Obama’s Trade Adjustment Quid Pro Quo

How does a Democratic president with a business-bashing record get stalwart Republican governors like Utah’s Gary Herbert, Indiana’s Mitch Daniels and Mississippi’s Haley Barbour to support a proposal that favors organized labor?

He might try to put together a truly effective program and then use charisma, logic and rhetoric, the sorts of skills one might acquire as a community organizer, to persuade the other party to support it. Or he might just find some other worthwhile government endeavor and hold it hostage to a payoff for the president’s political base. The current president chose hostage-taking.

The hostages in question are the free trade agreements that the United States has negotiated with South Korea, Colombia and Panama. Despite the fact that President Obama has acknowledged that these agreements can create thousands of sorely needed American jobs, he is refusing to send those agreements to the Senate for ratification until Congress hands over cash to support a bloated and ineffective Trade Adjustment Assistance (TAA) program.

Not coincidentally, the president’s union allies detest free trade agreements but are enthusiastic about TAA benefits.

TAA is a 50-year-old program intended to help workers who have lost jobs due to competition from foreign imports. Participants receive job training in addition to extended unemployment benefits and wage subsidies. In 2002, the program was expanded to include workers whose jobs disappeared due to outsourcing. Then in 2009, the economic stimulus bill gave the program extra funding. As a result, last year TAA consumed $975 million to help 234,000 workers. The additional funding for the program expired in February, and the TAA program itself will begin to be phased out at the end of the year if Congress does not extend it.

The trade agreements Obama is using for leverage have broad support from politicians in both parties, as well as from business leaders. The deal with South Korea, in particular, would be hugely beneficial to the agricultural sector. U.S. beef exports to Korea, for example, are expected to triple, from $600 million to $1.8 billion. The agreement as a whole would generate more than $11 billion in new exports, the government estimates. The result would be more jobs for American workers. Before he decided to sit on the trade package, Obama called on Congress to pass the South Korean deal when he delivered his State of the Union address in January.

Unfortunately for Obama and for American workers, the rest of the world has not gone on hiatus just because our president’s priorities have changed. A free trade pact between South Korea and the European Union takes effect next month. Failure to ratify our own deal will put American businesses and workers at a serious disadvantage.

Obama shows little interest in producing the greatest economic good for the greatest number of U.S. workers; otherwise he would not be delaying agreements that could help the nation get closer to his goal of doubling U.S. exports. The president’s approach could be better described as producing some good for most U.S. workers, but only after we give preferential treatment to the small minority of workers who happen to belong to unions and might qualify for TAA benefits.

Joblessness as a result of foreign competition is an unfortunate by-product of free trade, just as joblessness in general is an unfortunate byproduct of business and economic cycles. That’s why we have unemployment insurance. It is also why passing trade agreements to help create jobs and to improve the country’s global competitiveness is so important. There is no reason why workers who lose jobs due to trade or outsourcing are more entitled to government handouts than those who lose jobs because of the weak economy – which Obama’s hot-and-cold approach to business has worsened – or because the industries in which they might have worked were driven overseas long ago by high tax rates and excessive regulation.

Obama’s pressure tactics have prompted about two dozen state governors to sign a letter urging Congress to accept the TAA-for-trade-agreements deal. The Republican governors who signed the letter probably have no particular interest in wasting federal money by throwing bones to unions. But then again, it’s only federal money. The added tax money their states will reap as a result of the trade deals, on the other hand, will go into their own coffers. And if some TAA money ends up filtering into their states as it flows out of the federal treasury, the governors will take that too.

Abandoned by their gubernatorial counterparts, congressional Republicans have been left to fight the deal on their own. Sen. Orrin Hatch, R-Utah, has taken the lead, arguing that there is no reason why Congress should have to hand the president money for one of his pet causes in order to pass something he supports anyway. The TAA program is unrelated to the trade agreements, Hatch has argued, and spending money on the program doesn’t make sense at a time when the budget is already stretched.

I wish Hatch the best of luck. The cost of TAA may be minimal when stacked beside the entirety of the federal spending binge, but that is no reason to give in. I suspect that if the White House sees that congressional Republicans are unwilling to budge, it will ultimately cave. As much as he may want to please organized labor, the president cannot afford to come into 2012 with neither the extended TAA funding nor the trade deals. If he can only have one of the two, I think he’ll take the one he can get.

About Larry M. Elkin 525 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

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