March 29, 2023

Modest Jobs Growth in Final Report Before Election

The nation’s employers added 171,000 positions in October, the Labor Department reported on Friday, and more jobs than initially estimated in both August and September. Hiring was broad-based, with just about every industry except state government adding at least a handful of jobs. The unemployment rate ticked up slightly to 7.9 percent in October, from 7.8 percent in September, but for a good reason: more workers joined the labor force and so officially counted as unemployed.

None of this makes for a game-changer in the presidential race, analysts said. But it appeared to provide some relief for President Obama, whose campaign could have been sideswiped by bad news from the volatile monthly jobs report.

With the latest numbers, the economy finally shows a net gain of jobs under his presidency; his record had previously been weighed down by huge layoffs in his first year in office.

The report also allayed widespread suspicion that September’s plunge in the unemployment rate — to below 8 percent for the first time since the month he took office — might have been a one-month statistical fluke.

“Generally, the report shows that things are better than we’d expected and certainly better than we’d thought a few months ago,” said Paul Dales, senior United States economist for Capital Economics. “But we’re still not making enough progress to bring that unemployment rate down significantly and rapidly.”

Mitt Romney, the Republican presidential nominee, said in a statement that the jobs report was evidence of the need to change the nation’s economic policies.

“Today’s increase in the unemployment rate is a sad reminder that the economy is at a virtual standstill,” he said. He also noted that October’s unemployment rate of 7.9 percent was higher than the 7.8 percent when Mr. Obama took office in January 2009.

Economists were hopeful that once the election was over and Congress addressed the major fiscal tightening scheduled for the end of this year, job growth could speed up further.

“If we can do this kind of job growth with all the uncertainty out there, imagine if we were to clear up those tax issues and hold back the majority of tax increases that are pending at the end of the year,” said John Ryding, chief economist at RDQ Economics. “We could do much better in 2013, maybe as well as we appeared to be doing earlier this year.”

In October, the biggest job gains were in professional and business services, health care and retail trade, the Labor Department said. Government payrolls dipped slightly. State and local governments have been shedding jobs most months over the last three years.

One of the lowlights of the report was in hourly wages, which remained flat in October after showing barely any growth in the previous several months.

“Perhaps the decline in real wages is a factor here in being able to employ more people,” Mr. Ryding said. “It’s something to keep in mind when we think about creating jobs and whether we’re maybe creating the wrong sort of jobs.”

A report from the National Employment Law Project, a liberal research and advocacy organization that focuses on labor issues, found that while the majority of jobs lost in the downturn were middle-income jobs, the majority of the jobs created since then have been lower-wage ones.

There have now been 25 consecutive months of jobs gains in the United States, but the increases have been barely large enough to absorb the increase in the population. A queue of about 12 million unemployed people remain waiting for work, about two out of five of whom have been out of a job for more than six months.

That is in addition to more than eight million people who are working part time but really want full-time jobs.

“I’m not just competing against all the other people who are out of work,” said Griff Coxey, 57, of Cascade, Wis., who was laid off in May from his controller job at a small business. “I’m also competing against all those people who are actually working but are underemployed.”

Like two million other idle workers, Mr. Coxey is scheduled to lose his unemployment benefits the last week of the year, when the federal extensions abruptly expire. He said he still had some savings to fall back on, but many workers do not.

Labor advocates and many economists have been urging Congress to renew the benefits as part of their discussions of the “fiscal cliff” during their postelection session. So far, though, the issue has received little attention, and analysts worry that ending extended benefits could disrupt what modest forward momentum the economy currently has.

“Federal unemployment benefits are one of the most effective stimuli we have,” said Christine L. Owens, the executive director of the National Employment Law Project.

“The recovery is still fragile,” she said, “and to pull that amount of income and expenditure out of the economy — particularly at a time when people thinking about the holiday season — will have a significant impact on not just those individuals and their families but the economy as a whole.”

