Economists - Both Bush and Kerry jobs plans fall short
Wednesday, October 13, 2004
WASHINGTON -- President Bush says his economic policies, including billions of dollars in tax cuts, are helping to create new jobs. But not the millions he promised. Democratic challenger John Kerry says 10 million new jobs would be added in his first term. Don't bet on that either.
Economists say both candidates' plans fall short in combating the problems that are impeding job growth: skyrocketing budget and trade deficits, and soaring costs for health care, oil and gas.
The centerpiece of Bush's job creation plan is making permanent his nearly $1.9 trillion, 10-year tax cuts. He also says he wants to restructure and simplify the tax code, give tax breaks to encourage private investment in lower-income communities, reduce government regulation on businesses, restrain federal spending, limit frivolous lawsuits and expand energy exploration, production and capacity.
Kerry wants to lower employers' health-care costs through tax credits and premium relief. He proposes tax cuts for small businesses, middle- and lower-income earners, and businesses hurt by outsourcing. He wants to reduce the federal deficit in four years, pursue energy-efficient technology and end tax breaks for companies that send Americans' jobs overseas.
Jobs, the economy and other domestic issues are the topics for today's third and final presidential debate.
Many of the job creation proposals come with large price tags, a concern to economists amid ballooning federal budget deficits, which they say ultimately will stifle job growth with rising interest rates that limit business investment and slow production.
"The question is, who is going to pay for all of this," said Ken Mayland, ClearView Economics president. Some businesses might get relief, "but the fact is, somebody is going to have to shell out more resources. There ain't no free lunch."
Kerry and Bush have pledged to slice the deficit in half in four years. The deficit was estimated at $415 billion for the 2004 budget year that ended Sept. 30.
But if Congress enacted all of Bush's proposals, or all of Kerry's, the deficit wouldn't shrink much. Under Bush, it would be $375 billion by 2009, and $447 billion under Kerry, said economic research firm Global Insight Inc.
"Despite a lot of lip service to cutting the deficit, neither comes close," said Nariman Behravesh, Global Insight's chief economist.
On tax proposals, a huge component of both candidates' jobs plans, economists were skeptical. Bush's tax cuts hadn't lived up to the millions of jobs promised, while Kerry's tax-cut proposals were too small to fuel the creation of 10 million jobs he promised in a first term.
Mark Zandi, chief economist at Economy.com, said the addition of 7.2 million jobs in the next four years is more realistic than Kerry's 10 million goal.
Bush's tax cuts were structured to boost business investment and provide a break to top earners -- not to create jobs, he said. "We can see that in the results," said Zandi, who thinks that aid to states and bigger tax cuts for lower-income earners would have created more jobs.
In 2002, Bush's economic advisers predicted average nonfarm business payrolls would rise to 138.3 million in 2004, but they have continued to revise the estimate downward since. September's payrolls were at 131.6 million, 821,000 fewer than when Bush took office.
Among Bush's four rounds of tax cuts approved by Congress, businesses got a temporary break on equipment purchases, such as machinery and computers. But it did not trigger big hiring.
"If pension costs are going up and health care costs are going up, and interest rates are low and the cost of capital is low, am I going to choose a person or a machine?" Mayland said.
But the cuts helped revive the struggling manufacturing sector, which lost 2.7 million jobs, said Dave Huether, chief economist for the National Association of Manufacturers. They were "the shot in the arm and we needed it," he said. "It was one of the critical things that got the manufacturing recovery on track."
Huether said making the cuts permanent would make manufacturers more competitive overseas. The corporate tax rate in the United States is about 36 percent higher than those of its main trading partners, he said.
Balancing the expansion of global trade opportunities and keeping jobs at home is a dilemma. Kerry said he will raise taxes on employers who ship jobs overseas. Economists aren't sure that will work.
"To the extent we can induce, but not mandate, businesses to keep more jobs here, that's obviously a laudable goal," said Sung Won Sohn, Wells Fargo chief economist. "But how you do that, I'm not sure."
For Kerry, many of his tax plans to spur hiring, while "laudable," are "much too small to make any difference at all," Zandi said.
The benefits of Kerry's health care plan to employers could be outweighed by its cost -- $653 billion over 10 years, economists said. That plan and his deficit reduction pledge "work against each other," said Jared Bernstein, chief economist at the Economic Policy Institute.
"I'm not convinced either candidate has the solution to the health care problems" that are holding down hiring, Sohn said.
Rising oil prices is a longer-term problem, economists said. Bush's energy plan, emphasizing drilling, exploration and production, will add jobs, as will Kerry's plan, which is heavier on conservation and developing new technology.
But the country must do a better job of finding alternative energy sources and conserving: "We need to wean away from OPEC oil for the economy and for national security reasons," Sohn said.