US Congress Struggles To Define Economic Woes Before Fixing Them January 23, 2007Posted by notapundit in Congress, Politics, US News.
WASHINGTON (Dow Jones)–Before one of Congress’s key tax-writing panels, the House Ways and Means Committee, can begin any work on reassessing the nation’s tax laws, it needs to figure out what’s broken in the economy and how to fix it.
With that in mind, the panel, under the new leadership of Rep. Charles Rangel, D-N.Y., convened experts Tuesday to address the state of the U.S. economy, which, by many traditional measures at least, doesn’t seem to need a whole lot of fixing.
Gross domestic product likely advanced around 3% in 2006, near the economy’s long-run potential, and is expected to grow near that rate again in 2007. Equity markets, corporate profits and homeownership, meanwhile, are all at or near record highs, and unemployment is close to a five-year low.
“The economy in the aggregate is doing well,” said Mark Zandi, chief economist of Moody’s Economy.com, at the Ways and Means hearing.
“Respectable” is how AFL-CIO Treasurer Richard Trumka, whose union movement has suffered the loss of millions of manufacturing jobs, described recent growth figures.
Aggregate data appear “very rosy,” said Howard University Professor William Spriggs.
“The economy remains fundamentally sound and it appears the (Federal Reserve) has achieved the proverbial soft-landing,” is how U.S. Chamber of Commerce Chief Economist Martin Regalia summed up the state of play to lawmakers.
Still, they weren’t exchanging high-fives.
After all, the panelists pointed out that beneath the headline numbers that Americans have grown accustomed to as gauges of economic well-being, lie more troubling indicators like a widening gap between income groups, serious long-term budget issues and a yawning trade deficit.
“Lower and middle incomes have not kept up with the expansion,” said Zandi, citing the “uneven” distribution of the gains from globalization.
“This recovery has also seen a fall in inflation-adjusted median income for working-age families, poverty rates rise, the share of private-sector workers covered by employer-provided health insurance fall and the share of private-sector workers covered by employer-provided pension plans fall,” said Spriggs.
The challenge for Rangel and his colleagues will be to redefine how the public looks at the economy, and elevate issues like income inequality to the forefront of the policy debate before they can look at ways to address them.
Yet the discussion between experts and lawmakers highlighted a problem that will likely vex taxwriters over the next two years: There’s no easy fix to problems like inequality, budget deficits and trade imbalances that took decades to grow.
That’s not always the case with economic barometers like gross domestic product, unemployment and asset markets like equities and housing. If GDP slows or unemployment rises or housing tanks, Congress can cut taxes or boost spending in the short term, as they did following the 2001 recession. They can also count on an assist from the Federal Reserve, which aided the current recovery by cutting short-term rates to five-decade lows in 2003.
But it’s hard for the Fed, in the short run at least, to have much of an impact on how income is distributed or to stem the dislocation of manufacturing jobs overseas.
Congress is better equipped in those areas. For instance, a $2.10 hike in the minimum wage to $7.25 an hour already passed by the House of Representatives would likely improve incomes among low-wage earners, as would cutting tax rates and expanding tax credits for low-income households. And more training programs could help workers displaced by international trade gain the skills to find new jobs.
Yet looming in the backdrop is what many experts, including Fed Chairman Ben Bernanke, have identified as a key threat to prosperity in coming decades: the explosive growth of entitlement programs like Social Security and Medicare that, if left unchecked, will drastically limit lawmakers’ ability to deal with other problems like income inequality.
And, as Tuesday’s hearing suggested, even if the money’s there, consensus is very difficult to find on which policies work best against income inequality and job displacement.
Zandi, for instance, argued that it is unwise to use tax policy to address the income inequalities and job displacement created by globalization, and that public spending is better.
On the other hand, Trumka said eliminating incentives in the tax code that he said encourage job outsourcing overseas is the way to go, as is a “strategic pause” on new trade agreements.
John Diamond, tax policy expert at the James A. Baker III Institute for Public Policy at Rice University, thinks a good way to spur manufacturing jobs here in an age of heightened global competition is to cut corporate taxes.
Rangel said that in addition to Congressional hearings, he’ll convene forums to talk “about winners and losers” in the global economy.
By Brian Blackstone; Dow Jones Newswires