Friday’s jobs report was unlikely to affect policy from the Federal Reserve, which has pledged open-ended stimulus until the job market improves “substantially.”

“The Fed desires both a substantial and sustainable improvement in labor market conditions and is likely to read recent payroll growth as a positive step in the right direction, but just one step in a longer journey,” said Michael Gapen, director of United States research and global asset allocation at Barclays Capital.

The jobs snapshot for October was based on surveys conducted too early in the month to capture work disruptions across the East Coast caused by Hurricane Sandy. Economists expect that businesses and employment will resume their normal activity by the next jobs survey, in mid-November, and that some industries are likely to show an increase in hiring because of the storm.

“We had a lot of lost hours worked and production stuff still delayed, but much of that will be offsets by hiring of emergency workers, government workers and construction, to do all that emergency fixing,” said Diane Swonk, chief economist at Mesirow Financial.

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DealBook: Romney Disclosure Reignites Debate Over Carried Interest Tax

Mitt Romney hosted a rally at the Florence Civic Center in Florence, S.C. on Tuesday.James Estrin/The New York TimesMitt Romney held a rally at the Florence Civic Center in Florence, S.C., on Tuesday.

The “carried interest” tax debate that has raged in Congress and on Wall Street over the last half-decade took center stage in the presidential race on Tuesday.

Mitt Romney, speaking at a campaign stop in Florence, S.C., revealed that his effective tax rate was about 15 percent.

“It’s probably closer to the 15 percent rate than anything,” Mr. Romney said. “Because my last 10 years, I’ve — my income comes overwhelmingly from investments made in the past, rather than ordinary income or rather than earned annual income.”

Mr. Romney’s disclosure is sure to reignite complaints that private equity executives — among the nation’s wealthiest individuals — get preferential tax treatment. Private equity executives are taxed at the capital gains rate of 15 percent on most of their earnings, a rate well below the 35 percent tax on ordinary income. Certain hedge fund managers, real estate investors and venture capitalists also earn much of their pay in the form of carried interest.

The White House, which has long expressed support for raising the tax rate on these investment managers, immediately seized on Mr. Romney’s acknowledgment. The president’s spokesman said Tuesday that the 15 percent tax rate reveals unfairness in the tax code.

The bulk of private equity executives’ compensation comes in the form of carried interest, which is the 20 percent cut of a fund’s profits they keep for themselves. If a private equity firm sells a company for a $1 billion profit, the firm’s executives are entitled to keep $200 million as a performance fee. (Mr. Romney’s former firm, Bain Capital, because of its superior investment record, keeps 30 percent of the profits in many of its funds.)

Investment managers who are against increasing the tax rate argue that carried interest is investment proceeds, and should be taxed like the proceeds of an entrepreneur who sells his business for a profit and gets capital gains treatment.

The Private Equity Growth Capital Council, an industry trade group, has called any potential tax increase “draconian” and said it would discourage risk-taking and slow investment into capital-starved companies.

But a number of high profile financiers, including Warren E. Buffett, have argued for closing what they view is a loophole benefiting the country’s richest taxpayers. Robert E. Rubin, the former Treasury secretary, has said that these proceeds should be treated as compensation for services performed, or ordinary income. Leon Cooperman, a prominent hedge fund manager, recently called the special treatment “ridiculous.”

The controversy over the carried interest tax first emerged in 2007. Democratic lawmakers introduced tax-reform legislation amid a populist backlash against the extraordinary wealth being created on Wall Street. The effort died in Congress after an aggressive lobbying effort from private equity and hedge fund firms.

Seeking to close the soaring budget gap, President Obama has introduced proposals in his budget to tax carried interest as ordinary income, but those also failed to get anywhere on Capitol Hill. A nonpartisan Congressional committee has estimated that the tax change would raise $24.6 billion over the next decade.

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Dynamics of G.O.P. Race Spur Romney to Hedge on Flat Tax

Lately, though, his tone has been more positive. “I love a flat tax,” he said in August.    

