- The Washington Times - Monday, March 29, 2004

Nearly every politician would like to be able to create jobs on command, but economists say that is perhaps the most elusive goal for those who control the government’s purse strings.

As President Bush found after pushing through nearly $2 trillion in tax cuts since 2001, it is relatively easy for the administration and Congress to foster faster growth by increasing the disposable incomes and spending power of consumers and businesses through tax cuts.

Mr. Bush’s $350 billion in tax rebates and accelerated rate reductions last year were credited with helping to boost growth to a near 20-year high of 8.2 percent in the summer quarter. They are expected to continue giving a lift to the economy this year.

But so far, the tax cuts have failed to produce the millions of jobs that Mr. Bush’s economic advisers — and many private forecasters — had predicted, based on historical data that shows such robust rates of growth are associated with growth in jobs.

The problem for Mr. Bush and anyone who would follow in his shoes is that the historical relationship between growth and jobs has broken down, at least temporarily.

Economists say hiring is being inhibited by a variety of factors, from high health insurance costs and flagging math and science training to the rise of revolutionary technologies like the Internet, broadband and digital communication, and newly competitive economies in Eastern Europe and Asia.

Mr. Bush frequently points out that his tax cuts and investment tax breaks for top income earners are designed not only to stimulate spending, but to boost the incomes of the small businesses that create most of the jobs in the United States.

“We can’t guarantee success, but we can have an environment so if somebody decides to take the risk, they can succeed and, therefore, end up employing people,” Mr. Bush said as he greeted owners of small businesses in Kentucky last week.

Mr. Bush in his travels showcases a smattering of jobs that have been created in response to his tax cuts, but so far the job gains amount to only a trickle of about 10,000 a month in the last year, according to the Labor Department.

The tax cuts have helped to reignite a long-sought recovery in business spending on equipment and other investments in the past year — a critical step in what most economists say is a slowly but steadily unfolding economic recovery.

A pickup in job creation should be next, says Federal Reserve Chairman Alan Greenspan and other experts. But so far, much of the tax savings appear to have been used to help boost corporate profits, which hit record levels in the last two years.

Taking a new tack

In light of the Bush administration’s frustrated attempt at stimulating job growth through broad tax cuts, Sen. John Kerry, Mr. Bush’s likely opponent in the fall presidential election, is offering a more targeted tax program.

On Friday, Mr. Kerry proposed a restructuring of the corporate tax system aimed at penalizing “Benedict Arnold” corporations that move jobs offshore and rewarding companies that create jobs at home, while giving all U.S. businesses a 5 percent tax cut.

The Massachusetts Democrat conceded his proposals are untested and could fail, but he said a new approach is called for in view of what he sees as the expense and futility of Mr. Bush’s program.

“When Franklin Roosevelt sought the presidency, he pledged ‘bold, persistent experimentation.’

“‘Take a method and try it. If it fails, admit it frankly, and try something else,’” Mr. Kerry said.

In addition to attempting to spur businesses to create jobs, both candidates recognize that high health care and energy costs, lagging education and training, and technological change are playing a role in limiting jobs. Both have proposed reforms in those areas to help lower barriers to hiring.

America’s relatively high labor costs have become a disadvantage in recent years as the end of the Cold War and major trade-opening agreements have made available billions of workers, often highly skilled and educated, to compete with America’s 146-million strong labor force.

Employers in countries like China, India, Brazil, Russia and throughout Eastern Europe not only pay a fraction of the wages paid here, but they rarely have to foot health insurance costs that average more than $6,000 a year for employees in some U.S. industries.

Mr. Bush wants to cut health care costs by curbing frivolous medical lawsuits and enabling small businesses, which are less likely than large companies to be able to afford health insurance for their employees, to band together to buy insurance.

Mr. Kerry has not detailed all his health care plans, but he appears to be leaning toward a strategy of subsidizing employer-provided insurance for catastrophic care while adopting measures to force health care providers to hold down costs.

