Special to The Sun
In the end Congress did most of what it needed to do to stave off a recession (probably) for now. For some reason though, there are those walking the halls of Congress intent on making sure that a recession comes this year.
In the waning hours of the 112th Congress, the House of Representatives approved a compromise bill hammered about in the U.S. Senate helping taxpayers avert a significant income tax increase. The measure, which has since been signed by President Obama, will permanently extend the Bush income tax cuts for 98 percent of Americans while postponing mandatory spending cuts for another two months. Those income tax cuts were slated to expire on Jan. 1 unless Congress acted. While the measure had overwhelming bipartisan support in the U.S. Senate, the measure only passed the House due to support from House Democrats as most House Republicans opposed the deal including local Congressman James Lankford.
Interestingly, it took House Democrats, a Democrat-controlled Senate and a Democrat President to pass legislation averting a massive tax increase.
Of course, tax cuts aren’t free. According to the Congressional Budget Office the law will increase the national debt by nearly $4 trillion in the next 10 years, mostly from extending the 2001 and 2003 tax cuts. There is some additional spending in the law, mostly for extended unemployment insurance payments (which Congress typically extends during periods of high unemployment like today) and the extension of several tax credits (which count not as a tax cut but as a spending increase). However, the bulk of the impact on the debt comes from the tax cuts.
Of course, eventually Congress must find ways to reduce our debt as a trillion dollar annual deficit is not sustainable. Since during the last few years, in response to the economic crisis and terrorist threats, government spending has risen, it is reasonable for government spending to decline eventually. Furthermore, since during the last few years taxes have been at their lowest rate (as a percentage of the economy) in 50 years, it is also reasonable that taxes eventually will have to rise. Finally, since in the long-run Medicare and Social Security spending will far outpace revenues, it is reasonable that these two entitlement programs eventually will need to be reformed.
These things must happen eventually. And the quicker we start planning for these the better. But while our growing national debt is a concern, it is not our most pressing economic concern — unemployment is.
According to figures released by the U.S. Bureau of Labor Statistics this week, the U.S. unemployment rate ended the year at 7.8 percent. While this is much better than the 10.0 percent unemployment rate registered in 2009 at the worst of the Great Recession, it is still not low enough. While the economy has added 5.3 million private-sector jobs the last 34 months, too many Americans still cannot find the job they need. While the economy continues to recover, it has still not fully recovered.
We could, if we wanted, balance the federal budget next year. The solution requires simple arithmetic — we just need to raise taxes and cut government spending. However, economic science tells us (and historical evidence shows us) that both of these actions will contract the economy and make unemployment worse. In short, solving our long-term debt problem exacerbates short-term unemployment problem.
In short, with 7.8 percent unemployment now is not the time to raise taxes on anyone or to cut any government spending.
Instead of trying to solve our debt problem this year, Congress should focus on reducing unemployment first. We know what needs to be done. According to independent forecasting firms, if Congress had passed President Obama’s American Jobs Act last year, one million fewer people would be unemployed today. Yes, it would have required a short-term increase in our national debt to address this problem but it would make a significant difference in the health of our economy and the happiness of our families. In a few years once our economy returns to firmer footing, we can then turn our attention to solving our long-term problems.
In arguing for his preferred economic policy, Congressman Lankford often has said, “Washington does not have a revenue problem, it has a spending problem.” It’s obvious though, that right now America has an unemployment problem. So, here’s a novel idea for Congress — let’s solve today’s problem first.
MICKEY HEPNER is the dean of the College of Business Administration at the University of Central Oklahoma. Hepner serves on the Executive Committee of the Board of Directors for The Oklahoma Academy.