Henes: The Jobs Act and the Super Committee — Is Anyone Else Confused?
Is anyone else confused?
We all know the economy is terrible. Everyday we hear the bad news. 25 million Americans are underemployed, the housing market is in a depression and consumer confidence is terrible. The nation's balance sheet needs to be fixed. And Europe is about to implode.
Over the summer, we witnessed the ugliness and partisan-nature of politics as the debt ceiling debacle tookplace.
The result of the debt ceiling debacle was the raising of the debt ceiling (we should thank our lucky stars for that) and a "deal," whereby republicans and democrats agreed on spending cuts and created a super committee to agree on another $1.5 trillion of spending cuts by Thanksgiving. If the super committee doesn't reach an agreement, defense spending and certain entitlement spending will be cut automatically.
The debt ceiling debacle hurt the United States' reputation, led to an unprecedented downgrade and created tremendous uncertainty as we all worry that politics will trump leadership.
As we were gearing up for “round two - the super committee debates”, the August job numbers came in and the news shocked the economists.
There was no increase in jobs. This sent everyone into a tizzy.
The President rushed to the Capitol (although he waited a day after being scolded by the Speaker of the House) and addressed a joint session of Congress to announce the American Jobs Act.
The President spoke about stimulating job growth through tax breaks and shovel ready projects. The price tag on the American Jobs Act is $447 billion. The President said that the plan is "fully paid for," but is it? Today, we do not have the money to pay for the American Jobs Act.
To pay for it, the President seeks to have the super committee find spending cuts and proposed tax reforms, which would end certain deductions and close certain loopholes.
And, this is where I get confused.
The super committee is charged with finding $1.5 trillion of spending cuts and putting together a plan for doing so. It was my hope that it would follow the Bowles-Simpson plan and come up with a bi-partisan proposal for reducing spending, restructuring entitlement programs and reforming the tax code. It was my belief - as opposed to my hope - that the super committee’s ultimate proposal - if one is developed - would result in political theater similar to the type we witnessed this past summer during the debt ceiling debacle. But the American Jobs Act seems to throw an additional wrench into the super committee’s process. Now the super committee has to find an additional $447 billion of cuts (if the bill gets enacted, which it won't) and the proposed tax reforms force the super committee to run and catch up.
And here lies the problem. The super committee was created to find spending cuts and other reforms. But before they had a chance to get started, more spending was proposed. It leads to many questions. Is this all political theater focused on 2012? Will a deal on spending cuts get reached? Will our political leaders - both democrats and republicans - lead? Unfortunately, it seems that politics will trump leadership. If that’s the case, we are headed for a rocky new year.
Jon Henes is a partner in the restructuring group at Kirkland & Ellis LLP where he has led some of the most complex restructurings in a variety of industries, including media, chemicals, energy, manufacturing, real estate, retail and telecommunications. Jon has also frequently appeared on CNBC's "Worldwide Exchange" as a guest expert on various financial and economic topics and is a member of the Economic Club of New York.