Save 75% - Only $49.99 for 1 full year! digitalPLUS subscription offer ends 12/1
NewsOpinionOp-Eds

Budget deal won't fix unemployment

BusinessUnemployment BenefitsHealth InsuranceUnemployment and LayoffsSmall BusinessesPersonal Income

Friday, forecasters expect the Labor Department to report the economy added 155,000 jobs in December — substantially less than is needed to pull unemployment down to acceptable levels.

The tax and spending package passed by the Senate and House provides little prospect of improvement, as the U.S. economy continues to suffer from insufficient demand and will continue growing at a subpar 2 percent a year.

Factors contributing to weak demand and slow jobs creation are the huge trade deficits with China and other Asian exporters, as well as on oil. However, on the supply side, increased business regulations, rising health care costs and mandates imposed by Obamacare — and now higher taxes on small businesses — discourage investments that raise productivity and competitiveness and create jobs.

Higher Social Security payroll taxes were already rolled into growth projections for the New Year. The budget deal raises about $40 billion to $50 billion annually from higher income tax rates on family incomes above $450,000 but also extends other spending programs that were set to expire — for example, long-term unemployment benefits. Therefore, the new net impact on aggregate demand is not large.

Higher taxes on small businesses will reduce returns on investment, and this will slow capital spending and new hiring in 2013 and even more next year. At least small businesses now have more certainty — the assurance of more burdensome regulations, health care costs and taxes. All of this will hinder growth.

The economy would have to add more than 356,000 jobs each month for three years to lower unemployment to 6 percent, and that is not likely with current policies. It would require growth in the range of 4 percent to 5 percent. Without better trade, energy and regulatory policies and lower health care costs and taxes on small businesses, that is simply not going to happen.

Most analysts see the unemployment rate inching up to 7.8 percent, while a few see it remaining steady. The wild card is the number of adults actually working or seeking jobs — the measure of the labor force used to calculate the unemployment rate.

Labor force participation is lower today than when President Barack Obama took office and the recovery began; factoring in discouraged adults and others working part-time who would prefer full-time work, the real rate is 14.4 percent.

Congress has postponed the major budgets cuts known as "sequestration." But the posture taken by the president in negotiations with House Speaker John Boehner and by Vice President Joe Biden in discussions with Senate Minority Leader Mitch McConnell indicates the administration and Democratic lawmakers have little interest in substantially curbing health care spending and retirement benefits.

The likelihood of a downgrade in the U.S. credit rating by Moody's is increasing, and this will weigh on the investment plans of many U.S. multinational corporations — they invest and create jobs in Asia, where national policies better favor growth, instead of the United States, where higher taxes, spending and deficits are out of control.

Is a bad deal better than no deal at all? We're all about to find out.

Peter Morici, an economist and professor at the University of Maryland's Robert H. Smith School of Business, is a widely published columnist. His email is pmorici@rhsmith.umd.edu. Twitter: @pmorici1.

  • Text NEWS to 70701 to get Baltimore Sun local news text alerts
  • Copyright © 2014, The Baltimore Sun
    Related Content
    BusinessUnemployment BenefitsHealth InsuranceUnemployment and LayoffsSmall BusinessesPersonal Income
    • 'OUR Walmart' is a union front
      'OUR Walmart' is a union front

      The Friday after Thanksgiving, also known as Black Friday, is reliably one of the busiest shopping days of the year. And, just as reliably, you can expect a group called OUR Walmart, which is financed by the United Food and Commercial Workers union (UFCW), to attempt to disrupt the day with...

    • Cold War all over again?
      Cold War all over again?

      Reading the latest headlines transports me into my childhood, which was spent in a country that no longer exists. I grew up in St. Petersburg, then in the USSR, in the mid '70s and '80s. The Cold War was in full swing. The news stories that involve Russia now are almost identical to the ones...

    • Better management of manure long overdue
      Better management of manure long overdue

      We commend Gov. Martin O'Malley's decision to proceed with science-based management requirements to reduce the significant flow of Chesapeake Bay-choking phosphorus from farmland already saturated with an excess of the nutrient. We fully support the proposal and urge the new governor and...

    • Report concludes Maryland can safely 'frack'
      Report concludes Maryland can safely 'frack'

      Maryland agencies have concluded that natural gas production from the Marcellus Shale by hydraulic fracturing (fracking) can be accomplished without unacceptable risks, but only if a suite of best practices is required, monitoring and inspections are rigorous, and enforcement is ironclad. The...

    • Feed a 'Silent Guest' this Thanksgiving
      Feed a 'Silent Guest' this Thanksgiving

      This Thanksgiving put an extra chair at your table and make room for a "silent guest." That guest can be one of the world's 805 million hungry people.

    • Man's (and woman's) best friend
      Man's (and woman's) best friend

      My friends and I have been saying for years that when it comes to genuine caring, to loyalty and to good judgment, many dogs actually behave better than many people. For example, one cannot buy a dog's love and loyalty with toys and treats, but, sadly, there are some people who can be bought...

    Comments
    Loading