Does this mean
we're about to see a bold package of ideas from the White House for
spurring growth of jobs and wages? Sadly, it doesn't seem so.
Obama
says he's interested in exploring with Republicans extending some of
the measures that were part of that tax-cut package "to make sure that
we get this recovery up and running in a robust way."
Accordingly,
the White House is mulling a temporary cut in the payroll taxes
businesses pay on wages. White House advisers figure this may appeal to
Republican lawmakers who have been discussing the same idea. It would,
in essence, match the 2 percent reduction in employee contributions to
payroll taxes this year, enacted as part of the deal to extend the Bush
tax cuts.
Other ideas under consideration at the White House
include a corporate tax cut, accompanied by the closing of some
corporate tax loopholes.
Can we get real for a moment?
Businesses don't need more financial incentives. They're already sitting
on a vast cash horde estimated to be upwards of $1.6 trillion. Besides,
large and middle-sized companies are having no difficulty getting loans
at bargain-basement rates, courtesy of the Fed.
In consequence,
businesses are already spending as much as they can justify
economically. Almost two-thirds of the measly growth in the economy so
far this year has come from businesses rebuilding their inventories. But
without more consumer spending, businesses won't spend more. A robust
economy can't be built on inventory replacements.
The problem
isn't on the supply side. It's on the demand side. Businesses are
reluctant to spend more and create more jobs because there aren't enough
consumers out there able and willing to buy what businesses have to
sell.
The reason consumers aren't buying is because consumers'
paychecks are dropping, adjusted for inflation. And job losses are
mounting. The 83,000 new private-sector jobs created in May represent a
net loss because 125,000 jobs are needed merely to keep up with an
expanding labor force. The number of Americans filing new claims for
unemployment benefits edged higher last week.
At the same time,
many Americans are falling behind in their mortgage payments. And
housing prices continue to drop -- making homeowners feel even poorer.
Close
to 60 percent of the half-trillion drop in household debt since the
depth of recession has been defaults rather than repayments. This makes
it harder for people who'd like to enter the housing market to get new
mortgage loans, or for anyone to refinance. Other consumer debt burdens
are rising. On Tuesday the Fed reported consumer credit outstanding
rose in April -- mostly from record-high levels of student-loan debt and
an up-tick in credit-card borrowing due to food and gas price increases
outpacing wage gains.
All this translates into a continuing
crisis on the demand side. Consumers can't and won't buy more. Between
January and March, sales grew just .15 percent around the country --
perilously close to no growth at all. May sales look even worse. Chain
stores are reporting weaker sales. Consumer confidence has dropped
sharply.
How to get jobs back, then? By reigniting demand. Put
more money in consumers' pockets and help them renegotiate their
mortgage loans.
For example: Enlarge the payroll tax break for
workers -- not just for employers. Exempt the first $20,000 of income
from payroll taxes for a year. Create a WPA for the long-term
unemployed. Allow distressed homeowners to declare bankruptcy on their
primary residences, thereby giving them more clout with lenders to
reorganize their mortgage loans. Lend federal money to (rather than bail
out) states and cities that are now firing platoons of teachers, fire
fighters, and other workers because state and local coffers are empty.
But
we're not hearing any of these sorts of demand-side solutions from the
White House. In seeking Republican votes, Obama is putting forth
Republican supply-side ideas -- lowering the employer costs of hiring,
cutting corporate taxes -- that have nothing to do with this demand-side
crisis. He may attract some Republican votes for these, but what's the
point if they're irrelevant to the real problem?
The President's
putative embrace of the false notion that businesses need more
financial incentives in order to hire also risks giving legitimacy to
other Republican supply-side nostrums being pushed by House Republicans
and GOP presidential aspirants. On Tuesday, Tim Pawlenty called for
lower taxes on corporations (down to 15 percent from the current 35
percent), and lower taxes on the rich (to 25 percent from the current
35). Newt Gingrich wants to lower corporate income taxes to 12.5 percent
and eliminate the estate tax altogether. And so on.
Better that the President advance ideas that work, and go to battle over them.
Supply-side economics doesn't work. It's been tried for 30 years,
to no avail. And now, when our continuing economic crisis is so
palpably being driven by inadequate demand, it's more bogus than ever.
The last thing we need is for the President to go over to the supply side.
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