In Speech to U.S. Chamber, Obama Gets It Wrong on Trade, Jobs

Statement of Lori Wallach, Director of Public Citizen’s Global Trade Watch

    It’s unclear what is more mortifying: President Barack Obama choosing the club of America’s notorious job-offshorers to talk about the importance of creating American jobs, or his rallying of his fiercest political opponents to help him overcome the majority of Americans who oppose more-of-the-same job-killing trade agreements and pass a NAFTA-style deal with Korea that the government’s own analysis shows will increase our trade deficit.

    The U.S. Chamber of Commerce audience must have been thrilled to have Obama push more of the trade agreements that both help them offshore American jobs and, given that most Americans oppose more of these job-killing trade pacts, can help them achieve their political goal of replacing Obama in 2012.

    After winning key swing states by pledging to reform America’s job-killing trade policy, I suppose the Chamber is about the only place that President Obama could go to rally for more-of-the-same trade policies as if these had not resulted in a huge trade deficit and the net loss of 5.1 million manufacturing jobs and 43,000 factories since America started its experiment with the current trade model in the 1990s.

    As Paul Krugman wrote in a recent New York Times column (“Trade Does Not Equal Jobs,” Dec. 6): “If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not.” The Korea pact is projected to cost another 159,000 U.S. jobs – with nine economic sectors, including high-tech electronics, as losers. Obama’s comments on the pact “supporting” American jobs refers only to the export side of the equation without considering that the pact is projected to result in an overall larger U.S. trade deficit and thus net job loss.

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Comments

[Matt Lykken]

It would be good to have something to be for rather than just something to be against, though. Globalization is a fact of life and we need to push for changes that will make it work better for ordinary Americans. The aggravating factors were summarized at a recent House Ways and Means Committee hearing. The problems outlined by the witnesses can be summed up easily. If a company puts operations in America and earns $100 before tax, it keeps $65. If it puts the same operations in the Dominican Republic and earns the same $100, it keeps $100. With those incentives, it is stupid to invest in U.S. operations. Lots of people say lots of things about how this effect plays out, but the bottom line can be seen in U.S. incomes over the past 30 years. Starting at the end of the 1970s, average U.S. income flatlined in inflation-adjusted dollars. This started at the low end, where U.S. workers were competing against low-wage foreign workers. Since then, it has gradually worked its way up the education scale, with most professional incomes flatlining by the end of the 1990s as the rise of educated foreign workers mixed with our foolish U.S. tax disincentives to discourage investment in America. What happened to all the excess money? It flowed to the wealthy, who have been receiving an ever-increasing share of U.S. income and wealth. In the late 1970s, the top 1% of Americans received 9% of U.S. income. By 2008 they received 23%. When the incomes of the general population don’t rise, the economy can’t grow. The government has been trying to create the appearance of growth through encouraging ever-increasing amounts of debt, first in private hands with government backing, and now with the government directly borrowing and spending. That cannot continue. We need to encourage real investment in America by changing the incentives so that our country is the best place to invest rather than the worst.
How can that be done without aggravating the concentration of wealth or further increasing the deficit? The witnesses did not offer a credible proposal, but Professor Reuven Avi-Yonah of the University of Michigan has. At www.law.colombia.edu/null/download?&exclusive=filemgr.download&file_id=55888 , he proposes to shift the imposition of tax from the corporate level to the shareholder level by allowing a corporation to take a deduction when it pays out a dollar of dividend, and taxing that dollar to the shareholder at the same progressive rates that apply to wage income. With some tweaks, as outlined at www.sharedeconomicgrowth.org , this simple action would actually increase federal revenues without any voodoo economics, and it would shift the burden of taxation from middle-class savers and retirees to wealthy speculators. Suddenly, that hypothetical company earning $100 in the U.S. would keep $100, so long as it paid out the cash instead of hoarding it. That would make America the best place on the planet in which to locate high-wage, high-value operations, and corporations would respond nicely to that incentive.
Listen carefully to the debate on how to improve the economy. You will hear of plans to spend government money that we can’t afford, to train workers for jobs that don’t exist, to increase the disincentive to incorporate in America, and to give lots more money to “small business”, which is the new Orwellian term for extremely-high-income individuals (though the terminology cabal seems to be shifting to using “job creators” for millionaires, despite solid analysis showing that such persons derive relatively little of their income from job creating activities). What you will not hear is any discussion of Professor Avi-Yonah’s proposal, despite the fact that he is a respected tax economist who has been invited to testify before the Ways and Means Committee on other topics, and despite the fact that it is the only solution that cleanly addresses the difficult issues outlined to the Committee. Why? Because it involves getting rid of special capital gains rates, the primary driver of the low effective tax rates on rich individuals. No one in the government will even mention getting rid of special capital gains rates unless and until the public demands it. The irony here is that President Reagan eliminated special capital gains rates back in his Administration. Our whole government is now to the right of Reagan when it comes to anything affecting the wealthy. That is a sad state of affairs.