'Tea Party Economics' Is Hurting the Recovery

To: Interested Parties From: Senate DPCC Chairman Chuck Schumer Date: October 12, 2011 Re: Tea Party Economics

“I think the U.S. has every chance of having a good year next year, but the politicians are doing their damnedest to prevent it from happening — the Republicans are — and the Democrats to my eternal bafflement have not stood their ground.” --Ian C. Shepherdson, chief U.S. economist for High Frequency Economics, to the New York Times, 8/13/01

It is time for Democrats to stand their ground. The economic recovery is happening too slowly and too haltingly, and the Tea Party is to blame. Ben Bernanke has said the recovery is “close to faltering.” Economist Mark Zandi has warned that the nation is “likely” to enter a double-dip recession in early 2012 unless Congress takes bold action to confront our jobs crisis.

With the economy at a crossroads, the GOP’s current political strategy—block anything that could improve the economy, lest it boost the President’s standing—has the potential to backfire. If Republicans continue opposing job-creating measures, they risk being blamed for whatever economic reality the country confronts in 2012.

But Democrats must make this case. In the coming weeks, we will. If Republicans are going to filibuster the American Jobs Act as a whole, Senate Democrats will advance it one plank at a time. As the Senate moves forward with up-or-down votes on the core elements of the American Jobs Act, it will only get harder for Republicans to sustain their blanket opposition to the President’s policies.

In this debate over jobs, the Tea Party’s growing unpopularity has the potential to be the GOP’s Achilles’ Heel. The movement’s unfavorability has never been higher, and especially after the debt ceiling debacle, the public is inclined to believe its actions are hurting the economy. By linking the GOP to its extreme Tea Party fringe, Democrats can bolster the prospects for the President’s jobs ideas, or at least make clear who is responsible for the stalling of the recovery.

Democrats can make this link by branding the school of thought that resists against any job- creation measures as “Tea Party economics.” The opponents of the President’s jobs proposals should be invoked as “Tea Party Republicans.” If their obstruction continues, it will risk a “Tea Party recession.”

‘Tea Party Economics’ Is Hurting the Recovery Liberal and conservative analysts agree that “Tea Party economics” is hampering the economy in three ways:

1. Tea Party Republicans Have Repeatedly Blocked Job-Boosting Measures That Could Jumpstart the Economy. Moody’s economist Mark Zandi has estimated that the President’s jobs bill that Republicans voted to block would add 2 percentage points to GDP growth next year, add 1.9 million jobs, and cut the unemployment rate by a percentage point.

Tea Party Republicans have even contradicted themselves by signaling hostility to tax cuts they previously championed. A failure to extend the current payroll tax break would result in a half-point reduction in GDP, according to Zandi.

2. Tea Party Republicans’ Contractionary Policies Are Weakening the Economy. Economists have said that Tea Party Republicans’ pursuit of immediate spending cuts— rather than phasing them in over time, as President Obama has proposed—is a drag on growth:

 Federal Reserve Chairman Ben Bernanke said “we do need to take some care that we don't … hamper what is already a very slow recovery” by “excessive restriction in the short term.” [Bernanke Testimony, 7/13/11]

 Former McCain Advisor Ken Rogoff has said, “If we tighten too fast, the economy will implode on Itself.” [AP, 5/16/11]

 CBO Director Doug Elmendorf has warned that cutting too much too soon “would represent an added drag on the weak economic expansion.” [CBO Testimony, 9/13/11]

 Zandi warned in July that the cuts that Tea Party Republicans wanted as part of a debt ceiling deal were “dangerous.” "I think the idea is a very serious policy error," he said. "This would be the fodder for another recession." [McClatchy Newspapers, 7/29/11]

3. Tea Party Republicans Have Prevented Major Deficit Reduction Deals By Rejecting Any Revenues. Against the urgings of many independent analysts and even some Republican economists, Tea Party Republicans have rejected any large-scale deficit reduction packages because of their refusal to accept even a penny of revenues.

 S&P cited this failure to find “new revenues” in its explanation for August’s credit-rating downgrade. [S&P, 8/5/11]

 Former Reagan advisor Bruce Bartlett wrote in September that “with federal revenues at a 60-year low, every serious budget analyst knows that revenues must be increased to stabilize the nation’s finances, not just in dollar terms, but as a share of gross domestic product.” [New York Times, 9/13/11]

 Republican economist Martin Feldstein has said, “I think Republicans should recognize that is a way of raising revenue without hurting incentives by higher marginal tax rates.” [New York Times, 8/13/11]

Authorities like Chairman Bernanke have repeatedly warned against cutting too much too soon, and against a do-nothing fiscal policy, but his position prevents him from calling out the party that is promoting these counterproductive policies. Democrats must fill in this blank. We must connect the dots and explain the damage that “Tea Party economics” is doing.

Debt Ceiling Crisis Raised Tea Party’s Negatives To New Highs The public is catching on to the danger posed by Tea Party economics. Americans reacted with disgust to the brinksmanship deployed by Tea Party Republicans during the summer-long debate on the debt ceiling. That ordeal has raised the Tea Party’s unfavorability levels to new highs.

According to a recent CNN poll, a majority of Americans—53%—have an unfavorable view of the Tea Party movement. Only 28% of Americans have a favorable view of the Tea Party movement. This is a dramatic spike in the Tea Party’s negatives compared to January of 2010, when only 26% had an unfavorable view.

These numbers show Tea Party Republicans are more vulnerable than ever to the argument that their policies, as well as tactics, are hurting the economy.

In Jobs Debate, Tea Party Could Be GOP’s Achilles’ Heel Since he started appealing directly to the country to support his jobs package, the President has, according to a recent ABC News/Washington Post poll, gone from running even with

Republicans on the issue of jobs, to a 49%-34% edge. We can widen this advantage in the weeks ahead.

Establishment Republicans have until now let Tea Party economics dictate their approach on jobs. Even though these policies directly undermine the recovery, Republicans have had no problem practicing Tea Party economics because their political strategy is to keep the economy down in order to help their electoral chances in 2012. They are putting politics ahead of the recovery.

If economists like Chairman Bernanke and Mark Zandi are right, we are entering a make-or- break period that could determine the state of the economy in 2012. Democrats will continue to push bipartisan solutions that could help speed up the recovery. But it seems Republicans may only work with Democrats to help the economy improve if they worry they will bear political responsibility for a suffering economy.

The public’s increasingly negative view of the Tea Party presents an opening to change this dynamic and put Republicans on their heels. Democrats must use the upcoming fight on jobs to show the Tea Party’s hold on the Republican party, and demonstrate how it is holding back the recovery. If we do, we increase the chance of passing the types of economic proposals the country needs.