The “fiscal cliff” doesn’t seem to be driving up unemployment, at least for the moment. The unemployment rate in November actually fell to 7.7 percent, more than expected. It’s still a shaky recovery, as more people are dropping out of the labor force, but altogether, “employment growth is holding up despite all the fears over the fiscal cliff,” concludes IHS Global Insight. “The overall message from today’s report should ease concerns that the heating up of the fiscal cliff debate could lead to a pullback in business activity,” said Michael Feroli, chief economist for J.P. Morgan.
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But while the fiscal cliff doesn’t seem to be affecting the jobs numbers, there are a few ways that the latest numbers could actually affect the contours of a fiscal cliff deal.
Republicans, for instance, downplay the positive trends in Friday’s report in an effort to make a case against higher taxes. “Every credible study has shown that the president’s insistence on higher tax rates will cost hundreds of thousands of jobs. I urge the president to look at today’s numbers and abandon his push for higher tax rates that threatens middle-class jobs,” said House Ways and Means chairman Dave Camp, per Politico. House Speaker John Boehner (R-Ohio) similarly stressed that higher rates would take ”jobs away from the American people at the very time small businesses are struggling to create them.”
But the topline numbers could bolster the Democrats’ argument that the economy is in a stronger place than in 2010, when Congress extended the Bush tax rates on the basis that hikes would hurt the recovery. And there are incremental signs that rates will go up as the outlines of a compromise start to take shape.
While Boehner said Friday that his talks with Obama have just been “more of the same,” he also sidestepped questions as to whether Republicans will be open to a smaller rate hike. Meanwhile, House Minority Leader Nancy Pelosi said that Democrats weren’t fixated on a top rate, but on revenue. “It’s not about the rate — it’s about the money,” Pelosi said, though she declined to answer whether a top rate in between the Bush and Clinton rates — say, 37 percent — would be adequate.
But while signs of economic recovery could help Democrats’ case for higher Bush tax rates for the wealthiest, they could also weaken Obama’s case for the short-term stimulus that he wants in a fiscal cliff deal to bolster the economy, even among his fellow Democrats. In an interview last month, Rep. Sander Levin — the ranking Democrats on the House Ways and Means Committee — said that his support for another payroll tax holiday could depend on the November jobs report. If things look like they were steadily improving, he might not be as willing to support it.
Levin’s office hasn’t responded as to whether the jobs report has shaded the congressman’s outlook. And supporters of more immediate stimulus would argue that the economy is still a long way from coming back, even though we’re making incremental improvements. But given all the other trade-offs will have to be made, even a marginally positive jobs report could make the politics of getting more stimulus through right now more difficult.
Cliff notes:
— Consumers are starting to worry about the fiscal cliff, though they think the current economy is doing okay.
— Pelosi met with Obama Friday at the White House.
— The White House warns that charitable deductions could be sacrificed if Republican don’t give in on rates.
— The world’s most famous mentalist believes he can solve the fiscal cliff.
