Below are the prepared remarks from Sen. Charles Schumer’s (D-N.Y.) speech at the Economic Policy Institute on Thursday, June 30:
I want to thank EPI for allowing me to speak here today. And thanks to all of you for coming.
I want to talk today about the economy and jobs, and the concerns I have that not only has the Republican agenda jeopardized our recovery, but that political gamesmanship is trumping the vital needs of hard working Americans across the country.
It is time to stop beating around the bush and call it as it is. The evidence is clear: the Republican approach of ‘cut, cut, cut’ over the last six months has undermined our economic recovery.
Toward the end of last year, the recovery was gaining momentum – GDP grew 2.6% in the third quarter and 3.1% in the fourth quarter. But in the first half of 2011, as the federal government increasingly withdrew support from the economy and Republicans continually blocked us from doing anything to create jobs, growth has fallen to less than 2%.
If we don‘t do anything to counteract the phasing out of the Recovery Act, the fiscal drag on our economy in 2011 and 2012 will be over 2% of GDP. That is more austerity than the controversial plan enacted by the new UK government, which sent their economy back into recession at the end of last year. And the housing market, the industry that usually leads us out of recession, continues instead to be a drag on the recovery.
As a result, the Fed and other forecasters have lowered their projections for economic growth going forward. This should come as no surprise to any of us. For months, Chairman Bernanke and other non-partisan economists have been warning not to cut too much too soon—that in our zeal to cut the deficit, we cannot forget about growth. Even Bruce Bartlett, a top economic advisor to both Ronald Reagan and George Bush Senior, has said that big spending cuts will be destabilizing in the short term.
The Republicans can say all they want that we can cut our way to prosperity, but is at odds with all the empirical evidence we have. We know from history, as well as from what we are seeing in other parts of the world right now, that cuts on the scale they have proposed in the middle of a recession will lead to lower economic growth and less job creation, not more.
We have now been playing entirely on the Republicans‘ field for six months and the recovery has only slowed. We have seen enough to know that their approach is not working.
And we need to start asking ourselves an uncomfortable question – are Republicans slowing down the recovery on purpose for political gain in 2012? It’s one thing for them to block programs they have always opposed. But when they start to contradict themselves by opposing programs they have supported—such as pro-business tax cuts—we are left to wonder.
Let’s not forget – Senator McConnell made it clear last October that his number one priority, above everything else, is to defeat President Obama.
And now it is becoming clear that insisting on a slash-and-burn approach may be part of this plan – it has a double-benefit for Republicans: it is ideologically tidy and it undermines the economic recovery, which they think only helps them in 2012.
The result is that Republicans aren‘t just opposing the President any more. They are opposing the economic recovery itself – and all that means for America’s working and middle class families.
It is time for that to change. And I think we have arrived at a point where that will change. As the pace of the recovery remains uneven, and as Americans are calling on us to do more than argue about who can cut the most, the conventional wisdom of what is politically possible is starting to move.
The May jobs number – just 54,000 jobs added for the month – was a wakeup call. It is a reminder that deficit reduction is important, but cuts alone will not fix what‘s broken in the economy. There is a growing recognition that we have to focus not just on deficit reduction, but on policies that will lead to real job creation as well. And let me be clear: we can and should do both at the same time.
How is that possible? Because even though jobs is the most urgent priority facing us in the short term, we can simultaneously pursue debt reduction over the long term.
Fed Chairman Ben Bernanke and other prominent non-partisan economists have been saying exactly that for months—but their voices were largely drowned out by all the focus on the debt and deficits. As Chairman Bernanke said directly and honestly just last week, sharp immediate cuts in the deficit will not create more jobs. In fact, the sort of cuts the Republicans are proposing will likely lead to even more job losses.
I believe the sluggish pace of job creation is creating a new mandate to do something about jobs. The view that Congress should focus on jobs AND the deficit is coming back into vogue.
