Job growth the key to avoiding fiscal disaster

The media is absorbed now with trying to decide how close President Obama and House Republicans are to a deal that would avoid the “fiscal cliff” at the end of the year.

Republicans say they won’t do anything that raises tax rates on the rich, the position backed by Mitt Romney when he ran for president, but there are some signs the GOP may be backing down.

With the President building popular support for higher taxes on the rich and for economic stimulus by campaigning at rallies around the country, with the labor movement and its allies demanding jobs programs and no cuts in Medicare, Medicaid, or Social Security, and with polls showing all voters, even Republicans, opposed to the positions taken by House and Senate Republicans, it is no surprise that the GOP is cracking.

One of the clearest signs of that cracking came as Rep. Tom Cole, the GOP deputy whip and former chair of the National Republican Campaign Committee, this week urged fellow Republicans to agree “right now” to the Obama offer to extend the Bush cuts for the bottom 98 percent of taxpayers, knowing full well that doing so would doom Republican chances of extending the tax cuts for the rich.

There is no better sign that Cole’s was a Boehner-approved venture than Cole’s continued appearances all week on cable news shows, repeating his idea. He said on MSNBC that this would be an “early Christmas present” for voters. By coming out on Boehner’s “left,” Cole is providing the Speaker with the political cover he needs if he (Boehner) is to succeed in getting radical right wing Tea Partiers in Congress to back down.

Showing the strong hand held by Democrats, some Republican operatives are already spinning a GOP cave-in as a victory for their party. A tweet this week from Ari Fleischer, President Bush’s press secretary, read, “If President Obama extends the Bush tax cuts, even if just for 98 percent, it will be a big victory for Bush.”

All of this comes on top of Republicans running away from their once-sacred No Tax Hike Pledge to Grover Norquist.

“Our (Republican) leverage is not the tax rates, that’s actually the Democrats’ leverage,” Cole said on MSNBC. “Our leverage, in my view, is the spending cuts.”

Missing from the current fight in Washington over “spending cuts” and deficit reduction, however, is adequate discussion of the course of action that would most decisively solve the federal fiscal dilemma: The deficit will only go away, long term, to the extent that we grow our economy.

In their recent paper, Navigating the Fiscal Obstacle Course, Economic Policy Institute analysts Josh Bivens and Andrew Fieldhouse say that fixing taxes is only the first important step in solving the deficit problem.

Money brought in from the tax breaks should be combined not with budget cuts but with a massive job-creating stimulus program if we are serious about solving the long-term budget deficit.

EPI estimates, for example, that just half of the money brought in by ending the tax breaks on the rich would add two million jobs next year and reduce the ten-year budget deficit by $651 billion – quite a big chunk of the $4 trillion in red ink over the next ten years that the president and congressional lawmakers are bargaining about.

EPI says that, included in the budget deficit-busting stimulus, should be an extension of emergency federal jobless benefits.

Just the one step of giving $120 billion to states in direct fiscal aid from 2013 to 2015, by means of increased federal Medicaid funds and block grants, would boost real GDP growth by 0.4 percent and add a half-million jobs.

Investing $234 billion over the next ten years in surface transportation would, by itself, boost GDP growth by 0.2 percent and add more than a quarter of a million jobs.

Investing $55 billion in education for school modernization and rehiring laid off teachers would boost GDP by 0.3 percent and create more than 350,000 jobs.

Enacting a targeted refundable tax rebate for 2013 to lessen the impact of a Dec. 31, 2012 expiration of the payroll tax cut on lower and middle-income households would boost GDP by 0.4 percent and add more than half a million jobs.

Another idea in the same report is to make all income, including interest, dividends, and capital gains, subject to Social Security payroll taxes, thereby helping lower and middle income households and making Social Security solvent for at least the next 75 years.

While there may be room for debate regarding the specifics of many of these proposals they go in the direction the debate in Washington should be going in. While the solutions put forward by the GOP are clearly designed to benefit only the wealthy, the solutions put forward by many who say they are “compromisers” and “everyone has to sacrifice” also fail to solve the nation’s number one economic problem: the jobs deficit.

The same EPI report demonstrates clearly what would happen in a “compromise” scenario that involved letting the tax cuts for the rich expire, on the one hand, and by cutting government spending by half a trillion, forgetting about extension of jobless benefits, and extending the payroll tax cuts, on the other.

The budget deficit would decline ever so slightly, but the real deficit – the jobs deficit – would balloon as 1.36 million more people would lose their jobs due to the spending cuts. The nation would enter a new round of recession. None of that is the way to fix an economy.

Photo: President Obama speaks at the Rodon Group, which makes toys as K’NEX and Tinkertoys, Friday, Nov. 30, in Hatfield, Pa. The visit comes as the White House continues a week of public outreach efforts, while also attempting to negotiate a deal with congressional leaders. Susan Walsh/AP


John Wojcik
John Wojcik

John Wojcik is Editor-in-Chief of People's World. He joined the staff as Labor Editor in May 2007 after working as a union meat cutter in northern New Jersey. There, he served as a shop steward, as a member of a UFCW contract negotiating committee, and as an activist in the union's campaign to win public support for Wal-Mart workers. In the 1970s and '80s, he was a political action reporter for the Daily World, this newspaper's predecessor, and was active in electoral politics in Brooklyn, New York.