Growth grinches

The Washington Times Weekly - - Commentary - Don­ald Lam­bro

The good news last week came from the econ­omy that grew at a ro­bust 3.4 per­cent an­nual rate in the sec­ond quar­ter — dis­prov­ing the gloom-and-doomers who pre­dicted the U.S. was head­ing into a re­ces­sion.

The bad news last week came from House Demo­cratic lead­ers who said they were try­ing to raise cor­po­rate taxes on a lot of those busi­nesses who con­trib­uted to the strong growth rate. It was a stark re­minder that their ad­dic­tion to taxes would sand­bag the econ­omy if they won back the White House in 2008. But more on this later.

The faster growth rate in the last three months, beat­ing the con­sen­sus fore­casts on Wall Street, proved that nei­ther the de­cline in the hous­ing mar­ket nor the rise in oil prices seem to have spilled over into the larger econ­omy.

In­deed, thus far it seems that banks and other lenders — who were mak­ing money hand over fist when the hous­ing mar­ket was hot — have been able to ab­sorb the ris­ing mort­gage fore­clo­sures. We still have not seen how much fur­ther the hous­ing crunch has to go, but the ev­i­dence sug­gests hous­ing sales should be­gin turn­ing around some­time in the last half of the year.

So where was all this growth com­ing from? No one en­cap­su­lated its com­po­nent parts bet­ter than Ed­ward Lazear, chair­man of the Pres­i­dent’s Coun­cil of Eco­nomic Ad­vis­ers:

“I would say it can be sum­ma­rized as fol­lows,” he said at a White House press brief­ing last week. “We got one point for con­sump­tion, we got one point from non­res­i­den­tial con­struc­tion and equip­ment and soft­ware, we got a point from ex­ports, a point from gov­ern­ment spend­ing, and we lost half a point on hous­ing. So a very bal­anced pic­ture this time.”

A closer look at the re­spec­tive parts of the sec­ond-quar­ter growth rate shows an econ­omy — de­spite its tem­po­rary hous­ing ill­ness — run­ning at a healthy clip.

Con­sumer spend­ing grew 1.3 per­cent, ex­ports by 6.4 per­cent. Non­res­i­den­tial struc­ture in­vest­ment grew at 22.1 per­cent, fed­eral spend­ing was up 6.7 per­cent, and state and lo­cal gov­ern­ment spend­ing were up by 2.9 per­cent.

The num­bers over­all paint a brighter pic­ture of the U.S. econ­omy than the neg­a­tive one we get on the nightly net­work news shows. Res­i­den­tial hous­ing is in a slump, but non­res­i­den­tial build­ing is cruis­ing right along at a hefty pace as busi­nesses, plants, of­fice build­ings and the like con­tinue ex­pand­ing.

One of the most wel­come eco­nomic forces spurring growth is the rise in U.S. ex­ports and a nar­row­ing in the trade deficit.

The U.S. econ­omy is pro­pelled largely by a stronger global econ­omy and, thanks to a num­ber of free trade agree­ments, we’re mak­ing more and sell­ing more in mar­kets around the world. You don’t hear very much about that on the nightly news, ei­ther.

“I can’t think of any time in my busi­ness ca­reer where I’ve seen such a strong global econ­omy. And we’re re­ally ben­e­fit­ing from that in terms of ex­ports,” Trea­sury Sec­re­tary Henry Paul­son said last week. In­creas­ingly, fu­ture growth in the U.S. econ­omy will be due to a global econ­omy break­ing all records, and the United States is ben­e­fit- ing from it big time, both here and abroad.

But last week House Democrats an­nounced they were go­ing to pay for a bloated, waste-rid­den farm bill by rais­ing taxes on “in­sourc­ing” com­pa­nies op­er­at­ing in the U.S., mostly nonunion busi­nesses that em­ploy Amer­i­cans who pay the bills in this coun­try and keep the U.S. econ­omy hum­ming.

For­eign firms do­ing busi­ness in the U.S. em­ploy more than 5.1 mil­lion Amer­i­cans in high-pay­ing jobs (like Toy­ota, Honda, BMW) that on av­er­age pay work­ers $63,428 an­nu­ally, 32 per­cent more than other U.S.based jobs.

That’s why Mr. Paul­son stressed at his brief­ing last week “how im­por­tant [di­rect for­eign in­vest­ment] is to us, to our coun- try. This is key. We have 5 mil­lion jobs in this coun­try that are di­rectly re­lated to [for­eign] in­vest­ment. We’ve got an­other 5 mil­lion that are in­di­rectly re­lated to that.”

Talk about killing the goose that lays the golden egg. The Democrats’ tax in­creases on th­ese com­pa­nies, and in­di­rectly their work­ers, will en­dan­ger their liveli­hood and in­vite re­tal­i­a­tion against U.S. in­vest­ment abroad.

In a blis­ter­ing let­ter to House Speaker Nancy Pelosi and Demo­cratic leader Steny Hoyer, Jay Tim­mons, vice pres­i­dent of gov­ern­ment re­la­tions for the Na­tional As­so­ci­a­tion of Man­u­fac­tur­ers, warned that higher tax rates would put th­ese jobs “at risk by forc­ing many com­pa­nies to re­think their plans to do busi­ness in the United States.”

“For­eign in­vest­ment is par­tic­u­larly im­por­tant to U.S. man­u­fac­tur­ing: 1 out of ev­ery 8 fac­tory work­ers in the U.S. is em­ployed by a for­eign-owned com­pany and their jobs could be jeop­ar­dized by th­ese dis­crim­i­na­tory taxes,” he said.

Why raise taxes on a key part of the econ­omy that em­ploys mil­lions of Amer­i­cans in good­pay­ing jobs? That is the ques­tion th­ese work­ers should ask the Democrats.

Don­ald Lam­bro, chief po­lit­i­cal correspondent of The Wash­ing­ton Times, is a na­tion­ally syn­di­cated colum­nist.

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