil-rich expanses where diplomacy and economics converge.

“Today, energy cuts across the entirety of U.S. foreign policy,” she said in a speech at Georgetown University in Washington. The top U.S. diplomat cited the U.S. role in helping boost Iraq’s oil production and brokering an oil-sharing agreement between South Sudan and Sudan as examples of “energy diplomacy.”

Enlarge image
Secretary of State Hillary Clinton at the Clinton Global Initiative meeting on Sept. 24, 2012 in New York City. Photographer: John Moore/Getty Images

Her comments come in the final week of a tight presidential election campaign where candidates are sparring over domestic oil and gas production, crude prices and coal even as the topic of global climate change has been largely left out of the debate.

Under Clinton’s watch, the State Department created a bureau dedicated to energy. The department also has an in-house economist, part of Clinton’s efforts to expand her toolbox.

Looking ahead, Clinton, who has said she will step down even if President Barack Obama wins re-election, cited energy challenges that will face her successor. She described a turning point in history when for the first time developing countries are set to consume more of the world’s energy than the industrialized nations.

While the world’s energy future is unknown, she said, “The answers are being written right now.”

The U.S. and European allies imposed economic sanctions on Iran’s oil exports in an effort to pressure it over its nuclear program. The potential for energy resources beneath the South China Sea has contributed to tensions over territorial claims by countries including China, Japan and the Philippines.

Clinton referred to the “very real threat of climate change.” In his Aug. 30 speech accepting the Republican nomination, Mitt Romney joked that Obama had pledged to “begin to slow the rise of the oceans and heal the planet” and said his own priorities are elsewhere.

Obama seldom invokes climate change anymore even as he continues to call for development of alternative energy sources such as wind and solar power to help reduce the need for imported oil.

Emerging Economies

Energy demand in countries in the Organization for Economic Cooperation and Development is forecast to increase 3.6 percent from 2010 to 2030, according to BP Plc’s 2012 Statistical Review of World Energy. Demand in non-OECD countries will rise 70 percent over the same period. Emerging economies will account for 96 percent of the growth in demand.

A boom in oil production from the shale formations of North Dakota and Texas has put the U.S. on a course to cut its reliance on imported crude to about 42 percent this year, the lowest level in two decades. That’s down from for 44.8 percent of petroleum consumption last year and 60.3 percent in 2005, according to data from the U.S. Energy Information Administration.

-- Editors: Larry Liebert, Terry Atlas
To contact the reporter on this story: Flavia Krause-Jackson in United Nations at fjackson@bloomberg.net
To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net
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孫正義の挑戦

Softbank’s Son Seeks to Skirt Cross-Border Failure History

By Dave McCombs and Serena Saitto - Oct 17, 2012 3:09 AM CT

Softbank Corp. (9984) President Masayoshi Son is betting $20 billion he can add value by buying control of Sprint Nextel Corp. (S) in the biggest Japanese purchase of a foreign company. There’s 26 trillion yen ($330 billion) that says he can’t.

That’s the net amount of market value lost within 12 months after deal announcements in the 10 biggest overseas purchases by Japanese companies from 2000 to a year ago. Eight of the companies saw market value erode while two posted gains.

Enlarge image
Softbank took its biggest tumble as a listed company the day after talks to buy Sprint were reported, plunging 17 percent in Tokyo trading. Photographer: Kiyoshi Ota/Bloomberg
4:02
Oct. 15 (Bloomberg) -- David Chao, co-founder of DCM, talks about Softbank Corp.'s agreement to buy a stake of about 70 percent in Sprint Nextel Corp. for $20.1 billion and Softbank President Masayoshi Son's leadership. Chao speaks with Jon Erlichman on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)
5:58
Oct. 15 (Bloomberg) -- Christopher Larsen, an analyst at Piper Jaffray & Co., discusses Softbank Corp.'s agreement to pay $20.1 billion to acquire about a 70 percent stake in Sprint Nextel Corp and the outlook for Sprint's stock. He speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television’s “Market Makers.” (Source: Bloomberg)
1:41
Oct. 15 (Bloomberg) -- Christopher King, an analyst at Stifel Nicolaus & Co., discusses Softbank Corp.'s agreement to pay $20.1 billion to acquire about a 70 percent stake in Sprint Nextel Corp. King speaks with Scarlet Fu on Bloomberg Television's "Surveillance." (Source: Bloomberg)
Enlarge image
Masayoshi Son, chairman and chief executive officer of Softbank Corp. Photographer: Kiyoshi Ota/Bloomberg
Enlarge image
The Sprint deal brings announced overseas deals this year to $96 billion, exceeding the total for all of 2011, as the yen nears a postwar high and a stagnating domestic economy makes markets outside Japan more attractive. Photographer: Victor J. Blue/Bloomberg
“The track record is terrible,” said Stephen Givens, a Tokyo-based lawyer specializing in M&A and corporate governance.
The Sprint deal brings announced overseas acquisitions this year to $96 billion, exceeding the total for all of 2011, as the yen near a postwar high and a stagnating domestic economy make markets outside Japan more attractive. Acquisitions abroad have failed as buyers paid too much and lack management resources, both of which apply to the Sprint deal, Givens said.

“It’s not an easy path to go,” Son told reporters in Tokyo on Oct. 15 after the agreement to buy the Sprint stake. “But without taking on a challenge, we may end up facing bigger risks.”

Code Name

Son initiated the deal about two months ago when he traveled to Kansas City to meet with Dan Hesse, chief executive officer of Sprint, which was code-named “Swan,” one person with direct knowledge of the situation said. He was accompanied by Softbank Managing Partner Ronald Fisher and his lead M&A adviser, Jeff Sine of Raine Group LLC. Hesse was joined by Sprint’s M&A head, Keith Cowan, said the person who declined to be identified because the details are private.

Son had bet on Hesse before. In 2000, the Japanese billionaire invested $100 million in Terabeam Networks Inc., a laser communications company Hesse was running. Terabeam aimed to create a network of light beams over U.S. cities to connect local and national networks at 1 gigabit per second.

Terabeam in December 2002 sent a letter to shareholders offering to buy back stock for 95 cents a share, about what the company estimated its liquidation value would be. Lucent Technologies Inc. had paid about $20 a share for its stake in 2000.

MetroPCS Talks

Hesse was open to Son’s idea to invest in Sprint, said another person with direct knowledge of the situation.

To strengthen Sprint’s market position, Hesse had been close to buying MetroPCS Communications Inc. (PCS) in February and held talks with Deutsche Telekom AG about a tie-up with T-Mobile USA. Softbank had also considered entering the U.S. market by doing a deal with T-Mobile USA, one person said.

The two executives met again in Japan and company advisers continued talks by phone.
By the time Deutsche Telekom announced on Oct. 3 its merger with MetroPCS, the Softbank-Sprint talks had already accelerated.

Sprint held a board meeting on Oct. 5 to discuss the terms of its deal with Softbank and other options, including the possibility of counterbidding for MetroPCS, said the people. The board held off on any MetroPCS bid and met again the next day to discuss the Softbank deal, which it approved last Sunday night.

Representatives for Sprint and Softbank declined to comment.

Revenue Growth

The transaction will help Softbank enter the U.S., where average revenue per data user jumped 14 percent last year, more than double Japan’s 6.3 percent pace, according to data compiled by Bloomberg.

“The U.S. is a large and growing mobile market, with the highest smartphone penetration in the world and high revenue per user, yet it is hampered by relatively slow network speeds,” said John Christiansen, a spokesman for Softbank.

The deal brings Son along a path once trod by bigger Japanese rival NTT DoCoMo Inc. (9437) The cellular provider bought AT&T Wireless Services Inc. as part of $10 billion in purchases of overseas carriers, only to take 1.5 trillion yen in writedowns on the investments between 2000 and 2004.

More recently, Nomura Holdings Inc. (8604)’s 2008 takeover of Lehman Brothers Holdings Inc.’s European and Asian units swelled costs that led to nine straight quarters of losses abroad.

Village Culture

The corporate culture of some Japanese companies has also contributed to challenges in running companies based overseas, said Parissa Haghirian, associate professor at Sophia University in Tokyo and author of “Understanding Japanese Management Practices.”

“Most Japanese companies are basically like a village where managers grow up and never leave, so when they go overseas, there are cross-cultural issues,” she said in a phone interview.

Softbank plunged by a record 17 percent in Tokyo trading on Oct. 12, the day after talks to buy Sprint were reported. The company is worth less now than the day before news broke of its 2006 purchase of Vodafone Group Plc’s Japanese unit, its biggest deal before Sprint.

“Every overseas acquisition by a Japanese company has a negative impact on its stock price,” Givens, also a lecturer at Keio Law School, said in a phone interview. “I’ve never seen a cross-border acquisition that resulted in a bump for the stock price.”
The Lehman shock that froze global credit markets also pushed the yen higher and boosted Japanese companies’ appetite for assets abroad that had declined in price.

Lehman Lesson

Nomura’s Lehman deal put Japan’s biggest brokerage in place to compete head on with Wall Street banks weakened by the financial crisis. Instead, the head of Nomura’s wholesale business, which includes investment banking and trading, Jesse Bhattal and his lieutenant Tarun Jotwani, left the company amid a clash with Nomura’s old guard over competing visions for the future of Japan’s largest brokerage.

Daiichi Sankyo Co. (4568), a Japanese drugmaker, has lost more than half of its market value since agreeing to buy a majority stake in India’s largest drugmaker Ranbaxy Laboratories Ltd. (RBXY) in June 2008. Most of the drop occurred after the U.S. Food and Drug Administration banned imports from two of the Indian unit’s plants because of manufacturing violations.

Companies in the world’s third-largest economy have announced $96 billion of acquisitions abroad so far this year, data compiled by Bloomberg show. The biggest this year before Softbank’s Sprint deal was Marubeni Corp.’s takeover of Gavilon Group LLC, valued at $5.6 billion including assumed debt.
Son Shines
Japanese companies announced more than 790 cross-border purchases last year valued at $88 billion, the most since at least 2000, data compiled by Bloomberg show. Goldman Sachs, Credit Suisse Group AG, Deutsche Bank and Citigroup Inc. were among the top five advisers on the deals.

Son, a U.S.-educated entrepreneur who built a software distributor into Japan’s fastest-growing mobile carrier, may be just the person to beat the odds against overseas deals, said Haghirian of Sophia University. Son still owns 20.9 percent of the company, according to data compiled by Bloomberg.

Softbank is better prepared for the challenges of managing a U.S. company because its management structure and culture isn’t traditionally Japanese, she said.

“Son is very charismatic and has a vision,” Haghirian said. “Maybe he’s Western already and setting a very aggressive agenda.”

San Miguel

Japanese companies have also seen some success buying companies in faster-growing emerging markets.

Kirin Holdings Co. (2503)’s 48 percent holding in San Miguel Brewery Inc. (SMB) has more than tripled in value to about $6 billion since the stake was purchased in 2009, according to data compiled by Bloomberg.

Japanese retailers and beverage companies will continue to make acquisitions overseas, said Nicholas Smith, a Japan strategist at CLSA Asia-Pacific Markets Ltd. in Tokyo. Kirin, Japan’s largest brewer by market value, agreed to buy out shareholders in Brazil’s Schincariol Participacoes e Representacoes in November 2011, valuing the brewer at about $3.6 billion excluding debt.

“For a lot of them that ruled the roost at home, there are huge scale merits for moving overseas and selling the same stuff,” Smith said.
Softbank climbed 5.6 percent to 2,625 yen at the close of trading in Tokyo, bringing its two-day gain to 16 percent, the biggest since May 2009.

Spread Widens

The extra yield investors demand to own the company’s 1.67 percent notes due June 2015 rather than government debt widened 107 basis points since the announcement on Oct. 12 to a record 143.3 yesterday, according to Japan Securities Dealers Association prices. The spread was more than triple the 43 basis points for the nation’s corporate bonds, and compared with 157 globally, according to Bank of America Merrill Lynch indexes.
Investors pushed Softbank bond prices lower as Japan Credit Rating Agency Ltd. and Moody’s Investors Service followed Standard & Poor’s in saying they may cut the rating.
Declines in market capitalization can’t all be attributed to bad overseas deals as values of companies that have sought organic growth have also slipped. The benchmark Nikkei 225 Stock Average (NKY) represented a market value of 167 trillion yen as of yesterday, down 10 percent from 185 trillion yen four years earlier.

