As we struggle to emerge from the Great Recession, the United States is relying on its charismatic president to boldly lead us back to prosperity.
Would somebody please tell Barack Obama that we can’t weatherize our way to full employment?
President Obama this week announced a new package of proposals to stimulate hiring. He wants yet more road- and rail-improvement spending, which will stack up in the pipeline behind the many capital projects that were approved as part of this year’s first $787 billion stimulus package. That earlier spending will mostly occur in 2010. The additional projects the president wants will spill closer to the end of his current term, which may not be entirely coincidental.
He wants incentives for small businesses to hire more workers. The president was exceedingly vague about exactly what he wants, but it seems to be some sort of tax credit to subsidize the wages of newly hired employees, coupled with capital gains tax relief if owners of some of those businesses sell something, someday. As I said, the president was exceedingly vague.
And he wants Congress to provide financial incentives for consumers to make their homes more energy efficient — the “cash for caulkers” idea. Having paid consumers to trade in old cars they likely would soon have traded anyway, and to purchase homes that, for the most part, were going to be purchased regardless, the president now says the government should pay people to insulate their attics. He seems to be unaware that, for years, utilities in much of the country have already provided financial incentives for consumers to conserve. Though there is always more that can be done, the low-hanging fruit has been plucked from this tree.
None of the president’s ideas would do much to address his major concern, which is to put back to work as many people as he can, as fast as he can. Are former auto workers, drywall hangers and lawyers taking a lot of those new road jobs? Doubtful. Will businesses that only recently saw the federal (and many state) minimum wage get a sizeable boost rush to hire in a slow economy, if Uncle Sam holds out a little short-term money? Not many. Will we field an army of the unemployed to put insulating tape around Aunt Millie’s basement pipes? I don’t see it happening.
The best thing Washington can do to inspire hiring right now is to create a more predictable business environment. Resolve the health care issue, finally, so businesses can budget for it. Figure out what to do with the many tax provisions that expire or change in 2010 — and stop passing short-term tax laws that leave everyone baffled about the long-term economics of business decisions. For heaven’s sake, stop the childish bashing of bankers and other designated scapegoats for the current economic mess. Do you think bankers who are being vilified for nearly causing financial Armageddon are going to make loans to startup companies? Though there is plenty of responsibility, the national culture of reckless borrowing and endless spending was born and raised in Washington, D.C.
There are some game-changing steps this president could propose, but they change the game in the longer term rather than immediately. If he wants to build prosperity for the future, President Obama should ask his fellow Democrats to repeal corporate income taxes and let the estate tax die forever at the end of this year.
Corporate taxes apply, for the most part, specifically to large, publicly held businesses. My own small business does not pay income taxes; I simply pay personal taxes on what my business earns. Having a corporate income tax merely encourages multinational companies to earn their profits abroad. Since the U.S. already has lower real estate costs and a more flexible labor force than many other developed economies, a low or nonexistent corporate rate would make this country a magnet for business investment. Business investment means jobs.
Want to test the theory? Repeal the tax and then listen to the howls from places like Germany and France.
If you want more Americans to leave the salaried world, or even the unemployment rolls, and try to make their fortune in business, don’t take away the fortune when they die. The House of Representatives last week voted to make the estate tax permanent at its current 45 percent rate, with an exemption of $3.5 million per person. The main target of this tax is business owners.
Everyone who builds a successful business knows that his heirs may have to argue with the government about its value, then find or borrow the money to pay 45 percent in order to keep it. In effect, each generation is forced to buy back its family’s own accumulated wealth from the government. Why bother?
Corporate executives who get rich tend to die with a lot of liquid assets; they are not struggling to build a business and then keep it in the family. Knowing that your heirs might be forcibly parted with 45 percent of a stock portfolio is less distressing than knowing that they might be forced to sell an enterprise that you, and often they, struggled to build from the ground up. You might well take the path of least resistance, which means staying in corporate land until you get that pension or parachute. But society pays a price. Every successful business an executive might have created would have been a source of jobs for other families, too.
These are not proposals that Democrats typically favor. But it took a conservative hardliner like Richard Nixon to restore American relations with communist China. It might take a charismatic community activist like Barack Obama to create a climate that promotes American business success in the 21st century.