Budget deal will expand unemployment
Forecasters expect the Labor Department to report that the economy added 155,000 jobs in December — substantially fewer than are needed to push unemployment down to acceptable levels.
The tax-and-spend package passed by the Senate and House provides little prospects 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 include the huge trade deficits with China and other Asian exporters.
On the supply side, increased business regulations, rising health care costs and mandates imposed by ObamaCare — along with higher taxes on small businesses — discourage investments that raise productivity and competitiveness and create jobs.
Higher Social Security payroll taxes already were rolled into growth projections for the new year. The budget deal raises about $40 billion to $50 billion annually from higher rates on family incomes above $450,000 but it also extends other spending programs that were set to expire, such as long-term unemployment benefits. Therefore, the new net impact on aggregate demand is not large.
On the supply side, higher taxes on small businesses will reduce returns on investment, which will slow capital spending and new hiring in 2013 and even more next year.
Small businesses now have more certainty — the assurance of more burdensome regulations, health care costs and taxes, and these will burden growth.
The economy must 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, along with 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.
Labor force participation is lower today than when President Obama took office and the recovery began. Factoring in discouraged adults and others working part-time who would prefer full-time work, the unemployment rate is 14.4 percent.
Although Congress has postponed sequestration, the posture taken by the president in negotiations with House Speaker John Boehner and by Vice President Joe Biden in negotiations with Senate Minority Leader Mitch McConnell indicates the administration and Democrat 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 favor growth, instead of the United States, where higher taxes, spending and deficits are out of control.
Peter Morici is a professor at the Smith School of Business, University of Maryland, and former chief economist at the U.S. International Trade Commission.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Steelers’ Roethlisberger hurting after big hit
- Pennsylvania fiscal officers say budget in dire situation
- New approach on offense has Pirates in playoff contention this season
- Former Pirates pitcher Tekulve doing well after heart transplant
- Official: Suspect identified in police ambush
- Steelers’ Brown combats disruptive defensive ploys
- Pitt football coach Chryst refutes analyst Wannstedt’s opinion
- Crosby appreciates his relationship with Penguins fans
- Pennsylvania Senator wants to arm school teachers, employees
- IUP student charged in stabbing attack
- Utah man admits role in plan to ship 239 pounds of marijuana out of New Castle