In its employment report for November, the Bureau of Labor
Statistics (BLS) gives a bit of holiday cheer and stems
worries that the economy is rapidly heading for a recession. The
economy created 94,000 jobs in November, and the unemployment rate
remained unchanged from October at 4.7 percent. Wages grew at their
sharpest rate since the middle of the summer, which will fatten the
wallets of workers during the Christmas shopping season. The
economy faces real challenges, but the evidence so far refutes the
notion that it is sliding into a recession.
That said, the 94,000 new jobs were distributed unevenly across
the economy. The high-wage professional and business
services sector saw the most job growth, adding 30,000 new jobs
over the month; the high-wage education and health sector was close
behind at 28,000 new jobs. Conversely, the meltdown in the subprime
mortgage market has cost jobs related to housing. The construction
industry lost 24,000 jobs. Credit intermediation firms also shed
13,000 jobs; the real estate industry lost 8,000 jobs.
Nonetheless, the economy performed above expectations.
Economists had predicted that employers would create only 70,000
new jobs in November. They also expected the unemployment rate to
rise to 4.8 percent, while in fact unemployment was steady at 4.7
percent. Average hourly earnings rose by $0.08 and
have risen 3.8 percent over the past year. Also, BLS revised upward
by 4,000 its estimate for job growth in October.
Today's jobs report reinforces other recent economic signals
that show surprising strength in the economy. The Bureau of
Economic Analysis revised its third quarter estimate of GDP growth
a full percentage point upwards to 4.9 percent--well above average
economic growth rates. Productivity also grew at a stunning 6.3
percent rate in the third quarter, the fastest growth seen since
The fading housing market and the troubles in the credit
industry remain problems and will continue to hamper economic
growth. Already, forecasts for the 2008 economy have been lowered
to show little if any growth.
Given these economic conditions, the House of Representatives
makes little sense in wanting to increase taxes to offset
extending the patch for the Alternative Minimum Tax. The House
wants to pass a $50 billion tax increase to offset the value of the
one-year patch. Currently, House Ways and Means Committee Chairman
Charlie Rangel (D-NY) is focused on collecting an additional $21
billion from the deferred compensation of hedge fund managers with
earnings from off-shore businesses. For its part, the Senate has
passed a one-year AMT patch without a tax increase. Observers
should also be concerned about the tax provisions in House energy
bill (H.R. 6), and other parts of that legislation, that will
increase the price of energy.
Tax increases in a period of economic sluggishness go against
the tenets of every school of economics, from Keynesian to
Austrian. The AMT patch is not really a tax cut because the tax has
never been paid by most of the people who would be affected by the
patch. Many of the beneficiaries are unaware they would be affected
if the AMT patch expired. The patch has been extended for so many
years that its extension appears to be a foregone conclusion.
Raising taxes to pay for a tax that has not affected people is poor
policy even when there is not a heightened fear of a recession.
While the economy grew at a red-hot pace in the third quarter of
2007, estimates indicate much slower growth in the last quarter of
2007. Today's job numbers offer hope that the economy might again
surpass estimates. Even as the housing market and financial
institutions continue to struggle, other economic sectors continue
to expand. Solid wage growth has illustrated that the job market is
stronger than expected. Congress should not burden a slowing
economy with a tax hike to offset a tax that has never been allowed
to take effect. Instead, the House of Representatives should follow
the Senate's lead and pass the AMT extension without any tax
Rea S. Hederman,
Jr., is Senior Policy Analyst and James Sherk is
Bradley Fellow in Labor Policy in the Center for Data Analysis at
The Heritage Foundation.