Jobs, economics and politics

"It's the economy, stupid," was the advice given by James Carville when he was campaign strategist for Bill Clinton's 1992 presidential campaign. Despite all the controversy over what Donald Trump might say each week or what Hillary Clinton's emails might reveal, most Americans are more concerned about what a future president will do to improve the economy and create new jobs.

During this campaign, the economic issues most discussed have been immigration and trade agreements and their impact on jobs. Will the next president make a difference?

Despite all the debate over economic issues, presidents don't have a great deal of power over the economy, especially if they cannot get Congress to cooperate.

On their first day in office, presidents inherit an economy that may be growing or shrinking. They also inherit a national debt, which they cannot make disappear, despite Trump's willingness to use bankruptcy courts to protect his assets. In the federal budget there are commitments such as interest payments, entitlements (like Social Security and Medicare), and defense, which cannot be changed without the cooperation of Congress no matter who is elected. Politically, it is almost impossible to make anything more than incremental changes in federal spending or taxes.

President Obama, for example, became president during the worst recession since the Great Depression. During a recession, mainstream economic theory recommends that the federal government run deficits by spending money on infrastructure and other programs that stimulate demand and create jobs. But since the Bush Administration had failed to run surpluses, as economic theory recommends in good times, Obama's ability to stimulate the economy through deficit spending was limited. The Bush Administration went to war, cut taxes, and expanded entitlements all at the same time rather than run surpluses. As a result, the country was not ready for bigger deficits, thus the recovery was slower than it should have been especially since Obama got little cooperation from Republicans in Congress.

The recovery has been especially hard on blue collar jobs in construction and factories. The real estate bubble burst, leaving people with mortgages they could not pay, which sometimes exceed the current value of their houses. Both homeowners and banks suffered, and banks became wary of making new loans. The result was fewer construction jobs.

Factories that were barely surviving foreign competition when times were prosperous had to close because of decreased demand during the recession. These jobs would not come back. True, high value manufacturing exist, but these employ fewer people who must have high skills.

Trump has blamed our jobs problem on immigration and trade deals like the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership (TPP). Clinton has also become critical of trade deals that she supported in the past, but she does still support comprehensive immigration reform. 

For Catholic social teaching, immigration is not simply an economic issue, it also is a humanitarian issue that affects people and families. For this column, I will put that aside and just look at the economic side.

Those supporting immigration note that those with high skills entering the country actually help create new jobs rather than taking them away from local residents.

This "brain drain" is good for the American economy, they argue. On the other hand, those with low skills are taking jobs that Americans are not willing to do.

Critics counter that immigration suppresses wages. The reason Americans are unwilling to do low skill jobs is because of the low wages. Without immigration, employers would be forced to raise wages to attract workers. What they don't say, of course, is that these higher wages might lead to higher prices for consumers unless the employer can absorb the increased cost. Higher prices might also mean more problems with foreign competition.

Catholic social teaching says we should judge trade agreements not simply by what they do for America but also by what they do for the rest of the world, especially poor countries. Again, I will set that aside and simply look at their impact on the United States.

Both Clinton and Trump criticize trade deals as bad for the U.S. economy by allowing cheap imports to put American factories out of business, and thus hurting blue collar workers. What they don't say is that these cheap imports are bought by American low- and middle-class consumers who would have to pay a lot more for goods if imports were restricted. Some economists believe that the reason the economy has gone on for so long without inflation is because of the pressure from imports keeping prices down.

Supporters of trade agreements argue that they promote the sale of American agricultural products and American services abroad. Their focus is on promoting American businesses with good white-collar jobs. What they don't say is that they have given up on low-skill factory jobs in America.

I have friends whom I respect arguing on both sides of the trade debate. What is clear is that globalization has happened and there is no turning back. But we need to be honest in acknowledging that there are winners and losers in every trade deal and that there is a government responsibility to help the losers to transition into other employment. Every trade deal must include generous funds for retraining, relocation, and new employment for those who will suffer as a result of the deal.

While everyone else is talking about immigration and trade, I would like to direct our attention to taxes and their impact on employment.

It would be difficult to design a tax program that was worse for employment than the one we currently have.

First, every time an employer hires a new employee, the federal government hits the employer and the employee with a tax of 6.2 percent for Social Security and 1.45 percent for Medicare each. Thus the government is penalizing employers whenever they hire someone. This is Economics 101. The government is increasing the cost of employing workers.

Meanwhile, the government allows businesses to write off the cost of equipment faster than would be appropriate for normal accounting purposes. This accelerated depreciation and other tax breaks make it cheaper for businesses to buy equipment.

Accelerated depreciation, of course, is sold to the public as a job creator, but when taken together with employment taxes it is obvious that the government is making it more expensive to hire workers but cheaper to buy equipment.

Thus if a business is faced with a choice of spending $1 million for either equipment or workers to accomplish the same goal, the government will add $76,500 to the cost if the business chooses workers but will reduce the business' taxes if it chooses equipment. Some economists would argue that the cost is double that because they believe that the employer also bears the employee's share of these taxes.

For most businesses, this is an easy choice. They save money with equipment and don't have to deal with workers. Equipment does not talk back or form unions.

I am not a Luddite. I am not opposed to increasing productivity through equipment, but the business choice between labor and equipment should not be tilted in favor of equipment by the government. It should be a decision based on costs without government interference.

How would we pay for Social Security and Medicare without the tax on employees? One way would be through a value added tax similar to the VAT in Europe.

An even better way would be a carbon tax, which would also be good for the environment. Such a carbon tax could also be applied to imports so that the cost of transporting imports would increase. This would encourage consumers to buy local where transportation costs would be less.

No one is going to talk about these ideas in the presidential campaign because a VAT is easily condemned as a national sales tax, and a tax on carbon would raise the price of fuel. These proposals are still unacceptable to the American voters. Yes, these taxes would raise the price of consumption, but by eliminating the taxes on employment, we would increase jobs.

If we really want to do something about employment, we should first focus on what the government is currently doing to discourage employment. 

[Jesuit Fr. Thomas Reese is a senior analyst for NCR and author of Inside the Vatican: The Politics and Organization of the Catholic Church. His email address is treesesj@ncronline.org.]

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