American Voters Must Choose

Politics matter. Not whether Hillary Clinton really shed tears before key primaries. Not whether John McCain's famous temper might erupt, scuppering his chances of getting into the White House. And not whether Barack Obama can revive Camelot, and find a place in America's future for the aging Kennedy clan.

Only two things really matter, and they matter a great deal. The first is foreign policy. The lines are clearly drawn. McCain would continue what he sees as a long war against terrorism, until it is won. Obama or Clinton would pull our troops out of Iraq immediately and rely on a series of conversations with the likes of Iran's president and the Tal-ban to produce peace for our time.

The fiscal and domestic policy consequences of these differences cannot be overestimated. The war in Iraq is now costing $10 billion a month, up from $4 billion in 2004, due to the rising costs of fuel, food, protective gear and pay-offs to Sunni fighters. McCain, who last week said that he did not think Britain's troop pull-out from Iraq "was a good idea", would hold down domestic spending to fund the war. The Democrats would divert defence funds to increasing the scope and size of domestic programmes.

These differences over foreign policy have an enormous impact on domestic policy, as the Democrats' reaction last week to President George Bush's final budget makes clear. This was the first-ever budget to be submitted electronically – no trees sacrificed, no tons of paper to be pulped. Good thing, since the budget was labelled by the Democrats as DOA – dead on arrival.

Bush's $3.1 trillion budget projects a near-record deficit ($401 billion, almost reaching the politically unpalatable 3% of GDP) for the coming fiscal year, and a surplus in 2012. But Bush has included only enough money to fund the wars in Iraq and Afghanistan from the start of the fiscal year on October 1 until after the next president is inaugurated. The projected surplus assumes that Congress will go along with cutting or eliminating some 151 domestic programmes – which it won't. It ducks the question of reforming entitlement programmes, the major domestic spending items; fails to cope with the impending crisis created by the Alternative Minimum Tax (AMT), designed to nab tax-avoiding millionaires but now ensnaring middle-income families; and assumes that the Bush tax cuts will be made permanent when they expire in 2010, which they won't if the Democratic Congress has its way. A realistic guide to America's future priorities the Bush budget is not.

But the reaction to it provides an indication of just how important the 2008 elections will be. McCain supports extension of the Bush tax cuts, and the president's plan to rein in domestic spending rather than short-change the military. He also hopes to find billions by cutting "waste". Clinton and Obama want to allow the Bush tax cuts to expire, in effect raising taxes on the "rich", and cut defence spending.

Neither an end of waste nor taxes on the rich come close to providing the money needed to plug the hole in the budget created by rising healthcare costs, much less to putting the social security (pension) and other programmes on a sound financial basis. Still, the differences between the parties' prospective candidates tells us something about their priorities: that a Republican president will attempt somehow to cut domestic spending and hold the line on taxes, while Clinton and Obama plan to increase domestic spending on benefits programmes and on infrastructure, funding the increase by cutting the military and raising taxes on dividends, capital gains and high earners.

Obama says the money we are spending to fight the Iraq war "could be going right here . . . to lay broadband lines in rural communities, to put kids back to school". Clinton's plans include increased subsidies for college tuition, universal preschool care, more money for New Orleans, and $1m for a Woodstock museum to serve those who were at that 1969 festival, but can't remember being there.

Healthcare remains another important point of difference. And here we have a three-way split. McCain would attempt to bring down costs and make insurance more affordable by stimulating competition and cracking down on the big pharmaceutical companies that he believes overcharge patients. Obama has some as-yet-unspecified plan to make insurance more accessible to those who want it. Clinton, clinging to the approach that proved politically disastrous when she headed her husband's healthcare taskforce, would make insurance compulsory, even for young workers who neither need nor want it, and deduct the cost from their pay cheques if necessary.

Enough detail to make the broad point. This is one of the few elections that create for Americans what Ronald Reagan once called a time for choosing. In 1932 we elected Franklin Roosevelt and put paid to the notion that "that government is best which governs least". In 1980 we elected Reagan, a Roosevelt-Democrat turned Republican, and put paid to the conservative war against Roosevelt's New Deal.

This year we will have to choose between a man who is confident that America can – indeed, must – play a leading role in maintaining world order, even at the expense of domestic spending, and a man or woman who believes that America must concentrate its resources on the home front, while relying more on international institutions to keep the world's democracies safe from its enemies. Little wonder that this American election has attracted so much attention in Britain and around the world. What happens in America won't stay in America.