“Throughout 2001, 2002, 2003 and so on, the United States actually every month, 5.3 million started new jobs and about 5.1 million would end jobs, so you had tremendous turnover. So in the course of a year, 60 million would start jobs and 58 million people would retire or move to other jobs, so when you netted 2 million new jobs, it wasn’t that everybody stayed in place and 2 million people walked into the room and got jobs. A lot of people were shifting back and forth. A lot of new jobs were being created.
During the recession, that 5.3 million per month number dropped to 4.3, which is bad — recession. Since the recovery took hold 33 months ago, that number has fallen to 3.9. It’s actually gotten worse, we’re starting fewer new jobs than during the recession. That’s how damaging the threat of tax increases — not only the tax increases that have hit already, but the tax increases that start in a year.”
— Grover Norquist, during a Tax Day meeting with reporters, April 17, 2012
For those who don’t recognize the name, Grover Norquist is president of the anti-tax group Americans for Tax Reform and architect of the Taxpayer Protection Pledge, a promise to oppose virtually all forms of tax increases. More than 90 percent of Republican lawmakers have signed it. Norquist made these remarks when asked to explain how taxes affect the ability of young people to enter the job market.
The notion that monthly new hires have declined since the recession struck us as odd, especially when the Bureau of Labor Statistics has reported growth in jobs for the past 25 months. How could net employment turnover be negative when the economy is adding jobs?
We dug into the BLS data to determine whether Norquist’s claims have any merit. We also looked at the assumption that companies aren’t hiring because of a “threat of tax increases.”
We spoke with John Lott, an economist and Fox News contributor who helped Norquist come up with his numbers. The gist of Norquist’s figures appears to be correct, according to our own calculations of seasonally adjusted BLS data on job openings and labor turnover.
Overall, the number of new hires has decreased slightly from an average of about 4.3 million per month during the recession to an average of 4.1 million per month during the 32 months on record since the end of the downturn. Our numbers differ slightly from Norquist’s, but not enough to change our conclusion.
It’s worth taking a closer look at the method Lott and Norquist used to reach their outcomes. They compared 84 months before the recession with the 19 months during the recession and the 32 months after it. The size of each time frame is drastically different.
We decided to match apples with apples, comparing seasonally adjusted data for the 19-month intervals before, during and immediately after the recession. Still, we reached the same conclusion: hiring is down since the recession ended, with the average falling from about 4.4 million per month during the downturn to roughly 4 million per month since then. That’s also below the average of 5.2 million during the 19 months prior to the downturn.
Democrats argue that these numbers miss the larger point: that the economy is adding jobs overall. Indeed, our calculations show that net job turnover — new hires minus layoffs, retirements, and so forth — is positive. In fact, it’s right where it left off before the recession, with the United States averaging roughly 200,000 more jobs per month.
“There’s no question that the job market is improving,” said Jared Bernstein, former adviser to Vice President Biden and senior fellow at the Center for Budget and Policy Priorities. “It’s definitely improving too slowly, but at least let’s get the sign right. It’s not a negative right now, it’s a positive.”
Norquist said that fear of new taxes caused the slowdown in hiring, but Democrats contend that deregulation of the financial industry is largely to blame for the recession and all its lingering problems. They point the finger at former President George W. Bush and the previous Republican-controlled Congress.
Most economists we have spoken with agree that the economy is struggling in part because it faces headwinds from new economic phenomena, such as an increase in global oil prices and economic uncertainty in Europe, as well as unresolved issues such as the still-troubled housing market.
There are historical indications that taxes are not the only factor affecting hiring. President George H.W. Bush and President Bill Clinton hiked taxes to deal with the budget deficit, ultimately boosting the top marginal tax rate to 39.6 percent, and job growth soared. George W. Bush cut tax rates, and job growth was anemic.
Lott argues that the economy grew during the Clinton years despite higher taxes rather than because of higher taxes. “It’s hard to believe that higher taxes could create an incentive for people to work more,” Lott said. “The more money of their own that people get to keep, the more they’ll produce, the more they’ll work, and the bigger the economic pie becomes — the economy grows.”
Hmmm. This falls into the realm of a philosophical dispute, but tax rates or higher taxes clearly don’t tell the whole story. Clinton was greatly aided by the Internet boom, but some would argue that his efforts to reduce the deficit (which included higher taxes) also impressed the bond markets, bringing down interest rates.
We should note that several business-owning readers have written to us explaining that taxes might actually encourage them to invest in new employees, since the government would otherwise tax the money they could spend on additional workers — businesses aren’t taxed on payroll like they are on capital.
Also worth noting: a BLS survey shows that 40 percent of the companies that implemented mass layoffs during the fourth quarter of 2011 cited lack of business demand as the reason for layoffs, compared to just 3 percent that cited financial issues, such as taxes.
Moreover, as we have documented, taxes have gone down for virtually all Americans in the Obama years, though Norquist claimed taxes have already gone up. The health care law will boost some taxes starting next year, but most have not been implemented yet.
The Pinocchio Test
Norquist made a valid point that the number of new hires has dropped on average since the recession ended, and that’s certainly something the president needs to address. But it seems silly to suggest that potential taxes are the sole cause, or even the main cause, for the slowdown. We take no stand on whether or not tax increases are good or bad, and certainly taxes could be part of the equation, but there are too many other economic factors at play.
Norquist has taken an interesting observation and twisted it to promote his own agenda. He earns two Pinocchios for his specious assumption.
UPDATE: John Kartch, director of communications at ATR, suggests we were too literal in our interpretation of Norquist’s remarks. He provided the following statement:
The comments were made at Americans for Tax Reform’s annual “Tax Day Eve” press conference which always focuses on taxes because, well, it is tax day. Other speakers at the event included several other national taxpayer groups as well as Dave Camp, head of the tax-writing Ways and Means Committee.
ATR has always been clear making the point that the weak recovery in the Obama years stems from too much spending, too much regulation, too much litigation, and excessive taxation.
Reducing the tax burden would lead to greater job creation and economic growth as would reducing regulations and government spending. Grover’s most recent book – “Debacle”– written with economist John Lott -- is focused on the damage done by stimulus spending (chapters 3 and 4) government regulation (chapter 5) as well as the excessive tax burden (chapter 6).
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