The Sprint stake would give Son a shot to compete with the two biggest U.S. wireless providers and to shake the legacy of failed Japanese overseas deals.

“Son is a guy that brings strong emotions,” said Smith of CLSA. “Many people who have written him off have ended up smarting as a result.”
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孫正義スプリント買収する

Softbank and Sprint

Everybody wants to rule the world
Oct 15th 2012, 12:05 by H.T. | TOKYO


“I’M A man and every man wants to be number one.” So declared Masayoshi Son on October 15th after announcing Softbank’s 947 billion yen ($12.1 billion) takeover of Sprint, into which it will inject a further $8 billion of new capital to enable it to take part in the consolidation of the American mobile-phone industry.

The two-step deal, flagged on October 12th, aims to combine Japan’s third-biggest mobile-phone carrier with America’s number three, creating the world’s third-largest generator of mobile-phone revenue (below China Mobile and Verizon, above AT&T and Vodafone). It is Japan’s largest-ever overseas deal. And Mr Son, Softbank’s founder and chairman, is visibly delighted at the thought that with it, he will overtake Japan’s two biggest wireless incumbents that he started to seriously challenge just six years ago. Now he has the world in his sights.

The market is not so exuberant. Softbank’s shares have plummeted in the last two trading days on fears that it is biting off more than it can chew—and that new shares will have to be issued to acquire the 70% of Sprint that Softbank wants. Mr Son, in a compelling presentation, sought to lay to rest those fears by answering two questions: Will the investment pay off? And can Softbank repay the new debt?

In answer to the first question, he noted that Softbank has bought and rescued three ailing businesses in Japan (Japan Telecom, Vodafone Japan and Willcom); that Sprint’s turnaround has already started; and that it can generate synergies by combining Softbank and Sprint’s purchases of smartphones and network gear. He noted that Softbank has the fastest network in Japan and sells by far the most smartphones.

As for the balance-sheet question, Mr Son said the deal would be financed by debt and cash in hand, with no new equity issuance. He sought to convince the market that the acquisition would only increase net debt to 2.7 times earnings before interest, tax, depreciation and amortization—compared with a whopping 5.6 times when Softbank bought Vodafone Japan in 2006. It repaid that debt seven years ahead of schedule. The interest rate charged on debt used in the Vodafone acquisition was 4%. On debt financing the Sprint deal it will be 1.7%, he said, claiming that this time the banks asked him if he wanted to borrow even more.

Dan Hesse, Sprint’s chief executive, who physically towers over Mr Son (pictured above) but will now work for him, said the cash injection would strengthen Sprint’s balance-sheet, and help it take part in consolidation in America’s wireless market. Neither men would be drawn on whether Sprint would bid for MetroPCS, which is being acquired by T-Mobile USA, or buy the 51% Sprint doesn’t own in Clearwire, another American wireless operator with a high-speed network like Softbank’s.

The deal needs to be approved by Sprint’s shareholders and regulators. In aggregate, Sprint’s shareholders will get, in exchange for their shares, 30% of a new recapitalized company, and $12.1 billion in cash. Sprint will remain listed in America.

There are bound to be further questions from investors about why Mr Son believes he can replicate his mobile success in Japan in America. They will also ask whether he can fully revive the Sprint brand, and how much more money consolidation may require. But Mr Son is not the typical Japanese boss, and investors will underestimate him if they assume that because he is from Japan, Sprint is little more than a trophy purchase. He knows that the deal is a risk, but he believes it is a risk Softbank can afford.
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第一回オバマ・ロムニー論争

Transcript And Audio: First Obama-Romney Debate


JIM LEHRER: Good evening from the Magness Arena at the University of Denver in Denver, Colorado. I'm Jim Lehrer of the PBS NewsHour, and I welcome you to the first of the 2012 presidential debates between President Barack Obama, the Democratic nominee, and former Massachusetts Governor Mitt Romney, the Republican nominee.

This debate and the next three — two presidential, one vice- presidential — are sponsored by the Commission on Presidential Debates.

Tonight's 90 minutes will be about domestic issues, and will follow a format designed by the commission. There will be six roughly 15-minute segments, with two-minute answers for the first question, then open discussion for the remainder of each segment.

Thousands of people offered suggestions on segment subjects of questions via the Internet and other means, but I made the final selections, and for the record, they were not submitted for approval to the commission or the candidates.

The segments, as I announced in advance, will be three on the economy and one each on health care, the role of government, and governing, with an emphasis throughout on differences, specifics and choices. Both candidates will also have two-minute closing statements.

The audience here in the hall has promised to remain silent. No cheers, applause, boos, hisses — among other noisy distracting things — so we may all concentrate on what the candidates have to say. There is a noise exception right now, though, as we welcome President Obama and Governor Romney. (Cheers, applause.)

Gentlemen, welcome to you both.

Let's start the economy, segment one. And let's begin with jobs. What are the major differences between the two of you about how you would go about creating new jobs? You have two minutes — each of you have two minutes to start. The coin toss has determined, Mr. President, you go first.

PRESIDENT BARACK OBAMA: Well, thank you very much, Jim, for this opportunity. I want to thank Governor Romney and the University of Denver for your hospitality.

There are a lot of points that I want to make tonight, but the most important one is that 20 years ago I became the luckiest man on earth because Michelle Obama agreed to marry me. (Laughter.) And so I just want to wish, Sweetie, you happy anniversary and let you know that a year from now, we will not be celebrating it in front of 40 million people. (Laughter.)

You know, four years ago we went through the worst financial crisis since the Great Depression. Millions of jobs were lost. The auto industry was on the brink of collapse. The financial system had frozen up. And because of the resilience and the determination of the American people, we've begun to fight our way back.

Over the last 30 months, we've seen 5 million jobs in the private sector created. The auto industry has come roaring back and housing has begun to rise. But we all know that we've still got a lot of work to do. And so the question here tonight is not where we've been but where we're going. Governor Romney has a perspective that says if we cut taxes, skewed towards the wealthy, and roll back regulations that we'll be better off.

I've got a different view. I think we've got to invest in education and training. I think it's important for us to develop new sources of energy here in America, that we change our tax code to make sure that we're helping small businesses and companies that are investing here in the United States, that we take some of the money that we're saving as we wind down two wars to rebuild America and that we reduce our deficit in a balanced way that allows us to make these critical investments.

Now, it ultimately is going to be up to the voters, to you, which path we should take. Are we going to double down on the top-down economic policies that helped to get us into this mess, or do we embrace a new economic patriotism that says, America does best when the middle class does best? And I'm looking forward to having that debate.

MR. LEHRER: Governor Romney, two minutes.

MR. ROMNEY: Thank you, Jim. It's an honor to be here with you, and I appreciate the chance to be with the president. I am pleased to be at the University of Denver, appreciate their welcome and also the presidential commission on these debates.

And congratulations to you, Mr. President, on your anniversary. I'm sure this was the most romantic place you could imagine here — here with me, so I — (laughter) — congratulations.

This is obviously a very tender topic. I've had the occasion over the last couple of years of meeting people across the country. I was in Dayton, Ohio, and a woman grabbed my arm, and she said, I've been out of work since May. Can you help me?

Ann yesterday was a rally in Denver, and a woman came up to her with a baby in her arms and said, Ann, my husband has had four jobs in three years, part-time jobs. He's lost his most recent job, and we've now just lost our home. Can you help us?

And the answer is yes, we can help, but it's going to take a different path, not the one we've been on, not the one the president describes as a top-down, cut taxes for the rich. That's not what I'm going to do.

My plan has five basic parts. One, get us energy independent, North American energy independent. That creates about four million jobs. Number two, open up more trade, particularly in Latin America; crack down on China if and when they cheat. Number three, make sure our people have the skills they need to succeed and the best schools in the world. We're far away from that now. Number four, get us to a balanced budget. Number five, champion small business.

It's small business that creates the jobs in America. And over the last four years small-business people have decided that America may not be the place to open a new business, because new business startups are down to a 30-year low. I know what it takes to get small business growing again, to hire people.

Now, I'm concerned that the path that we're on has just been unsuccessful. The president has a view very similar to the view he had when he ran four years ago, that a bigger government, spending more, taxing more, regulating more — if you will, trickle-down government would work. That's not the right answer for America. I'll restore the vitality that gets America working again.

Thank you.

MR. LEHRER: Mr. President, please respond directly to what the governor just said about trickle-down — his trickle-down approach. He's — as he said yours is.

PRESIDENT OBAMA: Well, let me talk specifically about what I think we need to do.

First, we've got to improve our education system. And we've made enormous progress drawing on ideas both from Democrats and Republicans that are already starting to show gains in some of the toughest-to- deal-with schools. We've got a program called Race to the Top that has prompted reforms in 46 states around the country, raising standards, improving how we train teachers. So now I want to hire another hundred thousand new math and science teachers and create 2 million more slots in our community colleges so that people can get trained for the jobs that are out there right now. And I want to make sure that we keep tuition low for our young people.

When it comes to our tax code, Governor Romney and I both agree that our corporate tax rate is too high. So I want to lower it, particularly for manufacturing, taking it down to 25 percent. But I also want to close those loopholes that are giving incentives for companies that are shipping jobs overseas. I want to provide tax breaks for companies that are investing here in the United States.

On energy, Governor Romney and I, we both agree that we've got to boost American energy production.

And oil and natural gas production are higher than they've been in years. But I also believe that we've got to look at the energy source of the future, like wind and solar and biofuels, and make those investments.

So, all of this is possible. Now, in order for us to do it, we do have to close our deficit, and one of the things I'm sure we'll be discussing tonight is, how do we deal with our tax code, and how do we make sure that we are reducing spending in a responsible way, but also how do we have enough revenue to make those investments? And this is where there's a difference because Governor Romney's central economic plan calls for a $5 trillion tax cut, on top of the extension of the Bush tax cuts, so that's another $2 trillion, and $2 trillion in additional military spending that the military hasn't asked for. That's $8 trillion. How we pay for that, reduce the deficit and make the investments that we need to make without dumping those costs on the middle-class Americans I think is one of the central questions of this campaign.

MR. LEHRER: Both of you have spoken about a lot of different things, and we're going to try to get through them in as specific a way as we possibly can.

But first, Governor Romney, do you have a question that you'd like to ask the president directly about something he just said?

MR. ROMNEY: Well, sure. I'd like to clear up the record and go through it piece by piece. First of all, I don't have a $5 trillion tax cut. I don't have a tax cut of a scale that you're talking about. My view is that we ought to provide tax relief to people in the middle class. But I'm not going to reduce the share of taxes paid by high- income people. High-income people are doing just fine in this economy. They'll do fine whether you're president or I am.

The people who are having the hard time right now are middle- income Americans. Under the president's policies, middle-income Americans have been buried. They're — they're just being crushed. Middle-income Americans have seen their income come down by $4,300. This is a — this is a tax in and of itself. I'll call it the economy tax. It's been crushing. The same time, gasoline prices have doubled under the president, electric rates are up, food prices are up, health care costs have gone up by $2,500 a family.

Middle-income families are being crushed. And so the question is how to get them going again, and I've described it. It's energy and trade, the right kind of training programs, balancing our budget and helping small business. Those are the — the cornerstones of my plan.

But the president mentioned a couple of other ideas, and I'll just note: first, education. I agree, education is key, particularly the future of our economy. But our training programs right now, we got 47 of them housed in the federal government, reporting to eight different agencies. Overhead is overwhelming. We got to get those dollars back to the states and go to the workers so they can create their own pathways to getting the training they need for jobs that will really help them.

The second area: taxation. We agree; we ought to bring the tax rates down, and I do, both for corporations and for individuals. But in order for us not to lose revenue, have the government run out of money, I also lower deductions and credits and exemptions so that we keep taking in the same money when you also account for growth.

