President fumbles policy on jobs and the economy
The NFL season kicked off right after President Barack Obama’s jobs speech came to a close.
As a free-market, supply side economist, I’m no fan of Obama’s policy agenda. As a Minnesota Vikings fan, I’m not too crazy about the New Orleans Saints, who beat the Vikings in the NFC championship game in 2010 and kept them out of the Super Bowl. I was hoping for a Saints victory, though, since they were playing the Green Bay Packers, the hated archrivals of my Vikings.
I also was rooting for Obama to surprise me and finally get his economics right. It was a long shot, of course, but rumors swirled the president would offer something big and different. Given that the U.S. economy has suffered for nearly four years now through a deep recession and pathetic recovery, we desperately need something big and different versus what’s been imposed over these past few years.
Unfortunately, not only did the dreaded Packers win, but Obama presented the same old stuff in his speech.
Let’s consider the president’s major points on policy:
Temporary reductions in the Social Security payroll tax. For 2012, the president would cut the tax rate in half for individuals and employers on the first
$5 million of payroll, while eliminating the employer tax for new hires or wage increases on the first $50 million in payroll. While providing some additional dollars to individuals and businesses, this kind of temporary measure will do nothing of substance in terms of enhancing economic or employment growth. Temporary policy gimmicks do little to influence incentives and decisions in the private sector, including hiring.
Provide a $4,000 tax credit if companies hire anyone who has spent more than six months looking for a job. Again, hiring decisions are not based on limited, temporary policy changes. Instead, business owners need to be confident the economy is growing and will continue to grow and that policymaking is geared in the right direction to accomplish this in the short and long runs.
Extend unemployment insurance for another year. Obama warned that if millions of unemployed Americans stopped getting this insurance and stopped using the money for basic necessities, it would be a devastating blow to the economy. The president chose easy politics over sound economics. Long-term unemployment benefits accomplish two things: reduced incentives to return to work and fewer individuals willing to take lower-paying jobs. Moreover, increased unemployment benefits inevitably push up unemployment taxes paid by businesses, raising the cost of hiring new workers.
More government spending on infrastructure projects and aid to states. The political left has long argued government infrastructure spending is the path to economic growth. Of course, no reasons exist to expect that draining resources from the private sector so elected officials can dole out dollars based on politics will do anything to aid the economy. Instead, such increases in government spending wind up hurting the economy by raising the threat of higher taxes down the road.
Extend the ability of businesses to expense capital expenditures into 2012. This is a plus for business. But given that it’s temporary, the benefits are limited and tend to shift investment rather than increase capital spending.
Free trade agreements. Trade agreements with Columbia, Panama and South Korea were negotiated during the Bush administration, but the Obama White House has sat on and tweaked these agreements for nearly three years. Obama eventually got around to saying he favors passage in Congress, but has done nothing to get those deals in the hands of Congress for votes. Instead, he has held these trade accords hostage to dubious government subsidies for those who supposedly have lost their jobs due to trade.
Tax increases. It was amazing to hear Obama call for increased taxes in a speech that was supposed to be about boosting the economy and jobs. Nonetheless, the president reiterated his call for increased taxes on energy firms and upper income earners. Of course, what the nation needs is a return to robust economic growth and job creation. That means re-energized entrepreneurship and investment. But how exactly does raising energy costs and hiking personal income, capital gains and dividends taxes on upper income earners make that happen?
In reality, these proposed Obama tax increases would only reduce incentives and resources for investment and job creation.
The Saints came close to coming back and tying the Packers, falling short at the goal line on the last play of the game.
In contrast, the president was never in the game that same night. The nation needed a big and different game plan to get this economy moving. But Obama served up the same policies that have been long-time failures. Unfortunately, when the president winds up fumbling the policy game, we all suffer as a result.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. Reach him through the Web site at www.sbecouncil.org.