Last week, Bill Gross, founder and chief investment officer of the world’s biggest bond fund, PIMCO, criticized those who seek to singularly focus on deficit reduction at the expense of job
creation. He referred to the Republicans’ myopic vision for the economy as a “field of dreams” economic plan—if you balance the budget, jobs will “magically” come. He dismissed their argument that a balanced budget is a panacea for all of our economic woes as “awkward and unsubstantiated.”
There is simply no evidence that at a time when the economy is running so far below its capacity, when interest rates continue to be at all-time lows, that government spending is somehow ―crowding out‖ private spending. Chairman Bernanke refuted that argument way back in March when he testified in front of the Senate.
In addition to it being the right thing to do economically, there will be political momentum for trying to do more on jobs. The American people realize that we not only have $14 trillion in debt, we also have 14 million hard working Americans looking for jobs, and we have to do something about both. This means we no longer have the political winds in our face as we seek to do something to create jobs.
And I, for one, refuse to believe there is nothing we can do to improve our jobs outlook. I am unwilling to risk a lost decade, or even a lost generation, because we stood by, and did not challenge shortsighted policies driven by a small, ideological wing of the Republican Party. I refuse to believe that the same country that built the cross-continental railroad; the same country that rebuilt western Europe and Japan following the Second World War; the same country that built the interstate highway system and invented the internet, the cell phone and GPS; will now abandon the 14 million Americans who are looking for a job and put the economic future of an entire generation of young people at risk, because this Congress can’t walk and chew gum at the same time.
In the Senate, we will unabashedly pursue a comprehensive jobs agenda in the weeks and months to come. We will have three criteria in putting this agenda together:
1. First, we will focus on those things that economists tell us will get the best bang for the buck.
2. Second, we will garner the support of major stakeholders in the business community, so that we can partner with the private sector to create a strong and durable recovery; and
3. And third, we will pursue policies that have a history of attracting bipartisan support.
This ―Jobs First Agenda will include programs that put people to directly work and also leave behind a strong foundation that helps us win the future, including:
1. A Highway Bill that will put people back to work building critical infrastructure that is necessary to help our economy compete, for example by making it easier to transport manufactured goods from their plant in Ohio to the port in Washington, or Los Angeles or New York.
2. A National Infrastructure Bank, which both labor and the Chamber of Commerce have strongly supported, and which would create a platform to leverage private sector investment for projects of national or regional significance;
3. An energy plan with incentives to create the clean energy jobs that are critical to America‘s ability to compete in the 21st Century.
All of these proposals represent investments in our future. If we and our children are to succeed in the 21st innovation economy, we cannot stop building and expanding the infrastructure that has always formed the backbone of our economic expansion. Our competitors around the globe certainly have not stopped – from China to Germany to Brazil, they continue to invest in infrastructure and technology and education – and it is imperative that we not fall behind.
Some pieces of the jobs agenda might not require any spending at all: For example, reforming America‘s high-skilled immigration system will not cost any money but will permanently attract the world‘s best and brightest to create new technologies that will employ thousands of Americans while preventing the loss of American jobs to temporary foreign labor contractors.
We will also pursue the bipartisan Currency Exchange Rate Oversight Reform Act. Almost universally, manufacturing and labor representatives tell me that the single biggest step we can take to create jobs domestically and improve the outlook for domestic manufacturing is to get China to reform its currency exchange rate practices – and the bipartisan currency bill would do just that by providing consequences for countries that fail to adopt appropriate policies to eliminate currency misalignment.
The jobs agenda will certainly include tax cuts as well – another example of just how far Democrats remain willing to go to work across the aisle and incorporate good ideas from our Republican colleagues.
This might include an extension of the employee payroll tax cut passed as part of the tax cut deal in December, and could be extended to the employer side as well, along the lines of the Schumer-Hatch HIRE Act which passed last year but has since expired. Cutting the payroll tax for employers is a direct tax cut for hiring people, and it helps a business‘s cash flow up front because they don‘t have to wait until the following year for a tax credit.
My colleague Senator Whitehouse has also proposed a job creation tax credit, modeled on a proposal from EPI, which we will certainly consider.
We will also look at reforming, simplifying, and making permanent the research & development tax credit, to help companies plan for the future and incentivize companies to locate facilities here in the U.S.