The third area: energy. Energy is critical, and the president pointed out correctly that production of oil and gas in the U.S. is up. But not due to his policies. In spite of his policies. Mr. President, all of the increase in natural gas and oil has happened on private land, not on government land. On government land, your administration has cut the number of permits and license in half. If I'm president, I'll double them. And also get the — the oil from offshore and Alaska. And I'll bring that pipeline in from Canada.

And by the way, I like coal. I'm going to make sure we continue to burn clean coal. People in the coal industry feel like it's getting crushed by your policies. I want to get America and North America energy independent, so we can create those jobs.

And finally, with regards to that tax cut, look, I'm not looking to cut massive taxes and to reduce the — the revenues going to the government. My — my number one principle is there'll be no tax cut that adds to the deficit.

I want to underline that — no tax cut that adds to the deficit. But I do want to reduce the burden being paid by middle-income Americans. And I — and to do that that also means that I cannot reduce the burden paid by high-income Americans. So any — any language to the contrary is simply not accurate.

MR. LEHRER: Mr. President.

PRESIDENT OBAMA: Well, I think — let's talk about taxes because I think it's instructive. Now, four years ago when I stood on this stage I said that I would cut taxes for middle-class families. And that's exactly what I did. We cut taxes for middle-class families by about $3,600. And the reason is because I believe we do best when the middle class is doing well.

And by giving them those tax cuts, they had a little more money in their pocket and so maybe they can buy a new car. They are certainly in a better position to weather the extraordinary recession that we went through. They can buy a computer for their kid who's going off to college, which means they're spending more money, businesses have more customers, businesses make more profits and then hire more workers.

Now, Governor Romney's proposal that he has been promoting for 18 months calls for a $5 trillion tax cut on top of $2 trillion of additional spending for our military. And he is saying that he is going to pay for it by closing loopholes and deductions. The problem is that he's been asked a — over a hundred times how you would close those deductions and loopholes and he hasn't been able to identify them.

But I'm going to make an important point here, Jim.

MR. LEHRER: All right.

PRESIDENT OBAMA: When you add up all the loopholes and deductions that upper income individuals can — are currently taking advantage of — if you take those all away — you don't come close to paying for $5 trillion in tax cuts and $2 trillion in additional military spending. And that's why independent studies looking at this said the only way to meet Governor Romney's pledge of not reducing the deficit — or — or — or not adding to the deficit, is by burdening middle-class families.

The average middle-class family with children would pay about $2,000 more. Now, that's not my analysis; that's the analysis of economists who have looked at this. And — and that kind of top — top-down economics, where folks at the top are doing well so the average person making 3 million bucks is getting a $250,000 tax break while middle- class families are burdened further, that's not what I believe is a recipe for economic growth.

MR. LEHRER: All right. What is the difference?

MR. ROMNEY: Well —

MR. LEHRER: Let's just stay on taxes for —

MR. ROMNEY: But I — but I — right, right.

MR. LEHRER: OK. Yeah, just — let's just stay on taxes for a moment.

MR. ROMNEY: Yeah. Well, but — but —

MR. LEHRER: What is the difference?

MR. ROMNEY: — virtually every — virtually everything he just said about my tax plan is inaccurate.

MR. LEHRER: All right, go —

MR. ROMNEY: So — so if — if the tax plan he described were a tax plan I was asked to support, I'd say absolutely not. I'm not looking for a $5 trillion tax cut. What I've said is I won't put in place a tax cut that adds to the deficit. That's part one. So there's no economist can say Mitt Romney's tax plan adds 5 trillion (dollars) if I say I will not add to the deficit with my tax plan.

Number two, I will not reduce the share paid by high-income individuals. I — I know that you and your running mate keep saying that, and I know it's a popular things to say with a lot of people, but it's just not the case. Look, I got five boys. I'm used to people saying something that's not always true, but just keep on repeating it and ultimately hoping I'll believe it — (scattered laughter) — but that — that is not the case, all right? I will not reduce the taxes paid by high-income Americans.

And number three, I will not, under any circumstances, raise taxes on middle-income families. I will lower taxes on middle-income families. Now, you cite a study. There are six other studies that looked at the study you describe and say it's completely wrong. I saw a study that came out today that said you're going to raise taxes by 3(,000 dollars) to $4,000 on — on middle-income families. There are all these studies out there.

But let's get to the bottom line. That is, I want to bring down rates. I want to bring down the rates down, at the same time lower deductions and exemptions and credits and so forth so we keep getting the revenue we need.

And you think, well, then why lower the rates? And the reason is because small business pays that individual rate. Fifty-four percent of America's workers work in businesses that are taxed not at the corporate tax rate but at the individual tax rate. And if we lower that rate, they will be able to hire more people.

For me, this is about jobs.

MR. LEHRER: All right. That's where we started.

MR. ROMNEY: This is about getting jobs for the American people.

MR. LEHRER: Yeah.

Do you challenge what the governor just said about his own plan?

PRESIDENT OBAMA: Well, for 18 months he's been running on this tax plan. And now, five weeks before the election, he's saying that his big, bold idea is "never mind." And the fact is that if you are lowering the rates the way you describe, Governor, then it is not possible to come up with enough deductions and loopholes that only affect high-income individuals to avoid either raising the deficit or burdening the middle class. It's — it's math. It's arithmetic.

Now, Governor Romney and I do share a deep interest in encouraging small-business growth. So at the same time that my tax plan has already lowered taxes for 98 percent of families, I also lowered taxes for small businesses 18 times. And what I want to do is continue the tax rates — the tax cuts that we put into place for small businesses and families.

But I have said that for incomes over $250,000 a year that we should go back to the rates that we had when Bill Clinton was president, when we created 23 million new jobs, went from deficit to surplus and created a whole lot of millionaires to boot.

And the reason this is important is because by doing that, we can not only reduce the deficit, we can not only encourage job growth through small businesses, but we're also able to make the investments that are necessary in education or in energy.

And we do have a difference, though, when it comes to definitions of small business. Now, under — under my plan, 97 percent of small businesses would not see their income taxes go up. Governor Romney says, well, those top 3 percent, they're the job creators. They'd be burdened.

But under Governor Romney's definition, there are a whole bunch of millionaires and billionaires who are small businesses. Donald Trump is a small business. And I know Donald Trump doesn't like to think of himself as small anything, but — but that's how you define small businesses if you're getting business income. And that kind of approach, I believe, will not grow our economy because the only way to pay for it without either burdening the middle class or blowing up our deficit is to make drastic cuts in things like education, making sure that we are continuing to invest in basic science and research, all the things that are helping America grow. And I think that would be a mistake.

MR. LEHRER: All right.

MR. ROMNEY: Jim, let me just come back on that — on that point.

MR. LEHRER: Just for the — just for the record —

MR. ROMNEY: These small businesses we're talking about —

MR. LEHRER: Excuse me. Just so everybody understands —

MR. ROMNEY: Yeah.

MR. LEHRER: — we're way over our first 15 minutes.

MR. ROMNEY: It's fun, isn't it?

MR. LEHRER: It's OK. It's great.

PRESIDENT OBAMA: That's OK.

MR. LEHRER: No problem. No, you don't have — you don't have a problem, I don't have a problem, because we're still on the economy, but we're going to come back to taxes and we're going to move on to the deficit and a lot of other things, too.

OK, but go ahead, sir.

MR. ROMNEY: You bet.

Well, President, you're — Mr. President, you're absolutely right, which is that with regards to 97 percent of the businesses are not — not taxed at the 35 percent tax rate, they're taxed at a lower rate. But those businesses that are in the last 3 percent of businesses happen to employ half — half — of all of the people who work in small business. Those are the businesses that employ one quarter of all the workers in America. And your plan is take their tax rate from 35 percent to 40 percent.

Now, I talked to a guy who has a very small business. He's in the electronics business in — in St. Louis. He has four employees.

He said he and his son calculated how much they pay in taxes. Federal income tax, federal payroll tax, state income tax, state sales tax, state property tax, gasoline tax — it added up to well over 50 percent of what they earned.

And your plan is to take the tax rate on successful small businesses from 35 percent to 40 percent. The National Federation of Independent Businesses has said that will cost 700,000 jobs. I don't want to cost jobs. My priority is jobs. And so what I do is I bring down the tax rates, lower deductions and exemptions — the same idea behind Bowles-Simpson, by the way. Get the rates down, lower deductions and exemptions to create more jobs, because there's nothing better for getting us to a balanced budget than having more people working, earning more money, paying — (chuckles) — more taxes. That's by far the most effective and efficient way to get this budget balanced.

PRESIDENT OBAMA: Jim, I — you may want to move on to another topic, but I would just say this to the American people. If you believe that we can cut taxes by $5 trillion and add $2 trillion in additional spending that the military is not asking for — $7 trillion, just to give you a sense, over 10 years that's more than our entire defense budget — and you think that by closing loopholes and deductions for the well-to-do, somehow you will not end up picking up the tab, then Governor Romney's plan may work for you.

But I think math, common sense and our history shows us that's not a recipe for job growth.

Look, we've tried this — we've tried both approaches. The approach that Governor Romney's talking about is the same sales pitch that was made in 2001 and 2003. And we ended up with the slowest job growth in 50 years. We ended up moving from surplus to deficits. And it all culminated in the worst financial crisis since the Great Depression.

Bill Clinton tried the approach that I'm talking about. We created 23 million new jobs. We went from deficit to surplus, and businesses did very well.

So in some ways, we've got some data on which approach is more likely to create jobs and opportunity for Americans, and I believe that the economy works best when middle-class families are getting tax breaks so that they've got some money in their pockets and those of us who have done extraordinarily well because of this magnificent country that we live in, that we can afford to do a little bit more to make sure we're not blowing up the deficit.

MR. LEHRER: OK. (Inaudible) —

MR. ROMNEY: Jim, the president began this segment, so I think I get the last word, so I'm going to take it. All right? (Chuckles.)

MR. LEHRER: Well, you're going to get the first word in the next segment.

MR. ROMNEY: Well, but — but he gets the first word of that segment. I get the last word of that segment, I hope. Let me just make this comment.

PRESIDENT OBAMA: (Chuckles.) He can — you can have it. He can —

MR. ROMNEY: First of all —

MR. LEHRER: That's not how it works.

MR. ROMNEY: Let me — let me repeat — let me repeat what I said — (inaudible). I'm not in favor of a $5 trillion tax cut. That's not my plan. My plan is not to put in place any tax cut that will add to the deficit. That's point one. So you may keep referring to it as a $5 trillion tax cut, but that's not my plan.

PRESIDENT OBAMA: OK.

MR. ROMNEY: Number two, let's look at history. My plan is not like anything that's been tried before. My plan is to bring down rates but also bring down deductions and exemptions and credits at the same time so the revenue stays in, but that we bring down rates to get more people working. My priority is putting people back to work in America. They're suffering in this country. And we talk about evidence — look at the evidence of the last four years. It's absolutely extraordinary. We've got 23 million people out of work or stop looking for work in this country.

MR. LEHRER: All right.

MR. ROMNEY: It's just — it's — we've got — we got — when the president took office, 32 million people on food stamps; 47 million on food stamps today. Economic growth this year slower than last year, and last year slower than the year before. Going forward with the status quo is not going to cut it for the American people who are struggling today.

MR. LEHRER: All right. Let's talk — we're still on the economy. This is, theoretically now, a second segment still on the economy, and specifically on what do about the federal deficit, the federal debt. And the question — you each have two minutes on this — and, Governor Romney you go first because the president went first on segment one. And the question is this: What are the differences between the two of you as to how you would go about tackling the deficit problem in this country?

MR. ROMNEY: Well, good. I'm glad you raised that. And it's a — it's a critical issue. I think it's not just an economic issue. I think it's a moral issue. I think it's, frankly, not moral for my generation to keep spending massively more than we take in, knowing those burdens are going to be passed on to the next generation. And they're going to be paying the interest and the principle all their lives. And the amount of debt we're adding, at a trillion a year, is simply not moral.

So how do we deal with it? Well, mathematically there are — there are three ways that you can cut a deficit. One, of course, is to raise taxes. Number two is to cut spending. And number three is to grow the economy because if more people work in a growing economy they're paying taxes and you can get the job done that way.

