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feature Or ig i nat ion SECONDARY MARKET Playing Jeopardy: se r v ic i ng The Perilous Politics of Housing Finance s e c on da r y m a r k e t a na ly t ic s Preventing the nation's economic collision course has been Capitol Hill's chief priority in the new year, but are lawmakers addressing the right issues—or asking all the wrong questions? By Mark Lieberman L awmakers faced an enormous challenge in negotiating an agreement to avoid additional economic peril, but Capitol Hill failed to address what should be the country's most critical concern: jobs and the nation's employment environment. And politicians on both sides of the aisles are culpable for a deal that focused on the wrong problem, while ignoring what could be the greatest roadblock to a real recovery. The decision reached by Vice President Joe Biden and Senate Minority Leader Mitch McConnell—and forced down the throats of House Republicans (without involving their leader, Speaker John Boehner)—wound up as little more than an interim plan that leaves a looming issue near the end of the first quarter, as the nation bumps up against the debt ceiling. The resulting agreement will actually increase the long-term deficit as calculated by the Congressional Budget Office (CBO). Prior to the recent negotiations, the Bush-era tax cuts were set to expire on 76 | The M Report December 31, 2012, and the CBO had made projections based on the removal of those lower tax rates. However, the current deal extended lower tax rates for all but the highest earners, making CBO's earlier computations of higher tax revenues irrelevant and indicating a higher deficit. But no matter how the government chooses to attack the deficit, it will not resolve the fact that more than 12 million people are "unemployed," either out of work or available and looking for work. When you include consideration for Americans who are discouraged and not in the labor force or who are working part time for economic reasons, the number of individuals still struggling due to the recession more than doubles unemployment figures. Tabulating the cost of the current recession and resulting rise in deficit requires a look back to the 2009 fiscal year—beginning on October 1, 2008, 3.5 months before President Obama took office—in which the deficit increased $960 billion to $1.4 trillion. About onethird of the increase, an estimated $317 billion, was due to the recession and the spike in joblessness. During that time period, personal income tax receipts dropped $230 billion, unemployment insurance payments rose $70 billion, and food stamps grew $16 billion. In fiscal year 2010, the deficit actually declined $121 billion, in part because the same three factors referenced above improved. Personal income tax receipts declined by only $17 billion between fiscal years, while unemployment insurance spending rose just $34 billion and the government's spending on food stamps increased less than $15 billion. As of 2011, $2.6 billion was added to the deficit, an increase of 0.2 percent, with unemployment insurance spending dropping as personal income tax receipts improved. The 2012 fiscal year ushered in a sharp drop in deficit—$227 billion—as personal income tax receipts grew again and unemployment insurance payments declined. The statistics present an obvious pattern. Employment growth both increases government tax receipts and reduces unemployment insurance outflows while slowing the growth in the cost of the food stamp program—a trifecta for shrinking the deficit. It is not that deficits don't matter—despite what Vice President Dick Cheney said defending his (whoops, his boss') administration's tax cuts. It's just that they don't matter immediately. We've been here before, using government resources to recover economically. You will hear chest-pounding members of Congress balking at increasing the federal debt limit, which would merely allow the government to pay for what Congress has already authorized. Deficit hawks will show their ignorance by insisting the government is spending too much money.