Terrance Heath

Who Pays for the 'Pay For'?

Filed By Terrance Heath | December 06, 2011 2:00 PM | comments

Filed in: Politics
Tags: budget cuts, economic crisis, economic recovery, job creation, jobs plan, John Boehner

not-hiring.jpgFrom John Boehner’s “So be it” response to concerns that GOP budget cuts would kill 200,000 federal jobs, to George Will’s “That’s good” response to the loss of 24,000 public sector jobs, it’s no secret that the Republicans seem to think that the solution to the economic crisis and the jobs deficit is for hundreds of thousands of Americans to join the ranks of the unemployed. One half of every conservative plan on job consists of cuts that reflect the party’s core belief that America’s road to recovery begins with more Americans being out of work. So it’s no surprise that the latest proposal from the GOP is to pay for job creation by cutting jobs.

Earlier this week, Senate Republicans rolled out their proposal for financing an extension of the Social Security payroll tax cut scheduled to expire at the end of December. Disappointingly, the conservative counteroffer is to pay for this job creation measure by cutting federal employees’ jobs and wages. The “pay-for”proposed by Senate Democrats — a 3.25 percent surtax on the 1-in-500 households earning over $1 million — for an expansion of the payroll tax cut is anathema to conservatives; Senate Republicans have already filibustered a litany of job-creation proposals that would be financed by varying millionaire surtaxes. Last night, the Senate Republicans filibustered yet another such jobs package — both the proposed extension and expansion were rejected in the Senate.

The Senate Republican proposal would limit federal agencies to hiring only one replacement employee for every three full-time employees leaving the agency until employment has fallen by 10 percent. This would result in roughly 280,000 job losses — ironic, given that the purpose of the payroll tax cut is to create jobs. Someone should remind the GOP that the purpose of a pay-for is to offset the cost of a policy, not its impact.

Laying off hundreds of thousands of federal workers is terrible policy for reasons beyond causing job loss during a jobs crisis.

So the GOP’s proposal would not only cut 280,000 jobs, but effectively impede job creation and imperil existing jobs, making it more likely that even more jobs would wind up on the chopping bloc -- including many in the private sector. It seems such basic economics that it’s a shame that it has to be said (though Ezra Klein already did): unemployed public workers are bad for the economy.

All that said, the (perhaps temporary) retention of public-sector jobs was one of the great successes of the stimulus. The worst thing for an unemployed person is another unemployed person. It means more competition for job openings, lower wages and less job security. The idea that it would somehow have been more “fair” for the public sector to shed jobs in 2008 and 2009 is one of these intuitions that cuts against the economic logic of the situation: More unemployed public workers would’ve meant more competition for unemployed private workers seeking jobs, lower tax revenue for states, worse services and more idle resources. It would’ve been bad on every level — and with 9 percent unemployment, it would still be bad today. And yet there’s a substantial number of voters and commentators who seem to abstractly favor the idea, despite the fact that it will, in practice, make most of our problems worse rather than better.

"Every Job Is a Paycheck"

Like Mitt Romney said, “Fight for every job! Because every job is a paycheck and paychecks fuel Americans dreams. Without a paycheck, you can’t take care of your family. Without a paycheck you can’t buy school books for your kids, keep a car on the road or help an aging parent make ends meet.” Not only is every job a paycheck, but every paycheck is another job supported by the goods and services that paycheck purchases.

What happens when a public sector jobs are lost? Fewer people have money to spend on goods and services. So, business have fewer reasons to hire and more reason to let workers go, because demand plummets.

The problem is on the demand side. Consumers (whose spending is 70% of the economy) can’t boost the American economy on their own. They’re still too burdened by debt, especially on homes that are worth less than their mortgages. In addition, their jobs are disappearing, their pay is dropping, their medical bills are soaring.

Businesses, for their part, won’t hire without more sales. So we’re in a vicious cycle. The question is what to do about it.

When consumers and businesses can’t boost the economy on their own, the responsibility must fall to the purchaser of last resort. As John Maynard Keynes informed us 75 years ago, that purchaser is the government.

Government can hire people directly to maintain the nation’s parks and playgrounds and to help in schools and hospitals. It can funnel money to help cash-starved states and local government so they don’t have to continue to slash payrolls and public services. And it can hire indirectly - contracting with companies to build schools, revamp public transportation and rebuild the nation’s crumbling highways, bridges and ports.

Not only does this create jobs but also puts money in the hands of all the people who get the jobs, so they can turn around and buy the goods and services they need - generating more jobs. Not exactly rocket science.

As Andrew Fieldhouse points out, the GOP proposal doesn’t spare federal workers whose jobs survive the bloodbath. It would freeze federal workers pay through 2015, extending a two-year freeze another three years. According to the CBO, that’s an 8.3 percent wage reduction for all federal workers over five years. Imagine losing almost 10 percent of your annual income. You’d almost certainly feel that. As Paul Krugman explained, for “cash-constrained” 99 percent of us, spending is limited by our current income. If we have less, we spend less. If we spend less, there’s less demand for the goods and services we used to purchase. (Read the Robert Reich excerpt above for the rest of that story.)

Not only that, but the long term impact of a layoff in this recession is $745 billion in lost earnings for American workers, and a permanent reduction in earning power even for those who eventually find new jobs. African Americans and Latinos are hardest hit, of course, as tens of thousands who have only recently entered the middle class leave the jobs that helped propel them there, most never to return.