The presidents would — president would prefer raising taxes. I understand. The problem with raising taxes is that it slows down the rate of growth and you could never quite get the job done. I want to lower spending and encourage economic growth at the same time.

What things would I cut from spending? Well, first of all, I will eliminate all programs by this test — if they don't pass it: Is the program so critical it's worth borrowing money from China to pay for it? And if not, I'll get rid of it. "Obamacare" is on my list. I apologize, Mr. President. I use that term with all respect.

PRESIDENT OBAMA: I like it.

MR. ROMNEY: Good. OK, good. (Laughter.) So I'll get rid of that. I'm sorry, Jim. I'm going to stop the subsidy to PBS. I'm going to stop other things. I like PBS. I love Big Bird. I actually like you too. But I'm not going to — I'm not going to keep on spending money on things to borrow money from China to pay for it. That's number one.

Number two, I'll take programs that are currently good programs but I think could be run more efficiently at the state level and send them to state.

Number three, I'll make government more efficient, and to cut back the number of employees, combine some agencies and departments. My cutbacks will be done through attrition, by the way.

This is the approach we have to take to get America to a balanced budget. The president said he'd cut the deficit in half. Unfortunately, he doubled it. Trillion-dollar deficits for the last four years. The president's put it in place as much public debt — almost as much debt held by by the public as all prior presidents combined.

MR. LEHRER: Mr. President. two minutes.

PRESIDENT OBAMA: When I walked in the Oval Office, I had more than a trillion dollar deficit greeting me, and we know where it came from. Two wars that were paid for on a credit card. Two tax cuts that were not paid for, and a whole bunch of programs that were not paid for. And then a massive economic crisis.

And despite that, what we've said is, yes, we had to take some initial emergency measures to make sure we didn't slip into a Great Depression. But what we've also said is, let's make sure that we are cutting out those things that are not helping us grow.

So, 77 government programs — everything from aircrafts that the Air Force had ordered but weren't working very well. Eighteen government — 18 government programs for education that were well- intentioned but weren't helping kids learn. We went after medical fraud in Medicare and Medicaid very aggressively — more aggressively than ever before, and have saved tens of billions of dollars. Fifty billion dollars of waste taken out of the system.

And I worked with Democrats and Republicans to cut a trillion dollars out of our discretionary domestic budget. That's the largest cut in the discretionary domestic budget since Dwight Eisenhower.

Now, we all know that we've got to do more. And so I've put forward a specific $4 trillion deficit-reduction plan.

It's on a website. You can look at all the numbers, what cuts we make and what revenue we raise.

And the way we do it is $2.50 for every cut, we ask for a dollar of additional revenue, paid for, as I indicated earlier, by asking those of us who have done very well in this country to contribute a little bit more to reduce the deficit.

And Governor Romney earlier mentioned the Bowles-Simpson commission. Well, that's how the commission — bipartisan commission that talked about how we should move forward suggested we have to do it — in a balanced way with some revenue and some spending cuts. And this is a major difference that Governor Romney and I have.

Let — let me just finish this point because you're looking for contrast. You know, when Governor Romney stood on a stage with other Republican candidates for the nomination, and he was asked, would you take $10 of spending cuts for just $1 of revenue, and he said no. Now, if you take such an unbalanced approach, then that means you are going to be gutting our investments in schools and education. It means that — Governor Romney talked about Medicaid and how we could send it back to the states, but effectively this means a 30 percent cut in the primary program we help for seniors who are in nursing homes, for kids who are with disabilities —

MR. LEHRER: Mr. President, I'm sorry —

PRESIDENT OBAMA: And that is not a right strategy for us to move forward.

MR. LEHRER: Way over the two minutes.

PRESIDENT OBAMA: Sorry.

MR. LEHRER: Governor, what about Simpson-Bowles. Will you support Simpson-Bowles?

MR. ROMNEY: Simpson-Bowles, the president should have grabbed that.

MR. LEHRER: No, I mean do you support Simpson-Bowles?

MR. ROMNEY: I have my own plan. It's not the same as Simpson- Bowles. But in my view, the president should have grabbed it. If you wanted to make some adjustments to it, take it, go to Congress, fight for it.

PRESIDENT OBAMA: That's what we've done, made some adjustments to it; and we're putting it forward before Congress right now, a $4 trillion plan, (a balanced ?) —

MR. ROMNEY: But you've been — but you've been president four years. You've been president four years. You said you'd cut the deficit in half. It's now four years later. We still have trillion- dollar deficits.

The CBO says we'll have a trillion-dollar deficit each of the next four years. If you're re-elected, we'll get to a trillion-dollar debt. You have said before you'd cut the deficit in half. And this four — I love this idea of 4 trillion (dollars) in cuts. You've found $4 trillion of ways to reduce or to get closer to a balanced budget, except we still show trillion dollar deficits every year. That doesn't get the job done.

Let me come back and say, why is that I don't want to raise taxes? Why don't I want to raise taxes on people? And actually, you said it back in 2010. You said, look, I'm going to extend the tax policies that we have. Now, I'm not going to raise taxes on anyone because when the economy's growing slow like this, when we're in recession you shouldn't raise taxes on anyone.

Well, the economy is still growing slow. As a matter of fact, it's growing much more slowly now than when you made that statement. And so if you believe the same thing, you just don't want to raise taxes on people. And the reality is it's not just wealthy people — you mentioned Donald Trump — it's not just Donald Trump you're taxing; it's all those businesses that employ one-quarter of the workers in America. These small businesses that are taxed as individuals. You raise taxes and you kill jobs. That's why the National Federation of Independent Businesses said your plan will kill 700,000 jobs. I don't want to kill jobs in this environment.

Let me make one more point. And that's — and that —

MR. LEHRER: Let's let him answer the taxes thing for a moment, OK?

MR. ROMNEY: OK.

MR. LEHRER: Mr. President.

PRESIDENT OBAMA: Well, we've had this discussion before.

MR. LEHRER: No, about the idea that in order to reduce the deficit there has to be revenue in addition to cuts.

PRESIDENT OBAMA: There has to be revenue in addition to cuts. Now, Governor Romney has ruled out revenue. He's — he's ruled out revenue.

MR. LEHRER: That's true, right?

MR. ROMNEY: Absolutely.

PRESIDENT OBAMA: OK, so —

MR. LEHRER: Completely?

MR. ROMNEY: I — look, the revenue I get is by more people working, getting higher pay, paying more taxes. That's how we get growth and how we balance the budget. But the idea of taxing people more, putting more people out of work — you'll never get there. You never balance the budget by raising taxes.

Spain — Spain spends 42 percent of their total economy on government. We're now spending 42 percent of our economy on government.

I don't want to go down the path to Spain. I want to go down the path of growth that puts Americans to work, with more money coming in because they're working.

MR. LEHRER: Yeah.

But Mr. President, you're saying in order to get it — the job done, it's got to be balanced. You've got to have —

PRESIDENT OBAMA: If we're serious, we've got to take a balanced, responsible approach. And by the way, this is not just when it comes to individual taxes.

Let's talk about corporate taxes. Now, I've identified areas where we can, right away, make a change that I believe would actually help the economy. The — the oil industry gets $4 billion a year in corporate welfare. Basically, they get deductions that those small businesses that Governor Romney refers to, they don't get. Now, does anybody think that ExxonMobil needs some extra money when they're making money every time you go to the pump? Why wouldn't we want to eliminate that?

Why wouldn't we eliminate tax breaks for corporate jets? My attitude is if you got a corporate jet, you can probably afford to pay full freight, not get a special break for it.

When it comes to corporate taxes, Governor Romney has said he wants to, in a revenue-neutral way, close loopholes, deductions — he hasn't identified which ones they are — but thereby bring down the corporate rate. Well, I want to do the same thing, but I've actually identified how we can do that.

And part of the way to do it is to not give tax breaks to companies that are shipping jobs overseas. Right now you can actually take a deduction for moving a plant overseas. I think most Americans would say that doesn't make sense. And all that raises revenue.

And so if we take a balanced approach, what that then allows us to do is also to help young people, the way we already have during my administration, make sure that they can afford to go to college. It means that the teacher that I met in Las Vegas, wonderful young lady, who describes to me — she's got 42 kids in her class.

The first two weeks, she's got them — some of them sitting on the floor until finally they get reassigned. They're using textbooks that are 10 years old. That is not a recipe for growth; that's not how America was built.

And so budgets reflect choices. Ultimately we're going to have to make some decisions. And if we're asking for no revenue, then that means that we've got to get rid of a whole bunch of stuff, and the magnitude of the tax cuts that you're talking about, Governor, would end up resulting in severe hardship for people, but more importantly, would not help us grow.

As I indicated before, when you talk about shifting Medicaid to states, we're talking about potentially a — a 30 — a 30 percent cut in Medicaid over time. Now, you know, that may not seem like a big deal when it just is — you know, numbers on a sheet of paper, but if we're talking about a family who's got an autistic kid and is depending on that Medicaid, that's a big problem. And governors are creative. There's no doubt about it. But they're not creative enough to make up for 30 percent of revenue on something like Medicaid. What ends up happening is some people end up not getting help.

MR. ROMNEY: Jim, let's — we — we've gone on a lot of topics there, and — so I've got to take — it's going to take a minute to go from Medicaid to schools to —

PRESIDENT OBAMA: (Inaudible.)

MR. LEHRER: Come back to Medicaid, here, yeah, yeah, right.

MR. ROMNEY: — oil to tax breaks and companies overseas. So let's go through them one by one. First of all, the Department of Energy has said the tax break for oil companies is $2.8 billion a year. And it's actually an accounting treatment, as you know, that's been in place for a hundred years. Now —

PRESIDENT OBAMA: It's time to end it.

MR. ROMNEY: And — and in one year, you provided $90 billion in breaks to the green energy world. Now, I like green energy as well, but that's about 50 years' worth of what oil and gas receives, and you say Exxon and Mobil — actually, this $2.8 billion goes largely to small companies, to drilling operators and so forth.

But you know, if we get that tax rate from 35 percent down to 25 percent, why, that $2.8 billion is on the table. Of course it's on the table. That's probably not going to survive, you get that rate down to 25 percent.

But — but don't forget, you put $90 billion — like 50 years worth of breaks — into solar and wind, to — to Solyndra and Fisker and Tesla and Ener1. I mean, I — I had a friend who said, you don't just pick the winners and losers; you pick the losers. All right? So — so this is not — this is not the kind of policy you want to have if you want to get America energy-secure.

The second topic, which is you said you get a deduction for getting a plant overseas. Look, I've been in business for 25 years. I have no idea what you're talking about. I maybe need to get a new accountant.

MR. LEHRER: Let's —

MR. ROMNEY: But the — the idea that you get a break for shipping jobs overseas is simply not the case.

MR. LEHRER: Let's have —

MR. ROMNEY: What we do have right now is a setting —

MR. LEHRER: Excuse me.

MR. ROMNEY: — where I'd like to bring money from overseas back to this country.

And finally, Medicaid to states, I'm not quite sure where that came in, except this, which is, I would like to take the Medicaid dollars that go to states and say to a state, you're going to get what you got last year plus inflation — inflation — plus 1 percent. And then you're going to manage your care for your poor in the way you think best.

And I remember as a governor, when this idea was floated by Tommy Thompson, the governors, Republican and Democrats, said, please let us do that. We can care for our own poor in so much better and more effective a way than having the federal government tell us how to care for our poor.

So let states — one of the magnificent things about this country is the whole idea that states are the laboratories of democracy. Don't have the federal government tell everybody what kind of training programs they have to have and what kind of Medicaid they have to have. Let states do this.

And by the way, if a states get — gets in trouble, why, we could step in and see if we could find a way to help them. But —

MR. LEHRER: Let's go.

MR. ROMNEY: But — but the right — the right approach is one which relies on the brilliance —

MR. LEHRER: Two seconds.

MR. ROMNEY: — of our people and states, not the federal government.

MR. LEHRER: Two seconds and we're going on, still on the economy on another — but another part of it.

PRESIDENT OBAMA: OK.

MR. LEHRER: All right? All right, this is this is segment three, the economy, entitlements.

