The Democrats' strategy to tackle soaring unemployment was made tougher this week by passage of the debt-ceiling law most party leaders endorsed.
The Democrats are pushing a jobs agenda that relies heavily on targeted domestic projects like highways, airports and broadband networks – precisely the type of discretionary spending many party leaders just voted to cap as part of the debt-limit package.
Some top economists are already warning that the discretionary caps – resulting in hundreds of billions of dollars in deficit savings over the next decade – will slow economic growth as soon as next year, killing jobs even as the Democrats are trying to create them.
The Economic Policy Institute (EPI), for instance, warned Monday that the domestic cuts will kill at least 323,000 jobs in 2012 alone. And Mark Zandi, the top economist at Moody’s Analytics, estimates that the debt-limit package – combined with domestic cuts included in the GOP's 2011 spending bill – will lower economic growth by one percentage point next year.
"These high levels of unemployment make it more difficult to face our fiscal challenges over the long run," warned EPI researcher John Irons.
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House Minority Leader Nancy Pelosi (D-Calif.) gave a tepid defense of the debt-limit law this week, noting that the discretionary cuts are largely backloaded beyond 2013 – lending the fragile economy some time to create jobs.
"Everybody who has looked at this has said do not make those big cuts too soon, you will slow economic growth," Pelosi said Thursday, according to Talking Points Memo. "I think that principle stands."
Still, Pelosi was no fan of the bill, conceding the domestic cuts – combined with the absence of tax revenues – were a raw deal for Democrats even as she held her nose and voted for the bill. Given more time, the Democrats would have used their leverage to return to the table "to cut some of those cuts," Pelosi said.
"We should've had more influence," she added.
The budget vote marked a Democratic capitulation. Throughout the debate, party leaders had urged an increase in targeted domestic spending to prevent a rise in the nation's already soaring unemployment rate. Instead, the debt-ceiling package – which Obama signed into law on Tuesday – locks in $756 billion in direct cuts to domestic programs over the next decade, reducing deficit spending by $917 billion, according to the Congressional Budget Office (CBO).
The law does not itemize the cuts, instead leaving those decisions to appropriators. But the size of reductions makes it inevitable they will impact a long list of discretionary programs, including those related to environmental protection, food safety, education and infrastructure.
That's bad news for liberal Democrats, who are pushing this month for a robust, long-term reauthorization of federal highway, transit and aviation programs – items Congress will take up when lawmakers return to Washington in September.
Rep. George Miller (Calif.), head of the Democratic Steering and Policy Committee, said Friday that funding for those programs – and the jobs they create – are being threatened by "the Tea Party Republican 'my-way-or-the-highway,' extortionist, hostage-taking legislative strategy."
Still, such programs come from the discretionary sliver of the federal budget, making them susceptible to the future spending limits imposed by the debt-limit package. Miller, who opposed that legislation, declined to mention that the deal was negotiated by Obama and supported by top Democrats like Pelosi and Senate Majority Leader Harry ReidHarry Mason ReidSchumer vows to vote on Biden Supreme Court pick with 'all deliberate speed' Democrats say change to filibuster just a matter of time The Hill's 12:30 Report - Presented by Connected Commerce Council - Biden faces reporters as his agenda teeters MORE (Nev.).
Rep. Eliot Engel (D-N.Y.) suggested Friday that Congress, in the name of creating jobs, is making the crisis worse.
"With 13.9 million Americans still out of work, the path to employment is long, and full of roadblocks," Engel said in a statement. "Unfortunately, the federal government has been placing some of those obstacles up themselves."
Aparna Mathur, economist at the right-leaning American Enterprise Institute, said "it's too early to say" how the debt-limit package will affect the nation's employment situation, largely because the bill doesn't specify the discretionary cuts.
"We'll have to wait to see what appropriators do," Mathur said.
Taken alone, the domestic spending cuts should be expected to kill jobs, Mathur said. But hiking the debt ceiling also eliminates uncertainty in the business world, she added, which should give companies – which are sitting on trillions of dollars in liquid cash – the confidence to make new hires.
"The market effects will be positive," she said.
Obama on Friday urged Congress to tackle the jobs crisis by putting more money directly into consumers' pockets. The president called on lawmakers to extend the payroll tax holiday and federal unemployment benefits. Both provisions – included in last December's deal to extend the Bush-era tax cuts – expire at the end of 2011.
Irons, of EPI, warned that an additional 1.5 million jobs would be lost next year if Congress doesn't extend those benefits.
Republicans, however, have already warned they have little interest in those extensions. GOP leaders are pushing instead to scale back taxes and regulations, both of which they say have prevented businesses from hiring new workers.
"It’s past time to get Washington’s spending addiction under control and provide employers the certainty they need to hire new workers and grow their businesses," House Education and the Workforce Committee Chairman John Kline (R-Minn.) said Friday in a statement.
The White House is also pushing Congress to pass three new free-trade agreements, which the administration says will create jobs at home. That argument, though, is disputed by many liberal Democrats – including Pelosi – who fear those deals will help corporations at the expense of workers.
Adding to the urgency, the Labor Department reported Friday that the economy created 117,000 jobs in July – well above expectations but not enough to put much of a dent in the nation's unemployment rate.
Indeed, the effect was a small tick, from 9.2 percent to 9.1 percent.