Flat-tax plans have come and gone before, and analysts note that they have tended to lose support once they come under scrutiny. But Mr. Romney’s support of the concept of a flat tax underscores the tightrope he is walking as taxes become a larger focus of the Republican presidential race and he faces rivals’ accusations of inconsistency on the issues.  

That is because Mr. Romney also is always careful to emphasize — as he did in his comments two months ago — that he would never support any plan that hurts the middle class and helps the wealthy. But by replacing the graduated income tax with one single rate everyone pays, that is precisely what flat tax plans generally do, at least those that try to generate anywhere near the same tax revenue. 

Politically, Mr. Romney’s favorable comments about flat taxes speak to the deep frustration many Republican voters share about the current system. While Herman Cain’s “9-9-9” tax overhaul proposal has been criticized by his rivals because it includes a new national sales tax in addition to a flat income tax, the catchy plan has nonetheless helped vault the relatively unknown businessman to the fore of the party’s field.  Gov. Rick Perry of Texas is now trying to channel that same energy to rescue his campaign, and this week he is expected to unveil a flat-tax proposal resembling the one put forward 15 years ago by Mr. Forbes, who is advising him.

But flat taxes, despite Mr. Romney’s favorable comments, are not part of his campaign plan, which calls for extending Bush tax cuts and lowering corporate tax rates. Some conservative tax activists say his murky flat-tax stance highlights a broader complaint: his lack of consistency on conservatives’ core issues, like abortion.

“His problem is that people don’t have confidence that they know what he believes in, and I think there is a pretty good reason for that,” said Chris Chocola, a Republican former congressman from Indiana who is president of the Club for Growth.

Grover Norquist, head of Americans for Tax Reform, says he sees Mr. Romney’s shift as part of a broader consensus among the field to move toward a flatter tax structure. But with that movement gaining strength in the Republican Party, he said, Mr. Romney’s past critical comments about flat taxes are “awkward” and “a little tough to explain.”

Dick Armey, the Texas Republican and former House majority leader who was an early flat-tax proponent, said he believed Mr. Romney was doing “the conventional, orthodox, old traditional Republican thing: you’ve got to give it lip service but ‘I don’t want to do much heavy lifting.’ ”

Romney aides dispute the criticism and say his objection to the Forbes plan was specific: that it would raise taxes on the middle class. Gail Gitcho, a Romney spokeswoman, said there was “no inconsistency” in his position. She said he could support a flat tax that did not raise taxes.

But when asked about the many flat-tax plans that have been floated in the last two decades, Romney aides said they could not recall any that might pass muster with Mr. Romney’s requirements. Nor would they venture the outlines of a new plan that might meet his test. They also do not dispute the notion that a flat tax could never generate the same amount of tax revenue while also maintaining the same relative burdens on the wealthy and the middle class.

“You can have a flat-tax system that retains elements of progressivity, but I can’t say whether it would retain the same level of progressivity and same level of revenue,” one aide said.

Independent analysts say it is hard to imagine a flat-tax plan that would not be very regressive compared with the current system. Right now, the highest tax rate for many middle-income earners is 15 percent, while the richest Americans are subject to a 35 percent rate on much of their income.

“If you’re going to get the same amount of revenue, someone has to pay the price,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution.  “The rich pay less, the poor pay nothing, and the middle class bears the burden.”

Mr. Norquist and Mr. Armey see more support now for a flat tax than ever before. But Mr. Romney’s hesitation may ultimately prove more popular with many voters if the arc of this election cycle’s flat-tax proposals follows the pattern of some past years.

“The people with big incomes are going to see big tax cuts, the low-income people are going to see big tax increases, and suddenly that doesn’t seem fair,” Mr. Williams said. “You start to see that kind of thing, and suddenly the bloom is off the rose. When people start to look at what it’s going to mean for them particularly, they say, ‘Wait a minute.’ ”

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