By Andrew Kurtzman, MPP ’12 and Bryana Tucci, MPP ‘13
In an honest discussion of policy to promote economic growth, Obama’s jobs plan cannot be regarded as a feasible solution. It was rebuffed by no fewer than six Senate Democrats on the day following its introduction and for good reason, as we will discuss. However, it did allow the President to deliver several extra speeches, two of which (conveniently) coincided with GOP debates.
We will begin by outlining three primary objections to the President’s proposal, followed by three of our own suggestions.
First, “you don’t raise taxes in a recession,” Obama said in August 2009. It was for this reason that John F. Kennedy signed the largest tax cut (as a percentage of GDP) in modern history during a recessionary period in the 1960s.
And yet, Obama’s bill proposes to raise taxes on the “rich,” most of whom are actually small businesses filing taxes as individuals. Other groups that would pay more include air travelers, federal workers, military retirees, wealthier Medicare beneficiaries, and people taking out new mortgages.
Second, the bill centers on yet another stimulus proposal to support “shovel ready” jobs. But governments have a poor track record picking winners. Ask the Japanese. Ask Solyndra. While spending millions on impractical solar investments, the government (via the EPA) is over-regulating proven and potential viable technologies, such as natural gas and shale oil, respectively. Each could be produced domestically, employing thousands.
Third, the bill introduces costly new employment regulations. A little-known provision allows individuals to sue a prospective employer if they are discriminated against for being unemployed. Essentially, this allows any job seeker to sue a business that rejects his application.
Our alternative to Obama’s jobs bill has three primary components.
First, we must restore faith in dollar-denominated assets. This means curtailing spending growth. Non-defense discretionary spending has increased by 24 percent since President Obama took office, and the Democrat-controlled Senate has not passed a formal budget resolution in three years. Commercial banks sit on trillions of dollars in liquid capital assets, which they would gladly invest if not for the uncertainty in the legislative and fiscal environment.
Second, fix the tax system and keep rates low. Tax increases now will only mask exponential growth in entitlement spending for a few more years, at which time the rate of growth in entitlement spending will be much faster and all the more difficult to abate.
Real job growth will come when the tax system is fundamentally re-worked, rather than re-weighted. The current tax system has been heavily lobbied to favor large corporations over smaller start-ups through special deductions – the complexity of which sucks billions in tax-administration costs from the economy every year. This is compounded by Obama’s health care plan, which requires small businesses to provide expensive and unnecessary full-coverage plans for all employees. Remove the deductions, reduce and flatten rates, and make everyone happy.
Third, address structural unemployment. The present administration uses a poorly construed version of Keynesianism to justify wasteful government spending. But the problem is far more about structure than cycle. The US economy has shifted toward new areas of comparative advantage—areas for which employment often requires significant retraining and realignment of skills. As Speaker Gingrich argues, unemployment benefits must be contingent upon participation in training programs, preferably privately run.
This will require the government to return to its proper role: a bulwark for a system in which private capital competes to create wealth and opportunities for gainful employment.
Andrew Kurtzman is Chair of the HKS Republican Caucus. Bryana Tucci is a member of the HKS Republican Caucus Executive Board.