Zandi: Debt-reduction talks key to spurring hiring

Why businesses aren’t hiring when their profit margins have increased is the the “crux” of the problem that can only be solved by an agreement between the Obama administration and congressional negotiators, Zandi told the panel. 

Historically, during a recession companies cut costs and usually start hiring once they begin making money again as the economy recovers. 

That’s not happening this time around, and policymakers need to first shore up the nation’s budgetary issues in order to start chipping away at the 9.1 percent unemployment rate, Zandi said. 

“Firms cannot seem to shake the fear that they will be caught short if they take a chance and deploy their cash reserves more aggressively,” he said. 

Vice President Biden and congressional leaders are meeting three times this week to work toward a deal that will allow a vote to raise the $14.3 trillion debt ceiling before Aug. 2 deadline when the Treasury Department says the U.S. will default on its debt. 

While those talks continue, lawmakers and manufacturing industry leaders turned their attention to boosting the manufacturing sector, which has led the economic recovery. 

Earlier this month, President Obama outlined the expansion of a industry-led worker-training program — called Skills for America’s Future — intended to improve partnerships with community colleges and create easier-to-understand, uniform job-training requirement standards for prospective manufacturing employees and boost the manufacturing sector. 

“Manufacturers appear especially nervous about their ability to fill job openings that are becoming available as skilled workers among the large baby-boom cohort retire,” Zandi said. “Many of the most skilled U.S. workers are aging, and it is difficult to fill their spots. This skill shortage threatens to become a key constraint on growth for many manufacturing businesses.” 

But there are other factors playing a role in holding back the economic recovery. 

Jay Timmons, president and chief executive of the National Association of Manufacturers (NAM), said “taxes, legal costs, energy prices and burdensome regulations make it 18 percent more expensive to manufacture a product in the United States than in any other country” and that doesn’t include labor costs.

Timmons and NAM are working with the White House on expanding training programs and he suggested that Congress “look really hard” and provide “careful oversight” at regulating agencies to ensure that burdensome policies aren’t being pursued and implemented. 

When it comes to a change in corporate tax rates, Zandi suggested tax reform should include broadening the base and lowering marginal rates to boost the global competitiveness of U.S. manufacturers. 

“The corporate tax code has grown into a complex patchwork of inefficient and arguably unfair provisions, encouraging businesses to spend significant resources solely to reduce their tax exposure,” he said. 

Timmons suggested that lowering the corporate tax rate is only part of the solution because more than 70 percent of manufacturers are organized as “S” corporations or other “flow-through” entities and pay income taxes at individual rates. 

“Lower individual tax rates in effect through 2012 have played an important role in helping these companies survive challenging economic times and in retaining and creating jobs,” he said. “It is critical to smaller manufacturers that lower individual tax rates are extended and made permanent to create the certainty needed for long-term planning and free up resources needed for capital investments and jobs.”

He also suggested, along with Rep. Kevin Brady (R-Texas) that the White House move faster to approve the three pending trade agreements with Colombia, Korea and Panama. 

Brady had said last week that he expected an announcement on a deal that would bring the trade accords before the House Ways and Means Committee this week for a mock markup. So far, no deal had been announced, meaning they’ll have to wait until after the July 4 recess. 

While completion of the trade pacts is the focus for some, Scott Paul, executive director, Alliance for American Manufacturing, suggested that cracking down on China and its undervalued currency, its policies that favor domestic innovation and intellectual property theft will do manufacturers more good than the trade deals. 

“We have tools in trade laws we can deploy, with a couple of tweaks, that could apply to currency manipulation,” he said. 

He said action is needed now on the issue because, according to the Economic Policy Institute, if China appreciated the yuan to a market-based level, over the next two years, the United States would see a significant boost in gross domestic product, up by 1.9 percent, 2.25 million more jobs, and $71 billion annually in deficit reduction. 

“This would have a much more far-reaching economic impact than even the rosiest scenarios imagined for the highly controversial free trade agreements with South Korea, Colombia and Panama,” he said. 

Brady questioned the focus on the currency manipulation question calling it “one in plethora of challenges facing manufacturing.”

JEC Chairman Bob Casey Jr. (D-Pa.) acknowledged that Treasury, Commerce and Congress can do more on that front. 

During a Tuesday hearing, Senate Commerce, Science and Transportation Chairman Jay Rockefeller (D-W.Va.) said his panel would focus on manufacturing for the rest of the year. Next week, I’m holding a full committee field hearing in West Virginia on exporting products made in America.

“I’m also going to introduce a slew of bills in the next number of days which are on point, I believe,” he said.  

“For the foreseeable future, I intend to use this committee to find ways to make manufacturing a spark in our job-creating agenda.”