First answer goes to you. It's two minutes. Mr. President, do you see a major difference between the two of you on Social Security?

PRESIDENT OBAMA: You know, I suspect that on Social Security, we've got a somewhat similar position. Social Security is structurally sound. It's going to have to be tweaked the way it was by Ronald Reagan and Speaker — Democratic Speaker Tip O'Neill. But it is — the basic structure is sound. But — but I want to talk about the values behind Social Security and Medicare and then talk about Medicare, because that's the big driver —

MR. LEHRER: Sure — it — you bet.

PRESIDENT OBAMA: — of our deficits right now.

You know, my grandmother, some of you know, helped to raise me. My grandparents did. My grandfather died awhile back. My grandmother died three days before I was elected president. And she was fiercely independent. She worked her way up, only had a high school education, started as a secretary, ended up being the vice president of a local bank. And she ended up living alone by choice. And the reason she could be independent was because of Social Security and Medicare. She had worked all her life, put in this money and understood that there was a basic guarantee, a floor under which she could not go.

And that's the perspective I bring when I think about what's called entitlements. You know, the name itself implies some sense of dependency on the part of these folks. These are folks who've worked hard, like my grandmother. And there are millions of people out there who are counting on this.

So my approach is to say, how do we strengthen the system over the long term? And in Medicare, what we did was we said, we are going to have to bring down the costs if we're going to deal with our long- term deficits, but to do that, let's look where some of the money is going. Seven hundred and sixteen billion dollars we were able to save from the Medicare program by no longer overpaying insurance companies, by making sure that we weren't overpaying providers.

And using that money, we were actually able to lower prescription drug costs for seniors by an average of $600, and we were also able to make a — make a significant dent in providing them the kind of preventive care that will ultimately save money through the — throughout the system.

So the way for us to deal with Medicare in particular is to lower health care costs. But when it comes to Social Security, as I said, you don't need a major structural change in order to make sure that Social Security is there for the future.

MR. LEHRER: We'll follow up on this.

First, Governor Romney, you have two minutes on Social Security and entitlements.

MR. ROMNEY: Well, Jim, our seniors depend on these programs. And I know any time we talk about entitlements, people become concerned that something's going to happen that's going to change their life for the worst, and the answer is, neither the president nor I are proposing any changes for any current retirees or near retirees, either to Social Security or Medicare. So if you're 60 or around 60 or older, you don't need to listen any further.

But for younger people, we need to talk about what changes are going to be occurring.

Oh, I just thought about one, and that is in fact I was wrong when I said the president isn't proposing any changes for current retirees. In fact, he is on Medicare. On Social Security, he's not.

But on Medicare, for current retirees he's cutting $716 billion from the program. Now, he says by not overpaying hospitals and providers, actually just going to them and saying we're going to reduce the rates you get paid across the board, everybody's going to get a lower rate. That's not just going after places where there's abuse, that's saying we're cutting the rates. Some 15 percent of hospitals and nursing homes say they won't take anymore Medicare patients under that scenario.

We also have 50 percent of doctors who say they won't take more Medicare patients. This — we have 4 million people on Medicare Advantage that will lose Medicare Advantage because of those $716 billion in cuts. I can't understand how you can cut Medicare $716 billion for current recipients of Medicare.

Now, you point out, well, we're putting some back; we're going to give a better prescription program. That's one — that's $1 for every 15 (dollars) you've cut. They're smart enough to know that's not a good trade.

I want to take that $716 billion you've cut and put it back into Medicare. By the way, we can include a prescription program if we need to improve it, but the idea of cutting $716 billion from Medicare to be able to balance the additional cost of "Obamacare" is, in my opinion, a mistake. And with regards to young people coming along, I've got proposals to make sure Medicare and Social Security are there for them without any question.

MR. LEHRER: Mr. President.

PRESIDENT OBAMA: First of all, I think it's important for Governor Romney to present this plan that he says will only affect folks in the future. And the essence of the plan is that he would turn Medicare into a voucher program. It's called premium support, but it's understood to be a voucher program. His running mate —

MR. LEHRER: And you — and you don't support that?

PRESIDENT OBAMA: I don't. And — and let me explain why.

MR. ROMNEY: Again, that's for future people —

PRESIDENT OBAMA: I understand.

MR. ROMNEY: — right, not for current retirees.

PRESIDENT OBAMA: For — for — so if you're — if you — you're 54 or 55, you might want to listen, because this — this will affect you. The idea, which was originally presented by Congressman Ryan, your running mate, is that we would give a voucher to seniors, and they could go out in the private marketplace and buy their own health insurance. The problem is that because the voucher wouldn't necessarily keep up with health care inflation, it was estimated that this would cost the average senior about $6,000 a year.

Now, in fairness, what Governor Romney has now said is he'll maintain traditional Medicare alongside it. But there's still a problem, because what happens is those insurance companies are pretty clever at figuring out who are the younger and healthier seniors.

They recruit them leaving the older, sicker seniors in Medicare. And every health care economist who looks at it says over time what'll happen is the traditional Medicare system will collapse. And then what you've got is folks like my grandmother at the mercy of the private insurance system, precisely at the time when they are most in need of decent health care.

So I don't think vouchers are the right way to go. And this is not my own — only my opinion. AARP thinks that the — the savings that we obtained from Medicare bolster the system, lengthen the Medicare trust fund by 8 years. Benefits were not affected at all and ironically if you repeal "Obamacare" — and I have become fond of this term, "Obamacare" — (laughter) — if you repeal it, what happens is those seniors right away are going to be paying $600 more in prescription care. They're now going to have to be paying copays for basic check-ups that can keep them healthier.

And the primary beneficiary of that repeal are insurance companies that are estimated to gain billions of dollars back when they aren't making seniors any healthier. And I — I don't think that's right approach when it comes to making sure that Medicare is stronger over the long term.

MR. LEHRER: We'll talk about — specifically about health care in a moment, but what is — do you support the voucher system, Governor?

MR. ROMNEY: What I support is no change for current retirees and near-retirees to Medicare and the president supports taking $716 billion out of that program.

MR. LEHRER: What about the vouchers?

MR. ROMNEY: So that's — that's number one.

MR. LEHRER: OK. All right.

MR. ROMNEY: Number two is for people coming along that are young. What I'd do to make sure that we can keep Medicare in place for them is to allow them either to choose the current Medicare program or a private plan — their choice. They get to — and they'll have at least two plans that will be entirely at no cost to them. So they don't have to pay additional money, no additional $6,000. That's not going to happen.

They'll have at least two plans.

And by the way, if the government can be as efficient as the private sector and offer premiums that are as low as the private sector, people will be happy to get traditional Medicare, or they'll be able to get a private plan. I know my own view is I'd rather have a private plan. I — I'd just as soon not have the government telling me what kind of health care I get. I'd rather be able to have an insurance company. If I don't like them, I can get rid of them and find a different insurance company. But people will make their own choice.

The other thing we have to do to save Medicare, we have to have the benefits high for those that are low-income, but for higher-income people, we're going to have to lower some of the benefits. We have to make sure this program is there for the long term. That's the plan that I've put forward.

And by the way, the idea came not even from Paul Ryan or — or Senator Wyden, who's a co-author of the bill with — with Paul Ryan in the Senate, but also it came from Bill Clinton's — Bill Clinton's chief of staff. This is an idea that's been around a long time, which is saying, hey, let's see if we can't get competition into the Medicare world so that people can get the choice of different plans at lower cost, better quality. I believe in competition.

PRESIDENT OBAMA: Jim, if I — if I can just respond very quickly, first of all, every study has shown that Medicare has lower administrative cost than private insurance does, which is why seniors are generally pretty happy with it. And private insurers have to make a profit. Nothing wrong with that; that's what they do. And so you've got higher administrative costs, plus profit on top of that, and if you are going to save any money through what Governor Romney's proposing, what has to happen is is that the money has to come from somewhere.

And when you move to a voucher system, you are putting seniors at the mercy of those insurance companies. And over time, if traditional Medicare has decayed or fallen apart, then they're stuck. And this is the reason why AARP has said that your plan would weaken Medicare substantially, and that's why they were supportive of the approach that we took.

One last point I want to make. We do have to lower the cost of health care. Not just in Medicare and —

MR. LEHRER: We'll talk about that in a minute.

PRESIDENT OBAMA: — but — but overall.

MR. LEHRER: Go. OK.

PRESIDENT OBAMA: And so —

MR. ROMNEY: That's — that's a big topic. Could we — could we stay on Medicare?

PRESIDENT OBAMA: Is that a — is that a separate topic? I'm sorry.

MR. LEHRER: Yeah, we're going to — yeah. I want to get to it, but all I want to do is very quickly —

MR. ROMNEY: Let's get back to Medicare.

MR. LEHRER: — before we leave the economy —

MR. ROMNEY: Let's get back to Medicare.

MR. LEHRER: No, no, no, no —

MR. ROMNEY: The president said that the government can provide the service at lower —

MR. LEHRER: No.

MR. ROMNEY: — cost and without a profit.

MR. LEHRER: All right.

MR. ROMNEY: If that's the case, then it will always be the best product that people can purchase. But my experience —

MR. LEHRER: Wait a minute, Governor.

MR. ROMNEY: My experience is the private sector typically is able to provide a better product at a lower cost.

MR. LEHRER: Can we — can the two of you agree that the voters have a choice, a clear choice between the two of you —

MR. ROMNEY: Absolutely.

PRESIDENT OBAMA: Yes.

MR. LEHRER: — on Medicare?

MR. ROMNEY: Absolutely.

MR. LEHRER: All right. So, to finish quickly, briefly, on the economy, what is your view about the level of federal regulation of the economy right now? Is there too much, and in your case, Mr. President, is there — should there be more? Beginning with you — this is not a new two-minute segment — to start, and we'll go for a few minutes and then we're going to go to health care. OK?

MR. ROMNEY: Regulation is essential. You can't have a free market work if you don't have regulation. As a business person, I had to have — I needed to know the regulations. I needed them there. You couldn't have people opening up banks in their — in their garage and making loans. I mean, you have to have regulations so that you can have an economy work. Every free economy has good regulation.

At the same time, regulation can become excessive.

MR. LEHRER: Is it excessive now, do you think?

MR. ROMNEY: In some places, yes, in other places, no.

MR. LEHRER: Like where?

MR. ROMNEY: It can become out of date. And what's happened in — with some of the legislation that's been passed during the president's term, you've seen regulation become excessive and it's hurt the — it's hurt the economy. Let me give you an example. Dodd- Frank was passed, and it includes within it a number of provisions that I think have some unintended consequences that are harmful to the economy. One is it designates a number of banks as too big to fail, and they're effectively guaranteed by the federal government.

This is the biggest kiss that's been given to — to New York banks I've ever seen. This is an enormous boon for them. There's been — 122 community and small banks have closed since Dodd-Frank. So there's one example.

Here's another. In Dodd-Frank, it says that —

MR. LEHRER: You want to repeal Dodd-Frank?

MR. ROMNEY: Well, I would repeal it and replace it. You — we're not going to get rid of all regulation. You have to have regulation. And there's some parts of Dodd-Frank that make all the sense in the world. You need transparency, you need to have leverage limits for institutes —

MR. LEHRER: Well, here's a specific — let's — excuse me —

MR. ROMNEY: Let me mention the other one. Let's talk the —

MR. LEHRER: No, no, let's do — right now, let's not. Let's let him respond.

MR. ROMNEY: OK.

MR. LEHRER: Let's let him respond to this specific on Dodd-Frank and what the governor just said.

PRESIDENT OBAMA: Well, I think this is a great example. The reason we have been in such a enormous economic crisis was prompted by reckless behavior across the board. Now, it wasn't just on Wall Street. You had — loan officers were — they were giving loans and mortgages that really shouldn't have been given, because they're — the folks didn't qualify. You had people who were borrowing money to buy a house that they couldn't afford. You had credit agencies that were stamping these as A-1 (ph) great investments when they weren't. But you also had banks making money hand-over-fist, churning out products that the bankers themselves didn't even understand in order to make big profits, but knowing that it made the entire system vulnerable.

