Tuesday, September 13, 2011

President Obama reveals plan to create jobs:
the American Jobs Act

Commentary by James H. Shott

“I am sending this Congress a plan that you should pass right away,” President Barack Obama declared last week in his address to Congress. “It's called the American Jobs Act. There should be nothing controversial about this piece of legislation. Everything in here is the kind of proposal that's been supported by both Democrats and Republicans – including many who sit here tonight. And everything in this bill will be paid for. Everything.”

His speech contained a list of proposals with broad appeal for the public and Congressional Democrats. But the bill he told Congress to pass umpteen times in the course of the address was nowhere to be seen, and may not even have been written. However, even the general concepts he set forth had glaring problems.

While Mr. Obama wants to fund things that are needed and useful, like transportation projects and infrastructure upgrades, these things provide short-term employment. The economy desperately needs to create long-term jobs, jobs that will be around many years hence, not jobs that last only several months. A bunch of short-term construction jobs, funded by government with money it doesn’t have, is a terrible plan.

“Pass this jobs bill,” he said, “and companies will get a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job.” Sounds good, doesn’t it? But if a new job is going to last, it has to be in response to operations-related need, not government gimmickry. The average wage in the United States is about $50,000 a year, plus benefits. How many businesses of any size are going to take on that expense just to get a $4,000 tax credit?

The president seems not to understand that businesses do things for reasons related to their operation, and if something doesn’t make sense based on business factors, smart business people won’t do it.

He wants to extend the payroll tax holiday and keep the tax at 4.2 percent, rather than the normal 6.2 percent. “Pass this jobs bill, and the typical working family will get a $1,500 tax cut next year; $1,500 that would have been taken out of your pocket will go into your pocket,” he declared.

While this puts money back in the hands of the people who earned it – a good thing, to be sure – it is a temporary fix, and something everyone knows will end soon. It therefore has limited potential to make a substantive difference. But that isn’t the biggest downside. This proposal steals more revenue from Social Security and Medicare, two programs that are already drastically underfunded. Where will the money come from to offset this revenue loss?

Mr. Obama’s typically broad statements sound appealing, like this one: “By eliminating pages of loopholes and deductions, we can lower one of the highest corporate tax rates in the world.” Or this one: “We need a tax code where everyone gets a fair shake and everybody pays their fair share.” The concepts have great appeal, but the details create strong disagreement.

Taxing corporations at any rate forces higher prices that punish consumers, not the corporate bigwigs for which Mr. Obama has such disdain. But if he is serious he would fix the tax code so that it doesn’t encourage US companies to move jobs overseas, and keeps them from bringing corporate profits back home.

And where personal income tax fairness is concerned, the top 5 percent of taxpayers contribute 60 percent of government revenue, the top 10 percent contribute 75 percent of revenue, while half the U.S. population is now exempt from paying tax. Mr. Obama thinks that isn’t fair, and he’s right about that. But his solution is getting the wealthy to pay even more, to at last pay their “fair share.”

“Now it's time to clear the way for a series of trade agreements,” he said, that will make it easier for American companies to sell their products in Panama, Colombia, and South Korea. That’s true, but these three agreements were signed in 2007. Why wait until now to get Congressional action?

He also mentioned clearing out red tape in the regulatory process. Mr. Obama did right thing recently telling the Environmental Protection Agency to back down from new ozone standards it has been pushing. That was reason to hope that at last he has realized that his ideological policies aren’t working and he now wants to try something different. Does this mean speeding up permits to drill our own oil and gas from the Gulf of Mexico, offshore, and onshore, and provide thousands of jobs and millions in government revenue?

By asking to address a joint session of Congress the president set the stage for something big. Mr. Obama really, really likes dramatic backdrops for his speeches. But using this setting to talk about a jobs plan raises expectations, and the substance of this speech fell well short of the hype.

He passed up a grand opportunity to announce changing course and removing government obstacles to economic recovery, and instead only offered more big government solutions like those that haven’t worked, and gave us a typical Obama campaign speech.

Cross-posted from Observations

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