Soaring prices for energy and other raw materials also have forced many factories to shut their doors. Mr. Bush seeks to increase supplies of oil and natural gas to lower prices, while Mr. Kerry would boost spending on renewable energies in an attempt to create jobs.

Meeting the math challenge

Mr. Kerry is advocating stepped-up funding for education and research to redress the widening educational gap between the United States and its competitors in math and science.

The United States currently graduates only 6 percent of the world’s engineers, for example, a smaller percentage than India, China, Russia, Japan and the European Union, according to a study by the AEA, formerly the American Electronics Association.

Mr. Kerry wants to shift $25 billion to the states to bolster education programs and stop layoffs of teachers, and he has proposed a tax credit for up to $4,000 of college tuition expenses each year.

Mr. Bush enacted a system of stricter educational standards in his “No Child Left Behind” reforms, and is offering $3,000 “re-employment accounts” for laid-off workers to use to retrain and relocate to new jobs.

Both candidates say they want to make Internet broadband access affordable to every American in the years ahead — a goal that many analysts say has become essential to enable American workers to compete in the global market.

John Silvia, chief economist with Wachovia Securities, said Washington must start to focus on specific remedies to deal with the dramatic transformations caused by globalization and technological change, which now enable American consumers to buy much of what they use from other countries.

“We’re stimulating demand like crazy” through tax cuts and a 40-year low in interest rates engineered by the Federal Reserve, he said. But when the government stimulates demand here, “it creates jobs in China.”

China’s surplus of exports to the United States exploded to a record $130 billion in the past year, while the trade and current account deficits with all countries reached an unprecedented $540 billion.

In the past, the extremely stimulative policies of the Fed and Congress would have led to robust U.S. job creation because consumers purchased primarily from U.S. businesses, Mr. Silvia said.

But with so much now being supplied from abroad, political parties need to rethink their jobs strategy, he said.

“If the ultimate goal is jobs, you have to look at retraining” workers who have lost out in the global competition, he said, endorsing an approach like Mr. Bush’s $3,000 re-employment accounts.

Machines threaten jobs

Mr. Silvia points out that American workers are threatened as much by forces at home as abroad, because efficiency-spurring technologies have enabled employers to eliminate millions of jobs.

“As one who grew up summers working in a textile mill, I am amazed at the few workers on a modern floor today,” he said.

The combination of automation and loss of market share to foreign competitors caused the loss of more than 3 million manufacturing jobs since 2000 — more than accounting for the 2.3 million jobs lost during Mr. Bush’s term.

But while the bulk of jobs have been lost in manufacturing, polls show Americans feel even more threatened by a trickle of jobs moving offshore in white-collar professions, such as software engineering and phone-call centers — estimated at 300,000 in the last three years.

The challenges there may be just beginning, analysts say. India, with 150 million English-speaking workers, boasts universities and “knowledge centers” that rival any of those in the United States, while its labor costs are far lower, according to the electronics association.

Much as politicians might like to, the government does not directly create many jobs, outside of hiring teachers, soldiers, postmen, highway contractors and bureaucratic professionals.

Neither Mr. Bush nor Mr. Kerry is proposing a Great Depression-style public works and jobs program as the solution. Private businesses do 85 percent of the hiring in the United States.

Nevertheless, government jobs — particularly in homeland security and defense — have expanded significantly during Mr. Bush’s term, and have been helping to buoy the economy amid private job losses.

Mr. Kerry’s program also promises to spur a pickup in health care and education hiring through increased government spending.

Despite proposing an across-the-board cut in corporate taxes, business groups did not warm to Mr. Kerry’s plan last week.

The U.S. Chamber of Commerce and National Association of Manufacturers said it would not create jobs, but rather would make U.S. businesses less competitive by taxing the profits they earn at overseas subsidiaries twice — once in the host country and once at home.

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