So what did we do? We stepped in and had the toughest reforms on Wall Street since the 1930s. We said you've got — banks, you've got to raise your capital requirements. You can't engage in some of this risky behavior that is putting Main Street at risk. We're going to make sure that you've got to have a living will, so — so we can know how you're going to wind things down if you make a bad bet so we don't have other taxpayer bailouts.

In the meantime, by the way, we also made sure that all the help that we provided those banks was paid back, every single dime, with interest.

Now, Governor Romney has said he wants to repeal Dodd-Frank, and, you know, I appreciate, and it appears we've got some agreement that a marketplace to work has to have some regulation, but in the past, Governor Romney has said he just wants to repeal Dodd-Frank, roll it back. And so the question is does anybody out there think that the big problem we had is that there was too much oversight and regulation of Wall Street? Because if you do, then Governor Romney is your candidate. But that's not what I believe.

MR. ROMNEY: (Inaudible) — sorry, Jim. That — that's just not — that's just not the facts. Look, we have to have regulation of Wall Street.

PRESIDENT OBAMA: Yeah.

MR. ROMNEY: That — that's why I'd have regulation. But I wouldn't designate five banks as too big to fail and give them a blank check. That's one of the unintended consequences of Dodd-Frank. It wasn't thought through properly. We need to get rid of that provision, because it's killing regional and small banks. They're getting hurt.

Let me mention another regulation of Dodd-Frank. You say we were giving mortgages to people who weren't qualified. That's exactly right. It's one of the reasons for the great financial calamity we had. And so Dodd-Frank correctly says we need to —

MR. LEHRER: All right.

MR. ROMNEY: — have qualified mortgages, and if you give a mortgage that's not qualified, there are big penalties. Except they didn't ever go on to define what a qualified mortgage was.

MR. LEHRER: All right.

MR. ROMNEY: It's been two years. We don't know what a qualified mortgage is yet. So banks are reluctant to make loans, mortgages. Try and get a mortgage these days. It's hurt the housing market —

MR. LEHRER: All right —

MR. ROMNEY: — because Dodd-Frank didn't anticipate putting in place the kinds of regulations you have to have. It's not that Dodd- Frank always was wrong with too much regulation. Sometimes they didn't come out with a clear regulation.

MR. LEHRER: OK.

MR. ROMNEY: I will make sure we don't hurt the functioning of our — of our marketplace and our businesses, because I want to bring back housing and get good jobs.

MR. LEHRER: All right, I think we have another clear difference between the two of you. Now let's move to health care, where I know there is a clear difference — (laughter) — and that has to do with the Affordable Care Act, "Obamacare."

And it's a two-minute new segment, and it's — that means two minutes each. And you go first, Governor Romney. You wanted repeal. You want the Affordable Care Act repealed. Why?

MR. ROMNEY: I sure do. Well, in part, it comes, again, from my experience. I was in New Hampshire. A woman came to me, and she said, look, I can't afford insurance for myself or my son. I met a couple in Appleton, Wisconsin, and they said, we're thinking of dropping our insurance; we can't afford it. And the number of small businesses I've gone to that are saying they're dropping insurance because they can't afford it — the cost of health care is just prohibitive. And — and we've got to deal with cost.

And unfortunately, when — when you look at "Obamacare," the Congressional Budget Office has said it will cost $2,500 a year more than traditional insurance. So it's adding to cost. And as a matter of fact, when the president ran for office, he said that by this year he would have brought down the cost of insurance for each family by $2,500 a family. Instead, it's gone up by that amount. So it's expensive. Expensive things hurt families. So that's one reason I don't want it.

Second reason, it cuts $716 billion from Medicare to pay for it. I want to put that money back in Medicare for our seniors.

Number three, it puts in place an unelected board that's going to tell people, ultimately, what kind of treatments they can have. I don't like that idea.

Fourth, there was a survey done of small businesses across the country. It said, what's been the effect of "Obamacare" on your hiring plans? And three-quarters of them said, it makes us less likely to hire people. I just don't know how the president could have come into office, facing 23 million people out of work, rising unemployment, an economic crisis at the — at the kitchen table and spent his energy and passion for two years fighting for "Obamacare" instead of fighting for jobs for the American people.

It has killed jobs. And the best course for health care is to do what we did in my state, craft a plan at the state level that fits the needs of the state. And then let's focus on getting the costs down for people rather than raising it with the $2,500 additional premium.

MR. LEHRER: Mr. President, the argument against repeal.

PRESIDENT OBAMA: Well, four years ago when I was running for office I was traveling around and having those same conversations that Governor Romney talks about. And it wasn't just that small businesses were seeing costs skyrocket and they couldn't get affordable coverage even if they wanted to provide it to their employees; it wasn't just that this was the biggest driver of our federal deficit, our overall health care costs. But it was families who were worried about going bankrupt if they got sick — millions of families, all across the country.

If they had a pre-existing condition they might not be able to get coverage at all. If they did have coverage, insurance companies might impose an arbitrary limit. And so as a consequence, they're paying their premiums, somebody gets really sick, lo and behold they don't have enough money to pay the bills because the insurance companies say that they've hit the limit. So we did work on this alongside working on jobs, because this is part of making sure that middle-class families are secure in this country.

And let me tell you exactly what "Obamacare" did. Number one, if you've got health insurance it doesn't mean a government take over. You keep your own insurance. You keep your own doctor. But it does say insurance companies can't jerk you around. They can't impose arbitrary lifetime limits. They have to let you keep your kid on their insurance — your insurance plan till you're 26 years old. And it also says that they're — you're going to have to get rebates if insurance companies are spending more on administrative costs and profits than they are on actual care.

Number two, if you don't have health insurance, we're essentially setting up a group plan that allows you to benefit from group rates that are typically 18 percent lower than if you're out there trying to get insurance on the individual market.

Now, the last point I'd make before —

MR. LEHRER: Two minutes —

PRESIDENT OBAMA: — before —

MR. LEHRER: Two minutes is up, sir.

PRESIDENT OBAMA: No, I — I think I've — I had five seconds before you interrupted me — was — (laughter) — that the irony is that we've seen this model work really well in Massachusetts, because Governor Romney did a good thing, working with Democrats in the state to set up what is essentially the identical model. And as a consequence, people are covered there. It hasn't destroyed jobs. And as a consequence, we now have a system in which we have the opportunity to start bringing down cost, as opposed to just —

MR. LEHRER: Your five —

PRESIDENT OBAMA: — leaving millions of people out in the cold.

MR. LEHRER: Your five seconds went away a long time ago. (Laughter.)

PRESIDENT OBAMA: That —

MR. LEHRER: All right, Governor. Governor, tell the — tell the president directly why you think what he just said is wrong about "Obamacare."

MR. ROMNEY: Well, I did with my first statement.

PRESIDENT OBAMA: You did.

MR. ROMNEY: But I'll go on.

PRESIDENT OBAMA: Please elaborate.

MR. ROMNEY: I'll elaborate.

Exactly right.

First of all, I like the way we did it in Massachusetts. I like the fact that in my state, we had Republicans and Democrats come together and work together. What you did instead was to push through a plan without a single Republican vote. As a matter of fact, when Massachusetts did something quite extraordinary, elected a Republican senator to stop "Obamacare," you pushed it through anyway. So entirely on a partisan basis, instead of bringing America together and having a discussion on this important topic, you pushed through something that you and Nancy Pelosi and Harry Reid thought was the best answer and drove it through.

What we did, in a legislature 87 percent Democrat, we worked together. Two hundred legislators in my legislature — only two voted against the plan by the time we were finished.

What were some differences?

We didn't raise taxes. You've raised them by a trillion dollars under "Obamacare." We didn't cut Medicare. Of course, we don't have Medicare, but we didn't cut Medicare by $716 billion. We didn't put in place a board that can tell people ultimately what treatments they're going to receive.

We didn't — we didn't also do something that I think a number of people across this country recognize, which is put — put people in a position where they're going to lose the insurance they had and they wanted. Right now, the CBO says up to 20 million people will lose their insurance as "Obamacare" goes into effect next year. And likewise, a study by McKinsey & Company of American businesses said 30 percent of them are anticipating dropping people from coverage. So for those reasons, for the tax, for Medicare, for this board and for people losing their insurance, this is why the American people don't want — don't want "Obamacare." It's why Republicans said, do not do this.

And the Republicans had a — had a plan. They put a plan out. They put out a plan, a bipartisan plan. It was swept aside. I think something this big, this important has to be done in a bipartisan basis. And we have to have a president who can reach across the aisle and fashion important legislation with the input from both parties.

PRESIDENT OBAMA: Governor Romney said this has to be done on a bipartisan basis. This was a bipartisan idea. In fact, it was a Republican idea.

And Governor Romney, at the beginning of this debate, wrote and said, what we did in Massachusetts could be a model for the nation. And I agree that the Democratic legislators in Massachusetts might have given some advice to Republicans in Congress about how to cooperate, but the fact of the matter is, we used the same advisers, and they say it's the same plan.

It — when Governor Romney talks about this board, for example — unelected board that we've created — what this is, is a group of health care experts, doctors, et cetera, to figure out how can we reduce the cost of care in the system overall, because the — there are two ways of dealing with our health care crisis.

One is to simply leave a whole bunch of people uninsured and let them fend for themselves, to let businesses figure out how long they can continue to pay premiums until finally they just give up and their workers are no longer getting insured, and that's been the trend line. Or, alternatively, we can figure out how do we make the cost of care more effective. And there are ways of doing it.

So at — at Cleveland Clinic, one of the best health care systems in the world, they actually provide great care cheaper than average. And the reason they do is because they do some smart things. They — they say, if a patient's coming in, let's get all the doctors together at once, do one test instead of having the patient run around with 10 tests. Let's make sure that we're providing preventive care so we're catching the onset of something like diabetes. Let's — let's pay providers on the basis of performance as opposed to on the basis of how many procedures they've — they've engaged in. Now, so what this board does is basically identifies best practices and says, let's use the purchasing power of Medicare and Medicaid to help to institutionalize all these good things that we do.

And the fact of the matter is that when "Obamacare" is fully implemented, we're going to be in a position to show that costs are going down. And over the last two years, health care premiums have gone up, it's true, but they've gone up slower than any time in the last 50 years. So we're already beginning to see progress. In the meantime, folks out there with insurance, you're already getting a rebate.

Let me make one last point. Governor Romney says we should replace it. I'm just going to repeal it, but we can replace it with something. But the problem is he hasn't described what exactly we'd replace it with other than saying we're going to leave it to the states.

But the fact of the matter is that some of the prescriptions that he's offered, like letting you buy insurance across state lines, there's no indication that that somehow is going to help somebody who's got a pre-existing condition be able to finally buy insurance. In fact, it's estimated that by repealing "Obamacare," you're looking at 50 million people losing health insurance at a time when it's vitally important.

MR. LEHRER: Let's let the governor explain what you would do if "Obamacare" is repealed. How would you replace it? What do you have in mind?

MR. ROMNEY: Let — well, actually — actually it's — it's — it's a lengthy description, but number one, pre-existing conditions are covered under my plan. Number two, young people are able to stay on their family plan. That's already offered in the private marketplace; you don't have — have the government mandate that for that to occur.

But let's come back to something the president — I agree on, which is the — the key task we have in health care is to get the costs down so it's more affordable for families, and — and then he has as a model for doing that a board of people at the government, an unelected board, appointed board, who are going to decide what kind of treatment you ought to have.

PRESIDENT OBAMA: No, it isn't.

MR. ROMNEY: In my opinion, the government is not effective in — in bringing down the cost of almost anything. As a matter of fact, free people and free enterprises trying to find ways to do things better are able to be more effective in bringing down the costs than the government will ever be. Your example of the Cleveland clinic is my case in point, along with several others I could describe. This is the private market. These are small — these are enterprises competing with each other, learning how to do better and better jobs.

I used to consult to businesses — excuse me, to hospitals and to health care providers. I was astonished at the creativity and innovation that exists in the American people. In order to bring the cost of health care down, we don't need to have a — an — a board of 15 people telling us what kinds of treatments we should have. We instead need to put insurance plans, providers, hospitals, doctors on targets such that they have an incentive, as you say, performance pay, for doing an excellent job, for keeping costs down, and that's happening.

