Jobs Will Determine Midterms

Congressional Democrats are facing major economic headwinds as they head into the mid-term elections. The economic recovery is, at best, anemic.  The “misery index” combining unemployment and inflation has risen to  double-digits.  By the end of 2010, President Obama and Congressional Democrats will have controlled Washington for two years and it just won’t be credible to blame President Bush for a weak economy under their watch.

As someone who has spent a career advising Republican politicians, including former Vice President Dick Cheney and former Gov. Mitt Romney, I’m usually not inclined to give Democrats helpful advice, especially during a campaign season in which the political environment favors Republicans.

But millions of our fellow Americans are hurting, either unemployed or underemployed, with no good jobs at good wages in sight.  All of us know someone who has lost their job during this recession. We Republicans have a responsibility to do our best to convince the Democrats to do the right things to lift the economy now, even though it may end up politically benefiting them at the ballot box in November.

Clearly, the Democrats’ solution to joblessness–funneling billions of taxpayer dollars through Washington spending programs–has failed.  Early in 2009, the Obama administration promised that the $787 billion stimulus plan would “create” or “save” 640,000 jobs and prevent unemployment, which at that time was 7.2 percent, from climbing above 8 percent.  Today, unemployment stands at 10 percent.  The Labor Department reported that last month’s initial estimate of positive job growth of 4,000 jobs turned out to be a loss of 85,000 jobs.  The broadest measure of unemployment, U-6, which includes discouraged workers, part-timers who want to work full-time, and those marginally attached to the workforce, increased from 17.2 percent to 17.3 percent. Last month, 843,000 Americans left the labor force.

Incredibly, White House economists are now saying that the stimulus plan created or saved up to 2 million jobs and that “the annual growth rate last year would have been roughly 2 percentage points lower” without the stimulus.  Of course, there is no way of proving these claims.  But the real proof is in the hard numbers reported by the Labor Department:  Since President Obama took office last January the economy has shed 4.1 million jobs, the largest one-year job loss since 1940.

The Associated Press recently analyzed the impact of billions of dollars of stimulus spending on roads and bridges and concluded that it had “no effect on local unemployment.” The AP’s analysis found that “it didn’t matter if a lot of money was spent on highways or none at all: Local unemployment rates rose and fell regardless. And the stimulus spending only barely helped the beleaguered construction industry.”

Despite these facts, President Obama wants a second spending-focused stimulus to address an ”urgent need to accelerate job growth.”  But as former Clinton administration Labor Secretary Robert Reich recently put it:

“The most painful political truth for Democrats is the nation won’t possibly be out of this jobs hole by the presidential election of 2012, even if the recovery is vigorous. Do the math. In order to get out of the hole, we’d need an average monthly increase of 400,000 jobs between now and then. But even at the peak of the 1990s jobs boom, the highest we ever got was 280,000 jobs a month. At the peak of the last recovery, in 2005, we got no higher than 212,000 jobs a month. Bottom line: Obama will be going into an election year with a higher total level of unemployment than before the Great Recession. He will have to argue that, were it not for his policies, things would be even worse. Counter-factuals like this do not sit well on bumper stickers.”

Politically speaking, Democrats must get Republicans to share ownership of the economy, and the only way to do that is to have them share in the solutions. What should Democrats do to gain GOP support for an economic growth plan?  First of all, they must put their economically-costly health care reform and cap and trade climate plan on the back burner.  Job creation should be their highest priority.

Second, Congressional Democrats should support cutting taxes on small businesses, which create the majority of new jobs in the economy, starting with Obama’s plan to abolish the capital gains tax for investments in small firms.  Democrats should agree to the GOP’s call for a temporary payroll tax cut, which would simultaneously reduce the cost of hiring for employers and put more money in consumers’ pockets. The plan should also include a significant short-term boost defense and intelligence spending, which according to Harvard University economist Martin Feldstein would “both stimulate our economy and strengthen our nation’s security.”

Finally, the Democrats must set aside their “class warfare” mindset for now, and extend the Bush capital gains, dividends, and high-end marginal tax rate reductions, set to expire at the end of 2010, until the economy fully recovers.  Allowing these tax cuts to expire in less than 12 months would punish work and investment incentives at the time our economy needs them the most.

The only way the Democrats can take the economy off the table as a partisan issue is to include Republican pro-growth ideas in the next stimulus plan.  But will the Obama Democrats put political self-preservation above liberal ideology?  The jury is still out on this question.

Cesar Conda is a Founding Principal and Executive Committee Member of Navigators Global LLC, a bipartisan government relations and strategic communications firm with offices in Washington, D.C., New York, and London.