It turns out government spending is the problem with the economy—there’s been too little of it over the last few months, according to Wednesday’s report from the U.S. Bureau of Economic Analysis (BEA).
Gross domestic product (GDP) dropped by 0.1 percent during the 4th quarter of 2012, the first GDP contraction in three years. While this would ordinarily seem an ominous sign for the health of the nation’s economic recovery, most economists and market-watchers have argued that the contraction is temporary and likely the result of government policy, rather than signs of a long-term downturn.
Specifically, the fourth quarter contraction is due to sharp reductions in government spending on national defense contracts coupled with a $40 billion drop in business inventories resulting from the same policy environment.
Today, the House Finance Committee passed a significant overhaul of the state’s unemployment insurance program that dramatically cuts the elligibility, duration, and amount of benefits for jobless workers. As the latest issue of Prosperity Watch makes clear, these reductions in jobless benefits will take effect in the midst of persistently high unemployment and at a time when unemployed workers outnumber available job openings by 3-to-1. This means that three unemployed workers are chasing every one available job, and even if every job opening is filled, there would still be two more looking for work. See the latest Prosperity Watch for details on the state’s struggling labor market.
In his press conference yesterday, North Carolina House Speaker Thom Tillis reiterated his desire to eliminate the state’s corporate income tax, expressing his earnest (but misguided) belief that abolishing the tax will ensure stronger job creation across the state. This belief is misguided because it rests on a fundamentally flawed assumption—that corporations will always reinvest the savings they get from the tax repeal into creating new jobs or paying existing workers higher wages inside North Carolina.
In reality, there is no guarantee that multinational corporations with locations and subsidiaries across the entire world will take their North Carolina state tax cut and reinvest it in their North Carolina operation. In fact, if we look at recent national corporate investment patterns, there’s actually no guarantee that these corporations will reinvest additional income in job creation (or higher wages) at all.
In his opening session press conference today, House Speaker Thom Tillis reiterated his desire to move an Unemployment Insurance (UI) reform bill through his chamber that would effectively result in cutting off roughly 80,000 of the state’s long-term unemployed workers from a badly-needed extension of federal unemployment benefits. Unemployment benefits, said the Speaker, were never intended to be a long-term entitlement, and should never have been extended anyway, since doing so will drive up the federal budget deficit.
Given the history of the UI program, persistently high unemployment and the relatively low cost of federal UI benefits to the taxpayer, these ideas are extremely misguided and will result in significant—and unnecessary—hardship for North Carolina workers.