Finally, we will look at renewing the so-called 48C program, which provides tax credits for qualified investments in green energy projects. However, we need to ensure that 48C investments comply with a ―Made in America‖ requirement, so that it creates jobs here in the United States.
The debt ceiling agreement should seek to include one or more of these proposals in order to give equal priority to jobs alongside deficit reduction.
In advancing these jobs measures, we will not be deterred by ideological attacks from Republicans that the original Recovery Act was a failure and that this is just more of the same.
We will focus on the facts. First, let’s remember what the world looked at the time. The U.S. economy was in free fall: in the 1st quarter of 2009, the US economy shrank by 6.4% — the most since the recession of the early 1980s — and the U.S. economy was losing nearly 700,000 jobs every month.
Second, let‘s remember just what was in the Recovery Act: There was $105 billion in infrastructure spending. And there was $100 billion in education spending – largely to prevent state and local governments from laying off teachers. But there was also – and Republicans conveniently forget to talk about this part –$300 billion in tax cuts for individuals and businesses.
Finally, let‘s look at what the Recovery Act actually accomplished. According to Alan Blinder and Mark Zandi, the Recovery Act raised 2010 real GDP by 3.4%, held the unemployment rate 1½ percentage points lower than it would otherwise have been, and added almost 3 million jobs to U.S. payrolls.
Some people say we can‘t change the focus back to jobs because it‘s politically impossible, Republicans won‘t go along. But I think it‘s possible, not just because of the economy, but also because the Republicans‘ approach is full of internal contradictions that have left them with a weakened hand.
The GOP‘s ideological approach is bumping up against untidy, internal contradictions that have fanned distrust among the public and exposed divisions within their party. Republicans find themselves caught between a rock and hard place – between their ideology and reality.
One uncomfortable reality Republicans have been forced to confront is that that their ‘get rid of government’ mantra has crashed head-on into things that the public likes—first cancer research and border security, then Medicare. As the Republican rhetoric about cutting government gave way to the reality of just what they planned to cut and how that would affect peoples‘ lives, the enthusiasm waned.
Cuts to border security, food safety inspectors and cancer research planted the first seed of doubt in the public‘s mind that they may not wish to let Republicans take their ‘cut, cut, cut’ philosophy all the way to its logical conclusion.
But it didn‘t stop there. Republicans showed their true colors when 97% of them – all but 4 in the House and all but 5 in the Senate – voted to end Medicare as we know it. This was the ultimate overreach.
The recent special election in NY‘s 26th district was a clear referendum on that plan to end Medicare as we know it. And the outcome of that referendum was clear: voters said ―slow down.
Republicans like Senator McConnell are still seeking Medicare benefit cuts in the final debt limit deal, out of a need for political cover – so their vote for the Ryan plan is not left hanging out there. But it should be clear by now that the American people do not support cuts to Medicare benefits, and in continuing to press for drastic benefit cuts, the Republicans are negotiating with a severely weakened hand.
Another dilemma for Republicans is their pledge of ―no tax increases‖. This pledge has caused Republicans to confront two uncomfortable facts: first, the fact that there are plenty of tax loopholes that are indefensible; and second, the simple arithmetic of deficit reduction: we simply cannot achieve the kind of deficit reduction that everybody agrees we need without increasing revenues.
Senator McConnell has walked out on a long limb by insisting on the Grover Norquist, purist position that he will not accept any deal if it includes revenues. But many of his fellow Republicans are prepared to saw that limb right off:
The Bipartisan Deficit Commission acknowledged the reality that revenues will need to be a key piece in the deficit puzzle.
Senators Coburn and Chambliss also showed, in the Gang of Six negotiations, that Republicans who are serious about dealing with our deficits realize that no grand bargain is possible without revenues. Even though he abandoned Gang of Six, Senator Coburn is still working on a deficit reduction proposal that will draw on $1 trillion in revenue raisers.
