Political opportunism and economic stagnation

Quite pos­si­bly never in our nation’s his­tory have Wash­ing­ton politi­cians been more fun­da­men­tally divided about the future direc­tion of spend­ing and tax­a­tion deci­sions. Some­times, it would seem, polit­i­cal grid­lock can be a desir­able out­come, since Con­gress seems almost dev­il­ishly capa­ble of wreak­ing havoc with our nation’s econ­omy, given the some­times short-sighted fis­cal pol­icy actions enacted. At the present time, how­ever, the polit­i­cal gridlock/opportunism/cowardice (pick your favorite descrip­tive term) that infects law­mak­ers is par­tic­u­larly destruc­tive given the mon­u­men­tal issues that must be addressed over the next 13 months.

Of most imme­di­ate con­cern to indi­vid­ual Amer­i­cans — and to the busi­ness com­mu­nity that needs some clar­ity of direc­tion as they attempt to plan for 2012 oper­a­tions — are a few major tax/spending deci­sions. The two get­ting the most atten­tion are the Social Secu­rity tax rate that will apply in 2012 and any exten­sions in unem­ploy­ment com­pen­sa­tion ben­e­fits that may occur.

In the first instance, peo­ple who pay into the Social Secu­rity Sys­tem in 2011 are get­ting a 2 per­cent­age point reduc­tion in the typ­i­cal tax rate, down from 6.2 to 4.2 per­cent­age points. Ear­lier this fall the Obama admin­is­tra­tion, as part of its “deficit reduc­tion” (not “stim­u­lus”) effort indi­cated a desire to give an even big­ger break in 2012, drop­ping the tax rate for both peo­ple and busi­nesses to 3.1 per­cent­age points to put more after-tax income into everyone’s pock­ets. Sadly, the whole issue was sup­pos­edly going to be addressed by the Con­gres­sional super com­mit­tee, which was charged with find­ing a min­i­mum of $1.2 tril­lion is deficit/debt reduc­tion over the next 10 years.

Given that the evenly divided Democrat/Republican super com­mit­tee admit­ted defeat early last week, they failed to address the Social Secu­rity issue. As a result, within a few short weeks, it is pos­si­ble that the Social Secu­rity tax rate could rise to its nor­mal 6.2 per­cent. Then again, it could remain sta­ble at 4.2 per­cent. Or it could fall to 3.1 per­cent, and extend to the busi­ness com­mu­nity and what they owe Uncle Sam.

Now ask your­self, if you were a busi­nessper­son try­ing to plan for next year’s activ­i­ties — includ­ing hir­ing deci­sions — would you take a chance that one of these three out­comes is most prob­a­ble, or would you sim­ply defer any risky deci­sions (includ­ing poten­tial new hires) given the uncer­tainty cre­ated by Con­gres­sional dithering?

And the issues to be addressed by the end of 2011 do not end there, with major deci­sions required about unem­ployed work­ers’ con­tin­ued access to extended unem­ploy­ment insur­ance ben­e­fits, the next “fix” asso­ci­ated with the Alter­na­tive Min­i­mum Tax sys­tem (which might neg­a­tively impact 15-plus mil­lion Amer­i­cans in term of 2012 tax oblig­a­tions), the next exten­sion of the “doc­tor fix” needed to keep reim­burse­ments to pri­mary care physi­cians who accept Medicare patients from falling nearly 30 per­cent, and so on and so forth. Mon­strously impor­tant leg­is­la­tion that needs to be addressed by a Con­gress that seems hope­lessly deadlocked.

And by the end of 2012 another set of expir­ing issues must be addressed, with the final dis­po­si­tion of the Bush tax rate reduc­tions being the most sig­nif­i­cant. And mind you, this is not just about the tax rate paid by the wealth­i­est Amer­i­cans, but for all fam­i­lies at all income lev­els sub­ject to fed­eral income taxes.

And don’t for­get to throw into this unholy mix of unre­solved issues the Supreme Court rul­ing that will address the con­sti­tu­tion­al­ity of Oba­maCare and all of its asso­ci­ated mandates.

And finally, as if to demon­strate just how polit­i­cally toxic deci­sion mak­ing has appar­ently become, the Obama admin­is­tra­tion has put off a major deci­sion regard­ing the Key­stone XL pipeline which is (was?) sup­posed to trans­port Cana­dian oil sands from Alberta to the Gulf Coast of the U.S. so as to enhance America’s energy inde­pen­dence. Rather than giv­ing a thumbs up to the project– and thereby anger­ing envi­ron­men­tal­ists — or giv­ing it a thumbs down — and alien­at­ing the energy indus­try and some union offi­cials given the jobs that would likely be cre­ated — the pres­i­dent decided to “fur­ther eval­u­ate” the issue and put off a deci­sion until 2013 which, no doubt coin­ci­den­tally, just hap­pens to be after the next pres­i­den­tial elec­tion. In the mean­time, the Cana­di­ans have indi­cated they are look­ing for alter­na­tive mar­kets, includ­ing long-term con­tracts with the Chi­nese gov­ern­ment. If so, there goes some of America’s energy independence.

Given such crass polit­i­cal cal­cu­la­tions, our dys­func­tional gov­ern­ment may be insur­ing Amer­i­cans, at best, another year of eco­nomic drift and the stag­nate labor mar­ket such inde­ci­sion produces.

Dr. James New­ton serves as chief eco­nomic advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Nov 29 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.