For People Who Think

September 10, 2010

“Interesting Times equal Nasty Politics” by Dan Lynch

Filed under: Uncategorized — 4peoplewhothink @ 4:47 pm

We’re in for an interesting two months and then an interesting two years.

If current trends hold, the Democrats will lose control of the House of Representatives in November, and they might manage to lose the U.S. Senate, too, although that’s less likely. And this would happen after they swept into power in 2008 with huge majorities.

How does a thing like this happen? How does a political party lose so much support so quickly?
Jobs. Nobody really believes that the Obama administration has done enough to help the 15 million people who are out of work in this country. Yes, things are better now than when Barack Obama took office. Every month, instead of losing 700,000 jobs, which was what happened during Obama’s first month in office, we’re gaining between 50,000 and 100,000. The problem is that we need to grow about 125,000 jobs a month just to keep up with population growth. What’s happening now isn’t as bad as things were in January, 2009, but it isn’t enough; it just isn’t. We still have 15 million people out of work and there’s no end in sight.

So, what can be done about it? There are several courses of action, available. The questions are which ones Obama will pursue and how likely is he to get any or all of them through Congress. For example:

1) The White House is floating a permanent extension of an expired tax credit that businesses can receive when they spend money on research and development in the United States. Both parties like this. It has been approved before by Congress and could be again before the midterm elections. The potential problem is that the Republicans, scenting blood in the water before November’s elections, might decide to filibuster every Democratic effort to pass economic legislation in the Senate. The real problem is that the R&D credit is only a modest effort. It would cost the government about $70 billion in tax revenue over the next decade, and wouldn’t help generate enough jobs to make a major dent in unemployment.

2) The country’s roads and bridges are falling down. In New York the state lists about 110 bridges that are distinctly shaky, but the White House is not considering another big stimulus bill after the $817 billion American Recovery and Reinvestment Act that Obama pushed through right after he took office. That’s because neither party in Congress wants to finance a second stimulus – not with all the concern over the growing federal deficit. That’s projected to hit projected to hit $1.47 trillion this year. (That’s with a “T.”) And the impact of any economic stimulus plan is directly proportional to how many dollars are spent in such an effort.

You can argue that, given the grim nature of the unemployment situation and the fact that the government can borrow now at rock-bottom rates, concern for reducing unemployment should trump concern over the national debt, but too many people now believe that the first stimulus was a bust even though statistics from the non-partisan Congressional Budget Office say it protected or added more than 3 million jobs in the second quarter of this year. In a democracy, though, what counts is what people believe, not necessarily what the facts might be.

3) You can expect Obama to take a page from the book of German Chancellor Angela Merkel and try to give private businesses tax breaks as hiring incentives. One plan would be to extend the Hiring Incentives to Restore Employment Act, which would give businesses a payroll tax exemption for hiring workers who have been out of a job for more than 60 days. This could help by encouraging businesses that have been sitting on cash — worried about how badly the economy is going to slow down this year — to start hiring. It’s also designed to cut into the problem of the long-term unemployed. But you can expect a big fight over doing that or offering a temporary, across-the-board “holiday” from the payroll taxes that both employees and employers pay to help cover Social Security and Medicare costs. The real problem with either idea is the price tag – maybe as high as several hundred billion dollars per year. Another major problem is that a payroll tax holiday would do nothing to spur consumer demand, which is distinctly pallid. Businesses won’t hire, tax credit or no, if they continue to believe that there’ll be no market for their goods and services.

4) Figure also that Obama will lift another Merkel plan – tax rebates. The idea would be to simply send money back to the struggling middle class, through a fresh round of modest tax rebate checks. Not a bad plan. It would get people back into the stores buying stuff, which, in turn, would encourage companies that make that stuff to hire more workers to make more stuff. The American economy is 70 per cent consumer spending. The potential problem is that vast numbers of people are scared. They’re deeply in debt and are slowly paying it off. Give them more money, and they’re likely to use it to pay off more debt. Paying off debt does not stimulate consumption.

5) One of the real issues for Obama and for Congress will be what to do with the Bush tax cuts set to expire on Dec. 31. Both parties seem now to agree on extending tax cuts for individuals making less than $200,000 and households earning less than $250,000. You want to keep those tax cuts in place for middle- and upper-middle-class taxpayers because much of that the money goes into the economy through consumer spending. But Obama wants to let the top bracket cuts for the wealthiest Americans expire to help reduce the deficit. Those people, he argues, are already spending what they want and will continue to do so without extending their tax cuts.

So, for the next two months and then for the next two years, expect big fights in Washington over all these matters and more. And, regardless of what happens this November, expect a nasty, nasty 2012 presidential election unless more people manage to find jobs in this dismal economy.

Advertisements

Leave a Comment »

No comments yet.

RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at WordPress.com.

%d bloggers like this: