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Leo Hindery, Jr.

Leo Hindery, Jr.

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Federal Budget Imperatives

Posted: 03/29/11 09:30 AM ET

The 2011 Federal Budget, which should have been passed at the latest during the pre-Christmas 2010 lame duck session of Congress, has been shoved forward two times through the use of what's called a "continuing resolution." However, the latest deadline of April 8 appears now to be locked in stone.

Therefore it's time -- obviously on March 29 of 2011 it's way past time -- for the Obama administration, the Senate and House Republicans to agree on this year's Budget and to begin to set a pattern of conduct for the 2012 Budget. The political overtones, however, don't bode well for progressives. Republican Speaker of the House John Boehner is completely cowed within the House by his freshmen members and outside by the Tea Party (there's now a Facebook page entitled "Tea Partiers Against Boehner"). Meanwhile President Obama is doing everything he can to look like a fiscally restrained moderate no matter the cost to progressive principles and programs. In this context, let me note some imperatives that had better be in that Budget if anyone who either advances or votes for it wants to retain the support of progressives.

John Boehner says to call him back into the Chamber only when the House has agreed to $61 billion in cuts, no matter the insensitivity or pain those cuts might generate. And as we are seeing more and more from the administration, they are willing to accept as many cuts as it takes to not lose the mantle of fiscal moderation that the President is so eager to wear. So where is the bulwark that is going to keep the 2011 Budget fair and fiscally prudent (rather than just fiscally restrained)?

Once again it's the U.S. Senate and specifically the Senate Democrats who now have to stand up for the millions of Americans who will otherwise face the devastating impacts of these cuts. Our progressive Democrats need to play hardball both on principle and in order to give Senate Democratic Leaders the same kind of "leverage" that Mr. Boehner claims from his Caucus.

So as Senate Democrats consider their role in the upcoming Budget fight, here are the imperatives.

First, no matter the struggle, the Senate needs to protect programs that have a big bang for relatively small bucks. And Senate Democrats and right-minded Republicans have a particular obligation to protect those programs that most help middle-class and blue-collar Americans, who of course are the ones who 'most elected' Barack Obama in states like Ohio, Michigan and Pennsylvania.

Three examples, out of many, that are facing the Republicans' ax include the Commerce Department's Manufacturing Extension Program, which to almost universal acclaim spends $125 million or so a year helping small manufacturing businesses accelerate innovation and develop new domestic and export markets. Then there's the equally important National Institute of Standards & Technology which is confronting a 15% cut even though few agencies have more to do with preserving American research, innovation and competitiveness. Finally, there's the small but vitally important International Labor Comparisons Office in the Bureau of Labor Statistics that, with an already meager staff of just sixteen economists, is charged with collecting "jobs, wages, outsourcing and trade data resulting from globalization throughout the entire globe." For a savings of a paltry $2 million a year this Office would be eliminated and its sixteen employees transferred to the group now tracking domestic inflation and occupational trends -- in the process, we would be shutting down the one entity in government charged with keeping us informed about globalization and harmonizing data among our trading partners, data that every day the administration could be using to help create some of those new jobs to which it says it is committed.

Second, again no matter the struggle, the Senate should, in three ways, use this current Budget approval process as an opportunity to use the tax code to create more fairness, pay for protecting programs, and incent companies to create jobs.

The Senate should put honest taxation of carried interest back on the table -- properly taxing carried interest as ordinary income rather than as capital gain would bring upwards of $10 billion a year to the Treasury with absolutely no impact on the middle class of the nation. In doing so, we would be ending once and for all one of the greatest (and most costly) income mischaracterizations ever foisted on this nation's middle class taxpayers. Investment professionals who earn what is in essence fee income investing other people's money at no risk to themselves should not be eligible for the lower capital gains rate aimed at stimulating investment. What they earn is ordinary income, plain and simple. Incidentally, the CBO and others "score" this fix at only $3 billion or so a year -- they're dead wrong, it's more like $10 billion and maybe as high as $12 billion as Wall Street continues to regain its profitability.

For the roughly 5 million out-of-school unemployed youth the Senate should extend the Work Opportunity Tax Credit (WOTC) beyond August 2011. This simple law provides small businesses with tax incentives to hire people who might ordinarily struggle to find work -- for example those with few skills, some veterans, and, since 2009, 16- to 24-year-olds without skills, school or jobs. Any concerns about WOTC being abused as a form of corporate welfare -- i.e., that businesses can get a tax credit for hiring someone they would have employed regardless -- can be offset by tying it to the Workforce Investment Act (WIA).