Many Republicans, however, don't regard government jobs as actual jobs, and are eager to see them disappear. Republican governors around the Midwest have aggressively tried to break the power of public unions while slashing their work forces, and Congressional Republicans have proposed paying for a payroll tax cut by reducing federal employment rolls by 10 percent through attrition. That's 200,000 jobs, many of which would be filled by blacks and Hispanics and others who tend to vote Democratic, and thus are considered politically superfluous.

But every layoff, whether public or private, is a life, and a livelihood, and a family. And too many of them are getting battered by the economic storm.

It’s a matter of ideology, not rocket science, and it hardly matters to conservatives that their economic ideology runs counter to economic reality.

However, as Steve Benen points out, the for Will and conservatives like him, economic goals are philosophical. For progressives, creating jobs is an imperative, because people who are working earn paychecks that they spend on goods and services that boost the economy, and pay taxes that lower the deficit. For Will, and conservatives like him, creating jobs is a nice idea, but “the real priority is shrinking government.”

From that perspective it hardly matters that economic philosophy and goals run counter to reality.

Reality suggests Will and conservatives have it backwards, and the severe public-sector job losses are a major drag on the economy, effectively serving as a counter-stimulus. David Leonhardt recently described this as "an unforced economic error" -- the federal government can prevent these layoffs, keep these workers on the job, and help the larger economy, but Republicans refuse. With all of the problems we can't control, this is one problem we know exactly how to prevent, but choose not to, because, as Will put it, it's "good" when thousands of public-sector employees are forced into unemployment during a jobs crisis.

Well, it is good, if you’re a conservative. Like I’ve said before, the key is to remember that progressives and conservatives are not talking about the same thing when we’re talking about jobs. If you’re a conservative, losing 24,000 jobs or even losing 200,000 jobs, because some jobs shoudn’t exist.

Remedial Republican History

Andrew Fieldhouse, in the EPI post quoted above, details what Brad Plumer summed up in the title of of his piece for the Washington Post: Smaller government isn't always cheaper -- just “privatized,” thus making it more expensive.

In a different vein, if the federal government does slice down its workforce, it's likely to carry out more tasks via private contractor. For a long time, this was thought to save money, on the notion that workers in the private sector make less than government workers with inflated salaries. But this assumption turns out to be awry. In September, a study from the Project on Government Oversight found that private contractors tend to make 83 percent more, on average, then federal employees get paid to do comparable tasks.

In any case, there's not really a hard-and-fast rule here. It's possible that some government offices or positions are largely bloat and could be hacked away with little harm done. Conversely, other agencies could function better with more workers (the IRS could better crack down on tax evasion, for instance). But big, blunt cuts to the federal workforce aren't always guaranteed to save money in the long run.

How many times have we -- not including conservatives -- learned this lesson? This example probably won’t win over any conservatives, but the IRS got the go ahead to start outsourcing debt collections in 2005, only stop its private debt collection program in 2009. Why? Well,from the beginning there were concerns that the private firms were overstepping their bounds. But the real reason? It was too expensive.

The Internal Revenue Service will stop using private contractors to collect delinquent taxes. Instead, the government plans to hire more of its own collection agents.

That’s one small reversal of a trend toward government outsourcing that accelerated during the Bush administration. Last year, the government spent almost $500 billion on contractors.

For the past couple of years, the IRS has been using private bill collectors to go after delinquent taxpayers. The contractors work on commission and keep up to $1 for every $4 they bring in.

How could not cost more when the contractors kept 25 percent of what they collected? With that kind of mark-up, it’s no wonder privatizing debt collections cost the government $71 billion and lost the the government $50 million.

In a letter in January to the chairman of the Senate Finance Committee, 17 senators, including Hillary Rodham Clinton, the Democratic presidential contender, said that they would withhold support for Mr. Shulman's confirmation unless he dropped the program.

Private debt collection, according to the letter, has cost the I.R.S. $71 million in start-up costs through last year and has lost $50 million.

Ms. Olson's testimony, before the House Ways and Means subcommittee on oversight, is likely to renew discussion of whether the outsourcing to three companies makes sense.

The program costs $7.65 million to run each year, she said, and the I.R.S. also pays private collectors $4.6 million in commissions, or around 25 cents on each dollar they bring in. That puts the cost of the program to more than $12 million a year.

Private debt collectors brought in $32 million in 2007, Ms. Olson said, but are expected to bring in as little as $23 million this year. When the costs are subtracted, the I.R.S. program may have less than $11 million in net revenues for 2008.

But there is a far greater cost, Ms. Olson argued.

If the more than $7 million in operating costs were put into the I.R.S.'s automated debt collection system -- an existing program -- the agency could bring in at least $91.8 million in net revenues, and possibly as much as $145 million -- a much bigger return. Those figures do not include the commissions.

Ms. Olson argued that when calculated against that backdrop, private debt collection cost the government at least $81 million a year in revenue.

This is the model that the GOP proposal to “pay for” job creation would likely bring back -- the same one that cost us $745 billion during the Bush administration, because when you combine “privatization” with a pathological opposition to oversight, you get cronyism, fraud, abuse, and private profits paid for by the 99 percent.

That’s the bottom line of the GOP’s latest proposal. They “pay fors” are paid for by the 99 percent, and at much greater cost, so that the 0.2 percent doesn’t have to.

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