Who would have really expected a 300-point stock market plunge on the day after President Obama’s so-called jobs speech?
Yes, worries over new fears of a Greek default ripped through the markets on Friday. As did fears of an al-Qaeda bombing plot on the tenth anniversary of 9/11. But you can’t help but think that at least some of the stock plunge is a signal of no economic confidence in Obama’s plan.
And for that matter, who really expected an unbelievably large $450 billion plan? That’s way more than 50 percent of the original $800 stimulus package in 2009 — which did not work.
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Leaked reports leading up to the speech suggested a $300 billion plan — already way too big. But $450 billion? At a time of massive deficits and debt? And a downgrade? How is this going to be paid for? That’s what many folks want to know. Obama didn’t tell us.
In very round numbers, the package comes to $250 billion of temporary payroll tax cuts of one kind or another, with another $200 billion in new spending on infrastructure, unemployment benefits, and direct aid to state and local governments. But didn’t we learn from Obama Stimulus One that more government spending doesn’t grow the economy or reduce unemployment?
And while more than half of the president’s new package is called “tax cuts,” the reality is that these are temporary tax cuts. Even though tax rates are reduced for both employers and employees, it’s just for one year.
That blunts the true incentive impact of the tax cuts. Businesses like to look ahead at least three to five years for their employment planning. And they’re already worried about the tax and regulatory mandate costs of Obamacare, which has become a great deterrent to job creation. But nobody makes clear business decisions based on temporary one-year tax cuts. That’s not the way business works.
The only true incentive effects come from permanent, economy-wide reductions in tax rates. And that’s what’s been missing all along from Team Obama’s thinking.
For example, it is quite possible that some new jobs will be created in election-year 2012 as a result of the temporary payroll tax cuts. But those jobs will be borrowed from 2013, when the economy risks expiring as the temporary tax cuts go away.
So this becomes a very expensive exercise, one that will yield very little or nothing in the way of permanent job creation or economic growth.
The president does talk about corporate tax reform, but he has no specifics on it. He never mentions the tax-free repatriation of $1 trillion in overseas profits booked by U.S. firms, or for that matter a territorial business-tax approach that would stop the double tax on foreign earnings. This repatriation idea would have been a layup. The whole world wants it. But not the White House.
Out on the campaign trail, Mitt Romney, Jon Huntsman, Rick Perry, and other GOP candidates are talking about fundamental tax reform for individuals and businesses, the kind that can provide the permanent incentive effects needed to supercharge the economy. But not the White House.
And out in the business community, everyone is talking about a regulatory moratorium, or rollback, to lower the cost structure of doing business. But Obama only talks about this in the vaguest terms.
Stop the NLRB and EPA. Hold back on Dodd-Frank and Sarbanes-Oxley. Provide confidence on taxes and regulations for the whole private-investment sector.
Nope. Not the White House. President Obama’s latest vision on taxes once again singles out energy companies, successful high-end earners, and small-business entrepreneurs for future tax hikes, rather than across-the-board rate-flattening and deduction-ending.
The best part of the Obama’s speech was the segment about free-trade agreements with Panama, Colombia, and South Korea. But somehow this never gets done.
As for infrastructure spending, it has its place (though not a Fannie Mae-like bank). But America needs new incentives to propel entrepreneurship and dynamism for brand-new business start-ups and technologies. And throwing more money at state-and-local-government unions is just a pathetic political bailout.
What we really need is a long-term program that gets government out of the way and lowers spending, tax, and regulatory barriers wherever they exist. But at bottom, the president’s plan is a big-government plan. It’s not a private-sector plan.
If left to its own devices, America’s free-market capitalism will produce growth and jobs. But it won’t happen in a targeted and temporary straight jacket.
Mr. Kudlow, the dependent class is growing; the producer class is contracting, how can we have true conservative hope and change we can live with anymore? There are not enough producers to vote Obama out of office. Obama's campaign speech was about giving to teacher's unions, enabling the unemployed to stay unemployed, and no details about how the rich are to pay for everything. God help America.
Come on Larry, your article is a collection of Republican talking points. The stimulus of 2009 didn't have the outcome as promised, certainly, but if it did fail according to your analysis, I would point to the tax cutting (one-third of total package) as the primary reason for this failure.
The stimulus was too small and didn't do enough actual spending. Tax cuts will never produce the desired results, nor will complaining about regulatory burdens prevent the economy from expansion. That's a smokescreen for increasing profits at the expense of whatever the heck the government is regulating. Sure many need review and possibly cancellation, but not the way you suggest.
"And they’re already worried about the tax and regulatory mandate costs of Obamacare, which has become a great deterrent to job creation." Really? Where is the data to backup your claim?
You see Larry, companies aren't hiring because there aren't enough customers buying their products.
The truth is that none of Obama's proposals will become law; this is just a foil for him to run against in 2012.
If it is consumer spending that is the only thing we need, why don't we just double the minimum wage, triple unemployment and social security, and increase medicare reimbursements 5 fold. Surely that will solve the problem, but if it doesn't, we will all know it was too small a stimulus, won't we?
You can't prove a negative Edward, but the macro ecohnomic evidence is in... businesses aren't hiring.
As a small (very small, but long standing) businessman who has, by attrition, half the staff I did three years ago (and is making more money because of it), I am no more motivated to hire any replacements than I would be to undergo a lobotomy.
Wow, Edward, I'd really like to see the resume' of someone who feels he has the knowledge and experience to respond to Mr. Kudlow in such a condescending manner.
""And they’re already worried about the tax and regulatory mandate costs of Obamacare, which has become a great deterrent to job creation." Really? Where is the data to backup your claim?"
