. . . I do not look forward to a restoration of the economic policy of Robert Rubin, but the release of Kerry's first major economic proposal promises exactly that. The personnel are certainly falling into place - Roger Altman and Gene Sperling, for two, both veteran Clintonoids.
Kerry is foregrounding his corporate tax reform as a jobs measure. Right from the jump, he is mixing up the difference between an anti-recession, counter-cyclical policy, and a long-run structural one. His proposal is structural. As such, whatever its merits, it glosses over the fundamental issue of fiscal policy - deficits and monetary expansion. The implication is that the latter run on automatic pilot. In other words, Kerry has no short-term fiscal policy. Insofar as Kerry fails to distinguish between the harm from long- as opposed to short-term deficits, his fiscal policy stance is perverse.
To its credit, the campaign has commissioned a memo from Harvard wunderkind Lawrence Katz, who testifies that 4.1 percent unemployment is a reasonable goal. This statement is much welcomed, but Dr. Katz offers nothing to support the claim that Kerry's proposals could get us to 4.1. Perhaps worse, Katz presents the 4.1 goal as something other than a counter-cyclical goal -- a goal to be reached over four years. The implication is that we need structural measures to get to 4.1, not a more effective counter-cyclical policy.
In this vein, some bloggers' claims <http://www.econopundit.com/archive/2004_03_01_econopundit_archive.html#108038969080992205> that 10 million jobs would be gained under normal circumstances are exaggerated, though they are not completely out of the ballpark. 150,000 jobs a month for four years get you over seven million, which is almost three-quarters of the way to ten. Getting 'normal' might not prove to be so easy.
At the same time, Katz's memo suggests that ten million would be gained by reaching 4.1 percent unemployment. In general, Kerry's commitment is not quite as great as it may look, but if it means getting to 4.1 percent unemployment, that would be all that MaxSpeak could ask for in the vein of fiscal policy.
If only Kerry had a fiscal policy.
What about the tax measure as structural policy? The notion that this proposal would be decisive in bringing ten million jobs (compared to what?) could not be more ridiculous. Whether it's worthwhile in and of itself is another mtter. There are three main pieces which have little to do with each other, as far as economics goes.
One is the elimination of special treatment of repatriated foreign earnings of U.S. corporations. This might have the multiple merits of simplifying the corporate tax code and raising revenue. The anti-off-shoring part is iffy, since firms don't necessarily outsource for tax reasons.
The measure would have little expected impact in the big ten million jobs plan. We're talking about $12 billion in corporate tax revenue a year, out of about $200 billion. A problem is that Kerry proposes to distinguish foreign earnings that are required to serve foreign markets - they would continue to enjoy a tax preference - from the other, bad kind. Good luck writing the regulations for this baby. Will there be more money for more IRS corporate auditors?
The second piece is the proposed cut in the corporate tax rate. That this would have any impact on U.S. jobs is to be doubted <http://maxspeak.org/mt/archives/000176.html>. In and of itself, it's a revenue loser. It embodies a rotten principle. If cutting the rate 2.5 percentage points is good, why not ten percent? Why have a corporate income tax at all? What's the trade-off here - on one side, a revenue loss that could have financed spending, deficit reduction, or progressive tax cuts, and on the other, some potential increase in investment and economic growth.
This is the essence of Clinto-Rubinomics. Propose a tiny change that fails to roil the base and embodies a fundamentally bad notion, then step back and let the Right practice one-upmanship with the bad idea.
The third piece is a payroll tax credit for new job creation in "manufacturing." Nothing simplifying came come of any exercise of this type. I would also question the cost estimates. Job turnover means a continuous cycling of jobs from taxed to tax-favored status for the favored categories. Jobs that would have been created in any event - it's got to start happening sooner or later - would enjoy the credit. And what happens to the Trust Funds?
On the positive side, we could expect workers to see some part of the tax cut, since less tax allows the employer to offer higher wages. MaxSpeak is committed to payroll tax relief <http://www.maxspeak.org/tax1.html>, albeit of our own particular sort <http://maxspeak.org/mt/archives/000042.html>. Our own could have a similar impact on hiring, though we would not tout it on the basis of short-term fiscal policy, nor as a significant long-run boost to employment. The virtues of our approach lie more in simplification of the worker's taxes and tax relief for families with children. You remember them.
Broadly speaking, Kerry's plan aims to improve price signals. It could be called marginalist in inspiration. That's what's wrong with it. Elevating improved price signals as a fundamental job creator is supply-side economics. At bottom, it's a crock. It's amusing to see conservatives say price signals don't matter much <http://www.danieldrezner.com/archives/001186.html>. Except when Larry Lindsey is waving the semaphore flags, apparently. Supply-sider Bruce Bartlett provides background and relevant citations <http://www.trendmacro.com/a/talkingpoints/2004_03_01_TParchives.asp#108041815347893015>.
Kerry's tax relief is aimed at employers, ours at workers. What else is there to say, except . . .
El pueblo contra los poderosos <http://maxspeak.org/gm/archives/00000508.html>!!
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<http://maxspeak.org/mt/archives/000276.html> ***** -- Yoshie
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