The Labor Department announced this morning that 528,000 jobs were added last month, which is good news. However, given that labor figures tend to be a lagging economic indicator, the upward movement is likely to be short-lived. Moving beyond the jobs day headline, it’s clear the economy is on shaky ground.
Wages continue to grow far more slowly than inflation, reducing workers’ real incomes and living standards. The labor force participation rate remains depressed and has actually declined over the last couple of months. Earlier this week, nationwide job openings fell to their lowest level in nine months, and initial jobless claims continued to trend upwards. And for the kicker, last week, the Commerce Department announced that U.S. GDP had contracted for two consecutive quarters, indicating the economy is in a recession.
Indeed, the topline unemployment rate of 3.5% seems low. But it is being driven by a declining labor force participation rate. If we apply the pre-pandemic labor force participation rate to today’s population, we find that millions fewer Americans are in the labor force. If these people on the workforce sidelines were considered unemployed, the unemployment rate would be dramatically higher than today’s rate suggests.
Even when taking “a holistic look at the data” as the White House requests, the country is in a recession. Sky-high gas prices are causing immense pain at the pump. Financial markets had their worst start of the year since 1970. Savings rates are plummeting, and credit card debt rates are surging. And consumer and small business confidence are near record lows.
All the Biden administration can do in the face of this economic turmoil is follow the three ‘D’s of deception, deflection and distraction. Team Biden will continue to deceptively point to the misleading topline unemployment rate to claim the economy is doing fine and not in a recession. It will continue to deflect blame by fingering Vladimir Putin and greedy corporations as the source of the nation’s economic problems. And it will continue to try to distract voters by publicizing the Jan. 6 prime-time show trials at every opportunity.
Meanwhile, Senate Democrats are threatening to make matters worse by violating the cardinal rule to never raise taxes during a recession. Their reconciliation bill would hike taxes on businesses and individuals, taking money out of the private economy and deepening the recession. More specifically, the 15% corporate minimum tax is an extra financial burden that will roll downhill to small businesses. A new analysis by the Tax Foundation finds the bill will have a negative impact on GDP, wages, and jobs.
Their tax hike would also double the size of the IRS to expand audits of small businesses, threatening everyday entrepreneurs who don’t have tax lawyers and accountants on staff like their big business competitors.
The nonpartisan Joint Committee on Taxation concludes the Democrats’ tax hike would mostly raise taxes among Americans earning less than $400,000 per year, violating Biden’s promise not to raise taxes on these middle-class earners. Tax increases always roll downhill, regressively hitting ordinary folks the hardest.
This economic pain would not be offset by any inflation or deficit gain. The Penn Wharton Budget Model concludes that the tax hike would have no impact on the deficit until 2027 and no impact on inflation at all. In other words, the bill is an Inflation Reduction Act in name only.
Senate Majority Leader Chuck Schumer wants to pass this tax hike as quickly as possible. If Democrats succeed at enacting this massive partisan tax increase on job creators and the middle class, the cooling economy will freeze.
Alfredo Ortiz is president and CEO of Job Creators Network.
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