Third, the ethanol vote exposed a hole in the GOP‘s brick wall of opposition against revenues. Now that one exception has been found, the dam has broken: Since the ethanol vote, Senators Graham, Corker and Alexander have all made statements saying other loopholes and subsidies like the one for ethanol should also be eliminated. They admit that eliminating unwise and unnecessary tax breaks shouldn‘t count as a tax increase.
The third dilemma confronting Republicans is their traditional refusal to cut spending from the Pentagon‘s budget. This looks hypocritical in the face of their party‘s ―’cut, cut, cut’ mantra, and many Tea Partiers have broken from their party to say defense cuts should be on the table.
Finally, their stubborn refusal to consider any policies that might help the economy has caused many Republicans to suddenly oppose even a payroll tax cut that many Republicans have championed in the past.
For Republicans to oppose something so traditionally and ideologically up their alley as a TAX CUT for BUSINESS, it really makes you wonder if they aren‘t just opposing anything that helps the economy improve.
If the public comes to believe that Republicans are deliberately sabotaging economy, it will backfire politically.
That is something they should keep in mind as the calamitous possibility of a default looms just one month from now. The GOP seems unperturbed by the catastrophe this would cause.
I believe that as these debt ceiling negotiations hit crunch time, Democrats have the upper hand. This is true for two reasons.
First, time is suddenly the Republicans’ enemy as the talks enter the home stretch, because if investors start to get anxious for a deal during July, there is no question that any negative reaction will be pinned on Republicans, and this will weaken their leverage to insist that they get everything they want in the deal.
Markets are calm right now, and demonstrate extraordinary confidence that we will come together and do what‘s necessary to avoid catastrophe. Interest rates on US bonds are still extremely low – the US government can borrow for 10 years at only 3% interest. But we must make sure we do not take the rope the markets have given us and hang ourselves. Mark Zandi said Tuesday that if these talks drag on too long, ―people are going to start getting nervous one investor at a time. And it‘s going to start showing up in rising bond yields, a weakening equity market.
But if there are any negative repercussions on the economy resulting from the delay in reaching agreement on the debt ceiling, Republicans rightly fear that Americans will hold them responsible. There is no question at this point who is holding up the negotiations on the debt ceiling: Eric Cantor and John Kyl walked out of the negotiations as soon as talks turned to a topic they found uncomfortable; and Senator McConnell‘s ―my way or the highway‖ approach is currently the single biggest obstacle to progress. The President and Senate Democrats have made it clear that we are willing to negotiate towards a reasonable compromise, but Republicans must meet us part of the way, and they have so far shown zero interest in doing so.
The second reason why Democrats enter the homestretch of these talks with the upper hand is because it is becoming increasingly clear that many Republicans in the House are simply unwilling to vote for a debt limit increase under any circumstances at all. There are enough Republicans like this, that Speaker Boehner is not going to be able to cobble together 218 votes from his own party on a final deal. In the end, he is going to need Democrats. That means we have leverage to insist on our top three priorities in these talks:
1. First, no cuts to Medicare beneficiaries. If we are looking to make further reforms to Medicare, we should build on what we did in the health care law where we proved you can extend the program‘s solvency without cutting benefits for seniors.
2. Second, that means a deficit reduction deal must be balanced – it must include revenues like getting rid of oil and ethanol subsidies, and eliminating loopholes for corporate jets.
3. Third, and most importantly, it must not ignore the need to create jobs – so any deficit reduction deal should hopefully include some of the measures I spoke about today to help us create jobs in the short run, and the deficit reduction should be phased in over time as the economy recovers.
Now some say they are perfectly willing to cause us to default on our obligations rather than give a single inch in the negotiations on the Democratic priorities I just outlined. And that may be true for some. But I think they are just testing the limits of these talks to see how possible it is to get a deal fully on their terms. In the end, I think they are bluffing when they intimate they might take the economy over a cliff, and so we have a good opportunity to prevail on our critical priorities down the stretch.
If we can meet these goals in crafting a final compromise that averts a default, it will be a package worth passing. It will set us on a course that prioritizes both deficit reduction and job creation together. And it will overcome the forces that seem intent on holding back the recovery because they see a political upside to a down economy.