Intermountain Health Care does it superbly well.

PRESIDENT OBAMA: They do.

MR. ROMNEY: Mayo Clinic is doing it superbly well, Cleveland Clinic, others. But the right answer is not to have the federal government take over health care and start mandating to the providers across America, telling a patient and a doctor what kind of treatment they can have. That's the wrong way to go. The private market and individual responsibility always work best.

PRESIDENT OBAMA: Let me just point out, first of all, this board that we're talking about can't make decisions about what treatments are given. That's explicitly prohibited in the law.

But let's go back to what Governor Romney indicated, that under his plan he would be able to cover people with pre-existing conditions. Well, actually, Governor, that isn't what your plan does. What your plan does is to duplicate what's already the law, which says if you are out of health insurance for three months then you can end up getting continuous coverage and an insurance company can't deny you if you've — if it's been under 90 days.

But that's already the law. And that doesn't help the millions of people out there with pre-existing conditions. There's a reason why Governor Romney set up the plan that he did in Massachusetts. It wasn't a government takeover of health care. It was the largest expansion of private insurance. But what it does say is that insurers, you've got to take everybody. Now, that also means that you've got more customers.

But when Governor Romney says that he'll replace it with something but can't detail how it will be in fact replaced, and the reason he set up the system he did in Massachusetts is because there isn't a better way of dealing with the pre-existing conditions problem, it — it just reminds me of — you know, he says that he's going to close deductions and loopholes for his tax plan.

That's how it's going to be paid for. But we don't know the details. He says that he's going to replace Dodd-Frank, Wall Street reform. But we don't know exactly which ones. He won't tell us. He now says he's going to replace "Obamacare" and assure that all the good things that are in it are going to be in there and you don't have to worry.

And at some point, I think the American people have to ask themselves, is the reason that Governor Romney is keeping all these plans to replace secret because they're too good? Is — is it because that somehow middle-class families are going to benefit too much from them? No, the — the reason is because when we reform Wall Street, when we tackle the problem of pre-existing conditions, then, you know, these are tough problems, and we've got to make choices. And the choices we've made have been ones that ultimately are benefiting middle-class families all across the country.

MR. LEHRER: All right, we're going to move to a —

MR. ROMNEY: No, I — I have to respond to that —

MR. LEHRER: No, but —

MR. ROMNEY: — which is — which is my experience as a governor is if I come in and — and lay down a piece of legislation and say it's my way or the highway, I don't get a lot done. What I do is the same way that Tip O'Neill and Ronald Reagan worked together some years ago. When Ronald Reagan ran for office, he laid out the principles that he was going to foster. He said he was going to lower tax rates. He said he was going to broaden the base. You've said the same thing: You're going to simplify the tax code, broaden the base. Those are my principles.

I want to bring down the tax burden on middle-income families. And I'm going to work together with Congress to say, OK, what are the various ways we could bring down deductions, for instance? One way, for instance, would be to have a single number. Make up a number — 25,000 (dollars), $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people. That's one way one could do it. One could follow Bowles-Simpson as a model and take deduction by deduction and make differences that way.

There are alternatives to accomplish the objective I have, which is to bring down rates, broaden the base, simplify the code and create incentives for growth.

And with regards to health care, you had remarkable details with regards to my pre-existing condition plan. You obviously studied up on — on my plan. In fact, I do have a plan that deals with people with pre-existing conditions. That's part of my health care plan. And what we did in Massachusetts is a model for the nation, state by state. And I said that at that time. The federal government taking over health care for the entire nation and whisking aside the 10th Amendment, which gives states the rights for these kinds of things, is not the course for America to have a stronger, more vibrant economy.

MR. LEHRER: That is a terrific segue to our next segment, and is the role of government. And let's see, role of government and it is — you are first on this, Mr. President. The question is this. Do you believe — both of you — but you have the first two minutes on this, Mr. President — do you believe there's a fundamental difference between the two of you as to how you view the mission of the federal government?

PRESIDENT OBAMA: Well, I definitely think there are differences.

MR. LEHRER: And — yeah.

PRESIDENT OBAMA: The first role of the federal government is to keep the American people safe. That's its most basic function. And as commander in chief, that is something that I've worked on and thought about every single day that I've been in the Oval Office.

But I also believe that government has the capacity — the federal government has the capacity to help open up opportunity and create ladders of opportunity and to create frameworks where the American people can succeed. Look, the genius of America is the free enterprise system, and freedom, and the fact that people can go out there and start a business, work on an idea, make their own decisions.

But as Abraham Lincoln understood, there are also some things we do better together.

So in the middle of the Civil War, Abraham Lincoln said, let's help to finance the Transcontinental Railroad. Let's start the National Academy of Sciences. Let's start land grant colleges, because we want to give these gateways of opportunity for all Americans, because if all Americans are getting opportunity, we're all going to be better off. That doesn't restrict people's freedom; that enhances it.

And so what I've tried to do as president is to apply those same principles. And when it comes to education, what I've said is we've got to reform schools that are not working. We use something called Race to the Top. Wasn't a top-down approach, Governor. What we've said is to states, we'll give you more money if you initiate reforms. And as a consequence, you had 46 states around the country who have made a real difference.

But what I've also said is let's hire another hundred thousand math and science teachers to make sure we maintain our technological lead and our people are skilled and able to succeed. And hard-pressed states right now can't all do that. In fact, we've seen layoffs of hundreds of thousands of teachers over the last several years, and Governor Romney doesn't think we need more teachers. I do, because I think that that is the kind of investment where the federal government can help. It can't do it all, but it can make a difference, and as a consequence, we'll have a better-trained workforce, and that will create jobs, because companies want to locate in places where we've got a skilled workforce.

MR. LEHRER: Two minutes, Governor, on the role of government, your view.

MR. ROMNEY: Well, first, I love great schools. Massachusetts, our schools are ranked number one of all 50 states. And the key to great schools: great teachers. So I reject the idea that I don't believe in great teachers or more teachers. Every school district, every state should make that decision on their own.

The role of government — look behind us: the Constitution and the Declaration of Independence.

The role of government is to promote and protect the principles of those documents. First, life and liberty. We have a responsibility to protect the lives and liberties of our people, and that means the military, second to none. I do not believe in cutting our military. I believe in maintaining the strength of America's military.

Second, in that line that says, we are endowed by our Creator with our rights — I believe we must maintain our commitment to religious tolerance and freedom in this country. That statement also says that we are endowed by our Creator with the right to pursue happiness as we choose. I interpret that as, one, making sure that those people who are less fortunate and can't care for themselves are cared by — by one another.

We're a nation that believes we're all children of the same God. And we care for those that have difficulties — those that are elderly and have problems and challenges, those that disabled, we care for them. And we look for discovery and innovation, all these thing desired out of the American heart to provide the pursuit of happiness for our citizens.

But we also believe in maintaining for individuals the right to pursue their dreams, and not to have the government substitute itself for the rights of free individuals. And what we're seeing right now is, in my view, a — a trickle-down government approach which has government thinking it can do a better job than free people pursuing their dreams. And it's not working.

And the proof of that is 23 million people out of work. The proof of that is one out of six people in poverty. The proof of that is we've gone from 32 million on food stamps to 47 million on food stamps. The proof of that is that 50 percent of college graduates this year can't find work.

PRESIDENT OBAMA: (Inaudible) —

MR. ROMNEY: We know that the path we're taking is not working. It's time for a new path.

MR. LEHRER: All right, let's go through some specifics in terms of what — how each of you views the role of government. How do — education. Does the federal government have a responsibility to improve the quality of public education in America?

MR. ROMNEY: Well, the primary responsibility for education is — is of course at the state and local level. But the federal government also can play a very important role. And I — and I agree with Secretary Arne Duncan. He's — there's some ideas he's put forward on Race to the Top — not all of them but some of them I agree with, and congratulate him for pursuing that. The federal government can get local and — and state schools to do a better job.

My own view, by the way, is I've added to that. I happen to believe — I want the kids that are getting federal dollars from IDEA or — or Title I — these are disabled kids or — or poor kids or — or lower-income kids, rather. I want them to be able to go to the school of their choice. So all federal funds, instead of going to the — to the state or to the school district, I'd have go — if you will, follow the child and let the parent and the child decide where to send their — their — their student.

MR. LEHRER: How do you see the federal government's responsibility to — as I say, to improve the quality of public education in this country?

PRESIDENT OBAMA: Well, as I've indicated, I think that it has a significant role to play. Through our Race to the Top program, we've worked with Republican and Democratic governors to initiate major reforms, and they're having an impact right now.

MR. LEHRER: Do you think you have a difference with your views and those of Governor Romney on — about education and the federal government?

PRESIDENT OBAMA: You know, this is where budgets matter because budgets reflect choices. So when Governor Romney indicates that he wants to cut taxes and potentially benefit folks like me and him, and to pay for it, we're having to initiate significant cuts in federal support for education, that makes a difference.

You know, his running mate, Congressman Ryan, put forward a budget that reflects many of the principles that Governor Romney's talked about. And it wasn't very detailed. This seems to be a trend. But — but what it did do is to — if you extrapolated how much money we're talking about, you'd look at cutting the education budget by up to 20 percent.

When it comes to community colleges, we are seeing great work done out there all over the country because we have the opportunity to train people for jobs that exist right now. And one of the things I suspect Governor Romney and I probably agree on is getting businesses to work with community colleges so that they're setting up their training programs —

MR. LEHRER: Do you agree, Governor?

PRESIDENT OBAMA: Let — let — let me just finish the point.

MR. ROMNEY: Oh, yeah. Oh, yeah.

PRESIDENT OBAMA: I suspect it'll be a small agreement.

MR. ROMNEY: It's going over well in my state, by the way, yeah.

PRESIDENT OBAMA: The — where their partnering so that — they're designing training programs, and people who are going through them know that there's a job waiting for them if they complete them. That makes a big difference. But that requires some federal support.

Let me just say one final example. When it comes to making college affordable — whether it's two-year or four-year — one of the things that I did as president was we were sending $60 billion to banks and lenders as middle men for the student loan program, even though the loans were guaranteed. So there was no risk for the banks or the lenders but they were taking billions out of the system.

And we said, why not cut out the middle man? And as a consequence, what we've been able to do is to provide millions more students assistance, lower or keep low interest rates on student loans. And this is an example of where our priorities make a difference. Governor Romney, I genuinely believe, cares about education. But when he tells a student that, you know, you should borrow money from your parents to go to college, you know, that indicates the degree to which, you know, there may not be as much of a focus on the fact that folks like myself, folks like Michelle, kids probably who attend University of Denver just don't have that option.

And for us to be able to make sure that they've got that opportunity and they can walk through that door, that is vitally important — not just to those kids. It's how we're going to grow this economy over the long term.

MR. LEHRER: We're running out of time.

MR. ROMNEY: Jim, Jim —

MR. LEHRER: I'm certainly going give you a chance to respond to that. Yes, sir, Governor.

MR. ROMNEY: Mr. — Mr. President, you're entitled, as the president, to your own airplane and to your own house, but not to your own facts — (laughter) — all right? I'm — I'm not going to cut education funding. I don't have any plan to cut education funding and grants that go to people going to college. I'm planning on continuing to grow, so I'm not planning on making changes there.

But you make a very good point, which is that the — the place you put your money makes a pretty clear indication of where your heart is. You put $90 billion into — into green jobs. And — and I — look, I'm all in favor of green energy. Ninety billion (dollars) — that — that would have — that would have hired 2 million teachers. Ninety billion dollars. And these businesses — many of them have gone out of business. I think about half of them, of the ones have been invested in, they've gone out of business. A number of them happened to be owned by — by people who were contributors to your campaigns.

Look, the right course for — for America's government — we were talking about the role of government — is not to become the economic player picking winners and losers, telling people what kind of health treatment they can receive, taking over the health care system that — that has existed in this country for — for a long, long time and has produced the best health records in the world. The right answer for government is to say, how do we make the private sector become more efficient and more effective?