Finally, the Senate should take the easy but desperately needed steps to eliminate the tax incentives that drive the tax rates of many of America's largest companies to near zero and encourage large American companies to invest overseas rather than here at home. As Mr. Obama promised throughout 2008, but has completely failed to follow up on, we must once and for all close the cascade of available corporate income tax loopholes while ceasing to reward corporations for closing plants and shipping jobs to countries like China.

It's insulting to every worker in the country to watch on January 21 President Obama appoint Jeffrey Immelt, the 'McCain-backer' chief executive of General Electric, which is the nation's largest corporation, as chairman of his Council of Jobs and Competitiveness, and to then read in the New York Times eight weeks later that despite earning $5.1 billion in 2010 from its operations in the United States, G.E. will have no American tax bill. Nada, zilch, none. According to the Times, "the company has been cutting the percentage of its American profits paid to the Internal Revenue Service for years... based on an aggressive strategy that mixes fierce lobbying for tax breaks and innovative accounting that enables it to concentrate its profits offshore."

Compounding this insult to American workers, which Mr. Obama chooses to ignore, is the further reality, as I've written before, that with the possible exception of Intel and Boeing, few American companies have drunk more deeply from the offshoring-of-jobs trough than has General Electric.

Third, regardless of the final 2011 Budget, as Democrats in both Houses look forward to the 2012 elections, they need to shift the discussion from long-term spending back to the only issue that matters, which is dramatically reducing long-term real unemployment. Progressives almost across the board have allowed the Republicans to gain the upper hand by blaming the nation's two major entitlements -- Social Security and Medicare/Medicaid -- for our very real fiscal troubles. But this blame is misplaced. Social Security essentially pays for itself on a real time, current basis and its long-term payout shortfalls, which are real, could be easily fixed by just increasing the payroll tax cap on the wealthy and adding in some reasonable means testing. Medicaid and Medicare are, in turn, enormous and growing segments of the federal budget, but the underlying problem in health care is rising health care costs, not these two programs which are indisputably efficient.

In a macro sense there is 'false choice' debate underway within Congress and the administration between "cutters" of the federal deficit and "postponers", and it continues to play out, this time quite obviously in the 2011 Budget debate.

"Cutters" argue that large fiscal deficits threaten long-term fiscal credibility and depress private confidence and spending. In contrast, "postponers", of which I am most definitely one, strongly agree with the need to slow the growth of long-term spending. However, right now, above all else, we're motivated to create jobs any way we can, but especially by drawing out for hiring and investment the more than $2 trillion of company cash reserves that have accumulated since the start of the Recession.

"Cutters" and "postponers" are not in a winner-take-all contest, unless they foolishly insist on being in such -- and the U.S. does not have to choose between stimulus and austerity. Much more than the theories and wishes of the "cutters" or "postponers", it is only the needs of voters and workers which really matter. And right now, a majority of Americans agree with the statement that "the federal debt has grown to an alarming level, where it is threatening the future of our children and grandchildren." But they strongly disagree when this very honest observation is used (abused) by Republican Senators to resist major new-jobs efforts.

Voters see the absence of jobs as far and away the biggest problem facing the economy today, and they strongly favor, by two-to-one, aggressive jobs initiatives over a long-term deficit reduction program. And we owe them this attention and this priority because indisputable analysis shows that additional thoughtful job creation would be at least deficit neutral over the medium term and most likely deficit reducing. Jobs-based stimulus, because of the large multiplier effect of high-quality job creation, is a much more responsible and effective way to reduce the deficit than is slashing spending for slashing's sake.

The idea that voters care more about deficits than they do about jobs is a strategic miscalculation by Republicans, and if the Obama administration and Senate Democrats can avoid the easy pull of acting like "Republicans with hearts" they can not only fight for good policy but also for good politics. If we can make the 2011 Federal Budget about job creation and not about protecting government spending, we will win. But it will take a strong progressive bulwark in the Senate to keep their Leaders there from negotiating away this powerful strategic response.

Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of The Huffington Post Investigative Fund.

 

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