GOP ‘Wins’ Could Keep Unemployment Over 8 Percent
Policy + Politics

GOP ‘Wins’ Could Keep Unemployment Over 8 Percent

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With most economists projecting another year of sluggish economic growth, Republican hopefuls looking to reclaim the White House and both chambers of Congress are using every opportunity to blame President Obama for the anemic rebound from the worst economic downturn since the Great Depression.

“This America of long unemployment lines and small dreams is not the America you and I love,” frontrunner Mitt Romney told a New Hampshire audience in a major economic address earlier this week. “These troubled years are President Obama's legacy.”

In a major address to Washington’s Economic Club in September, House Speaker John Boehner, R-Ohio, tied the lack of job creation to the administration’s regulatory policies. "Job creators in America basically are on strike," he said. "My message to Washington today on their behalf: this isn't that hard. We need to liberate our economy from the shackles of Washington.”

The economic policies currently in place are largely the handiwork of the Republican majority in the House, not the majority of Senate Democrats.

Yet the economic policies currently in place are largely the handiwork of the Republican majority in the House, not the president or the non-filibuster-proof majority of Democrats in the Senate. Many economists predict that those policies, as they work their way through the economy next year, will ensure that Americans who trek to the polls next November will face an unemployment rate stuck above 8 percent, a level at which no incumbent president since Frank Delano Roosevelt has been re-elected.

“Fiscal policy in 2012 will be a substantial drag on the economy,” said Ryan Sweet, a senior economist at Moody’s Analytics. His group is projecting just 2.6 percent growth next year based on the assumption that the House agrees to extend the 2 percent payroll tax holiday, which now looks likely.

Republicans in Congress and those running for office in 2010 promised to get the great American jobs machine humming again by cutting spending, holding the line on taxes, and ending the Obama administration’s alleged regulatory reign of terror. And, as a careful review of their record by The Fiscal Times this week showed, they largely succeeded on those key elements of their “Pledge to America.”

  • Fiscal austerity. Government spending on discretionary programs has been cut substantially. According to an analysis by Bipartisan Policy Center budget experts, the 2012 budget, in inflation-adjusted dollars, will have eliminated all residues from the 2009 stimulus package and reduce spending in slightly below 2008 – the year before the recession and the level sought in the pledge.
  • No new taxes. With its agreement to extend the payroll tax break, the Republican majority in the House prevented all tax increases over the past 18 months. The president wanted higher taxes on couples earning over $250,000 a year as a way of reducing long-term deficits without huge cuts to government spending programs. He failed.
  • Minimizing new regulations. Most of health care reform’s rules don’t go into effect until 2014, and many are being scaled back. Reform of the financial sector has slowed to a crawl, and key leaders of regulatory agencies like the Centers for Medicare and Medicaid Services and the Consumer Financial Protection Bureau have either left government or never took office. Also, many new environmental rules have been delayed, vetoed or scaled back.

Republican moves toward immediate fiscal austerity came in the wake of their November 2010 election victory, where they seized a majority control in the House through calls for reining in the nation’s ballooning national debt, which recently rolled past $15 trillion. The president’s own commission on debt reduction, headed by Democrat Erskine Bowles and former Republican Senator Alan Simpson, a year ago called for $4 trillion in deficit reduction  over the next decade. But that bipartisan plan called for a 2-to-1 ratio of budget cuts to tax increases and wouldn’t have imposed the cuts until 2014.

While the president dithered (he wouldn’t offer his own plan until April), Republicans moved quickly to impose immediate fiscal austerity. They ignored the advice of Federal Reserve Board Chairman Benjamin Bernanke, who repeatedly implored Congress to pass a long-term plan for deficit reduction while doing nothing in the short run to undermine the economy. “Fiscal policymakers will need to continue to take into account the low level of economic activity and the still-fragile nature of the economy recovery,” Bernanke said in testimony on Capitol Hill last January.

The GOP's biggest “win” came in early August after the debt-ceiling standoff. The Budget Control Act included a ten-year reduction in spending of nearly $1 trillion starting in the current fiscal year with the prospect that there will be another $1.3 trillion in cuts starting in 2013. It’s already having an immediate impact on next year’s employment picture, which led Bernanke in September to tell a Minneapolis audience that “a substantial fiscal consolidation in the shorter term could add to the headwinds facing economic growth and hiring.”

The 2.1 million federal workforce, three-quarters of whom work outside the Washington, D.C. area, is now in its third year of a wage freeze with a hiring freeze in place at many agencies. That will lead to sharp drops in employment in the coming year due to the escalating number of federal employees opting for retirement. If employment levels return to 2008 levels, that could be a loss of 173,000 jobs, which would wipe out a month or two of private sector job gains at present rates.

There are already signs that the job cuts are underway. Federal employees at or near retirement age are fleeing for the exits, most of whom won’t be replaced. Most years, about 50,000 to 60,000 federal employees retire. Through the end of October, about 92,000 have already taken government pensions. “The numbers will be at an all-time high,” said Colleen Kelley, president of the National Treasury Employees Union, which represents workers at a handful of government agencies.

On the regulatory front, the administration vigorously contests claims that its policies have slowed the economy. “I don’t think there's good evidence in support of the proposition that it's regulatory burden or uncertainty that's causing the economy to grow more slowly than any of us would like,” Treasury Secretary Timothy Geithner said in October.

One area where the administration this week did take a tough stance – forcing coal-burning utilities to install scrubbers to clean up mercury and particulate pollution – the electricity and coal industries are claiming that it will cost thousands of jobs. But environmentalists say that the rules will create far more jobs at companies that design, build and install the new scrubbers. It will also provide cost-relief to firms throughout the economy through lower health care insurance premiums because of the health benefits.

Meanwhile, the benefits of the payroll tax cut extension could be substantially reduced after the Republicans won their demand for offsetting budget cuts, like including a fee on home mortgages financed through Fannie Mae and Freddie Mac. “We’re now talking about paying for stimulus,” said Lawrence Mishel, the executive director of the Economic Policy Institute. “That’s ridiculous. You don’t want to pay for a tax cut by shrinking deficits this year. It negates the stimulus.”