How do we get schools to be more competitive? Let's grade them. I propose we grade our schools so parents know which schools are succeeding and failing, so they can take their child to a — to a school that's being more successful. I don't — I don't want to cut our commitment to education; I wanted to make it more effective and efficient.

And by the way, I've had that experience. I don't just talk about it. I've been there. Massachusetts schools are ranked number one in the nation. This is not because I didn't have commitment to education. It's because I care about education for all of our kids.

MR. LEHRER: All right, gentlemen, look —

PRESIDENT OBAMA: Jim, I — (inaudible) —

MR. LEHRER: Excuse me, one sec — excuse, me sir. (Laughter.) We've got — we've got — barely have three minutes left. I'm not going to grade the two of you and say you've — your answers have been too long or I've done a poor job —

PRESIDENT OBAMA: You've done a great job, Jim.

MR. LEHRER: Oh, well, no. But the fact is, government — the role of government and governing, we've lost a (pod ?), in other words, so we only have three minutes left in the — in the debate before we go to your closing statements. And so I want to ask finally here — and remember, we've got three minutes total time here.

And the question is this: Many of the legislative functions of the federal government right now are in a state of paralysis as a result of partisan gridlock. If elected in your case, if re-elected in your case, what would you do about that?

Governor?

MR. ROMNEY: Jim, I had the great experience — it didn't seem like it at the time — of being elected in a state where my legislature was 87 percent Democrat, and that meant I figured out from day one I had to get along and I had to work across the aisle to get anything done. We drove our schools to be number one in the nation. We cut taxes 19 times.

MR. LEHRER: Well, what would you do as president?

MR. ROMNEY: We — as president, I will sit down on day one — actually the day after I get elected, I'll sit down with leaders — the Democratic leaders as well as Republican leaders and — as we did in my state. We met every Monday for a couple hours, talked about the issues and the challenges in the — in the — in our state, in that case. We have to work on a collaborative basis — not because we're going to compromise our principle(s), but because there's common ground.

And the challenges America faces right now — look, the reason I'm in this race is there are people that are really hurting today in this country, and we face — this deficit could crush the future generations. What's happening in the Middle East? There are developments around the world that are of real concern. And Republicans and Democrats both love America, but we need to have leadership — leadership in Washington that will actually bring people together and get the job done and could not care less if it's a Republican or a Democrat. I've done it before. I'll do it again.

MR. LEHRER: Mr. President.

PRESIDENT OBAMA: Well, first of all, I think Governor Romney's going to have a busy first day, because he's also going to repeal "Obamacare," which will not be very popular among Democrats as you're sitting down with them.

(Laughter.)

But look, my philosophy has been I will take ideas from anybody, Democrat or Republican, as long as they're advancing the cause of making middle-class families stronger and giving ladders of opportunity into the middle class. That's how we cut taxes for middle-class families and small businesses. That's how we cut a trillion dollars of spending that wasn't advancing that cause. That's how we signed three trade deals into law that are helping us to double our exports and sell more American products around the world. That's how we repealed "don't ask, don't tell." That's how we ended the war in Iraq, as I promised, and that's how we're going to wind down the war in Afghanistan. That's how we went after al-Qaida and bin Laden.

So we've — we've seen progress even under Republican control of the House or Representatives. But ultimately, part of being principled, part of being a leader is, A, being able to describe exactly what it is that you intend to do, not just saying, I'll sit down, but you have to have a plan.

Number two, what's important is occasionally you've got to say now to — to — to folks both in your own party and in the other party. And you know, yes, have we had some fights between me and the Republicans when they fought back against us, reining in the excesses of Wall Street? Absolutely, because that was a fight that needed to be had. When — when we were fighting about whether or not we were going to make sure that Americans had more security with their health insurance and they said no, yes, that was a fight that we needed to have. And so part of leadership and governing is both saying what it is that you are for, but also being willing to say no to some things.

And I've got to tell you, Governor Romney, when it comes to his own party during the course of this campaign, has not displayed that willingness to say no to some of the more extreme parts of his party.

MR. LEHRER: That brings us to closing statements. There was a coin toss. Governor Romney, you won the toss, and you elected to go last.

So you have a closing two minutes, Mr. President.

PRESIDENT OBAMA: Well, Jim, I want to thank you and I want to thank Governor Romney, because I think this was a terrific debate and I very much appreciate it.

And I want to thank the University of Denver.

You know, four years ago we were going through a major crisis, and yet my faith and confidence in the American future is undiminished. And the reason is because of its people. Because of the woman I met in North Carolina who decided at 55 to go back to school because she wanted to inspire her daughter, and now has a new job from that new training that she's gotten. Because of the company in Minnesota who was willing to give up salaries and perks for their executives to make sure that they didn't lay off workers during a recession. The auto workers that you meet in Toledo or Detroit take such pride in building the best cars in the world — not just because of a paycheck, but because it gives them that sense of pride, that they're helping to build America.

And so the question now is, how do we build on those strengths? And everything that I've tried to do and everything that I'm now proposing for the next four years in terms of improving our education system, or developing American energy, or making sure that we're closing loopholes for companies that are shipping jobs overseas and focusing on small businesses and companies that are creating jobs here in the United States, or — or closing our deficit in a responsible, balanced way that allows us to invest in our future — all those things are designed to make sure that the American people, their genius, their grit, their determination is — is channeled, and — and — and they have an opportunity to succeed.

And everybody's getting a fair shot and everybody's getting a fair share. Everybody's doing a fair share and everybody's playing by the same rules.

You know, four years ago I said that I'm not a perfect man and I wouldn't be a perfect president. And that's probably a promise that Governor Romney thinks I've kept. But I also promised that I'd fight every single day on behalf of the American people and the middle class and all those who are striving to get in the middle class.

I've kept that promise and if you'll vote for me, then I promise I'll fight just as hard in a second term.

MR. LEHRER: Governor Romney, your two-minute closing.

MR. ROMNEY: Thank you, Jim and Mr. President. And thank you for tuning in this evening. This is a — this is an important election. And I'm concerned about America. I'm concerned about the direction America has been taking over the last four years. I know this is bigger than election about the two of us as individuals. It's bigger than our respective parties. It's an election about the course of America — what kind of America do you want to have for yourself and for your children.

And there really are two very different paths that we began speaking about this evening. And over the course of this month we're going to have two more presidential debates and vice presidential debate. We'll talk about those two paths. But they lead in very different directions. And it's not just looking to our words that you have to take in evidence of where they go; you can look at the record.

There's no question in my mind that if the president were to be re-elected you'll continue to see a middle-class squeeze with incomes going down and prices going up. I'll get incomes up again. You'll see chronic unemployment. We've had 43 straight months with unemployment above 8 percent. If I'm president, I will create — help create 12 million new jobs in this country with rising incomes.

If the president's re-elected, "Obamacare" will be fully installed. In my view, that's going to mean a whole different way of life for people who counted on the insurance plan they had in the past. Many will lose it. You're going to see health premiums go up by some $2,500 per — per family. If I'm elected, we won't have "Obamacare." We'll put in place the kind of principles that I put in place in my own state and allow each state to craft their own programs to get people insured. And we'll focus on getting the cost of health care down.

If the president were to be re-elected, you're going to see a $716 billion cut to Medicare. You'll have 4 million people who will lose Medicare advantage. You'll have hospitals and providers that'll no longer accept Medicare patients.

I'll restore that $716 billion to Medicare.

And finally, military. If the president's re-elected, you'll see dramatic cuts to our military. The secretary of defense has said these would be even devastating. I will not cut our commitment to our military. I will keep America strong and get America's middle class working again.

Thank you, Jim.

MR. LEHRER: Thank you, Governor.

Thank you, Mr. President.

The next debate will be the vice presidential event on Thursday, October 11th at Center College in Danville, Kentucky. For now, from the University of Denver, I'm Jim Lehrer. Thank you, and good night. (Cheers, applause.)
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What is thee fiscal cliff?

What is the Fiscal Cliff?

By Thomas Kenny, About.com Guide


“Fiscal cliff” is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect.

Among the laws set to change at midnight on December 31, 2012, are the end of last year’s temporary payroll tax cuts (resulting in a 2% tax increase for workers), the end of certain tax breaks for businesses, shifts in the alternative minimum tax that would take a larger bite, the end of the tax cuts from 2001-2003, and the beginning of taxes related to President Obama’s health care law. At the same time, the spending cuts agreed upon as part of the debt ceiling deal of 2011 will begin to go into effect. According to Barron's, over 1,000 government programs - including the defense budget and Medicare are in line for "deep, automatic cuts."

In dealing with the fiscal cliff, U.S. lawmakers have a choice among three options, none of which are particularly attractive:

They can let the current policy scheduled for the beginning of 2013 – which features a number of tax increases and spending cuts that are expected to weigh heavily on growth and possibly drive the economy back into a recession – go into effect. The plus side: the deficit, as a percentage of GDP, would be cut in half.

They can cancel some or all of the scheduled tax increases and spending cuts, which would add to the deficit and increase the odds that the United States could face a crisis similar to that which is occurring in Europe. The flip side of this, of course, is that the United States' debt will continue to grow.

They could take a middle course, opting for an approach that would address the budget issues to a limited extent, but that would have a more modest impact on growth.
Can a Compromise be Reached?

The oncoming fiscal cliff is a concern for investors since the highly partisan nature of the current political environment could make a compromise difficult to reach. This problem isn’t new, after all: lawmakers have had three years to address this issue, but Congress – mired in political gridlock – has largely put off the search for a solution rather than seeking to solve the problem directly. Republicans want to cut spending and avoid raising taxes, while Democrats are looking for a combination of spending cuts and tax increases. Although both parties want to avoid the fiscal cliff, compromise is seen as being difficult to achieve – particularly in an election year. The most likely result, in any event, is that the problem will linger at least until after the election, and there's a strong possibility that Congress won't act until the eleventh hour.

The most likely result is another set of stop-gap measures that would delay a more permanent policy change until 2013 or later. The election will almost certainly have an impact on the direction of future policy, particularly if one party earns a decisive victory. Nevertheless, the non-partisan Congressional Budget Office (CBO) estimates that if Congress takes the middle ground – extending the Bush-era tax cuts but cancelling the automatic spending cuts – the result, in the short term, would be modest growth but no major economic hit.

Possible Effects of the Fiscal Cliff

If the current laws slated for 2013 go into effect, the impact on the economy could be dramatic. While the combination of higher taxes and spending cuts would reduce the deficit by an estimated $560 billion, the CBO estimates that the policies set to go into effect would cut gross domestic product (GDP) by four percentage points in 2013, sending the economy into a recession (i.e., negative growth). At the same time, it predicts unemployment would rise by almost a full percentage point, with a loss of about two million jobs. A Wall St. Journal article from May 16, 2012 estimates the following impact in dollar terms: “In all, according to an analysis by J.P. Morgan economist Michael Feroli, $280 billion would be pulled out of the economy by the sunsetting of the Bush tax cuts; $125 million from the expiration of the Obama payroll-tax holiday; $40 million from the expiration of emergency unemployment benefits; and $98 billion from Budget Control Act spending cuts. In all, the tax increases and spending cuts make up about 3.5% of GDP, with the Bush tax cuts making up about half of that, according to the J.P. Morgan report.” Amid an already-fragile recovery and elevated unemployment, the economy is not in a position to avoid this type of shock.

The cost of indecision is likely to have an effect on the economy before 2013 even begins. The CBO anticipates that a lack of resolution will cause households and businesses to begin changing their spending in anticipation of the changes, possible reducing GDP by a full half-percent in the second half of 2012.
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伊勢平次郎

Author:伊勢平次郎
Author: Nobuyoshi Ozaki

A long forty six years have passed since I stepped on to American soil. I have had various odd jobs in the past until I recently retired. Examples include working with Steven Spielberg as assistant director in a film called "1941." I was supervisor and later became Public Relation representative for Toyota Group - USA. My last occupation was a Senior Research analyst working in Silicone Valley for a major news paper from Tokyo, Japan. My spouse, Christine is a flight attendant, traveling often to the Middle East and Africa. We have spent three quarters of our life together as world adventurers. This photo was taken in Argentina. We now live in swampy Louisiana.

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