Easy, just look at their balance sheets. These companies know what you aparently do not which is that future liabilities have to be reflected on the balance sheet.
This is why the Senate cancelled the hearings to excoriate those nasty businessmen for scare-mongering about O-Care when they adjusted their balance sheets to show these huge new liabilities going forward. One of the Senators, no doubt a trained businessman (how he ended up congress is anyone's guess,) explained that they were LEGALLY required to show these libilities.
When a company, or a person, has substantial liabilities going forward it is prudent to take steps to handle them. Some examples would be business undertaking less hiring and expansion. Other examples would be people not making so many purchases, especially large ones. Just ask your local mechanic how many people are repairing rather than replacing their cars.
"You see Larry, companies aren't hiring because there aren't enough customers buying their products."
And the reason they do have enough customers is because ... the government has created so much uncertainty that businesses (and consumers) do not want to hire and people are afraid to undertake any significant expenditures.
Let me ask you the same question I have asked so many others:
Would you undertake a long term financial commitment such as buying a car over 5 years if the government is going to give you a one-time tax reduction this year. The government has also said that not only is the reduction one-time event but that in the future your taxes may go up, substatially.
Paul, Paul, is that you? A stimulus too small...are you kidding? [Sound of heads exploding!]
There are times when I wonder what level of failure is required for Liberals/Democrats/Progressives to grasp the reality of the situation.
But then, what can you expect from people who for the most part have never run a business, and tried to actually function with the rules and regulations of government as they attempt to fund a business operation and show a profit for the madness of the quarter-to-quarter critics.
Just read the regional Fed reports - its all there. Obamacare is a huge issue, and businesses are saying that - along with a renegade NLRB and EPA - gives zero comfort to hire. What hiring is happening is because the isolated product demand is so strong for the products they will take a chance hiring into existing facilities. But domestic capital expansion is pretty much non-existent; capital expansion is happening overseas, or waiting for Obama's defeat.
Not talking points, reality. Businesses have little use for the modern day progressive. Soon, if things don't change, no one will be left to pay for your freebies.
This guy is a shameless partisan hack. The fact is that every reputable public and private agency that has analyzed the effect of the stimulus (Moody's, CBO, etc.) has said it created around 1.5 - 3.5 million jobs. Now President Obama's statement of 3 million jobs is very much at the top end of that range, but it is well within it.
And he provides absolutely no data for the so-called "job-killing" consequences of health care reform.
The fact of the matter is that lower payroll taxes, even if they are temporary, do have a stimulative effect on spending, which is exactly what we need. And some of the programs, like job-training for the long term unemployed, have been tested very successfully at the state level; there is no reason to believe they can't be implemented nationally.
Maybe permanent changes to the tax code would be more effective, but it isn't very practical to include that in this bill. That discussion belongs in the long-term deficit reduction / economic growth plans that Congress and the President are supposed to be developing. This is a temporary and targeted bill to help alleviate the suffering of the unemployed. If the Republican response is that we can't do it because we only care about the long run, then they will get walloped in 2012.
And you aren't any smarter than Edward. I hire people for a living. I talk to people all the time who do the same. They are saying what Mr. Kudlow is saying.
You can believe the phoney job creation stats all you want. There is a reason Obama is losing the young people in America. They are graduating and finding jobs aren't there.
You need to look in the mirror to see the real partisian hack.
We have 3 immediate instances of overspending on transit "'infrastructure" right here without looking hard. The SF - Oak Bay bridge eastern Spanish orig a $1B project, now $6B & 23 yrs after earthquake and isvulnerable to terror attack, the $1.7B central subway in SF, not yet built assume over budget, and only goes 1.7 mi. - get some exercise and walk it!, there is no need, an 8 story escalator down physically and 8 stories down on the road to economic hell. The airport connector @ Oakland airport a $500M project , where a $50mwould do the same thing. Then there's high speed rail aneconomic nightmare. How can anybody trust govt to spend wisely?
Implement an across the board 10% tax cut.
Implement meaningful corporate and individual tax reform, specifically targeting onshoring of jobs and ending incentives for child birth (i.e., scale back / limit welfare, no EIC, etc.)
Infrastructure Bank. Okay. Let the first project be building a secure fence along the entire with Mexican boarder.
Uphold existing employee verification laws to ensure jobs go to citizens.
Implement incentives to move Americans into jobs formerly manned by illegal aliens.
Obama sez: "I'm gonna pour $447 billion down a rat-hole." And that will that bring 3 million manufacturing jobs back from China how? Like shuffling the deck chairs on the Titanic, it won't do a rat'sass of good.
Edward, I'm a small business owner: you know, the type that creates 70% of the jobs in this country? I have a computer shop in Texas and one in Hawaii, and my little company ($265,000 TOTAL gross last year, my second year) has actually been growing ever since I incorporated in June 2009, using a small pile of capital inherited from my father.
My business plan called for me to take on three new employees this year...that's three fulltime, better-than-average-salaried jobs that I would have been able to create. But it ain't happening under the current regime.
Obamacare is not the only reason why those three jobs have not materialized, but it is absolutely the biggest. I am literally hamstrung here; I need the help, but cannot hire until I know how much it will cost me.
BTW: no help for me in Obama's speech this week. None at all.
And Edward: make no mistake about this one...it has nothing whatsoever to do with market demand. There is a sizeable market out there that I would like to serve. And a decent talent pool from which I could hire, if I could only nail down what the costs would be over the next 3-5 years. I'm "worried about the tax and regulatory mandate costs of Obamacare, which has become a great deterrent to job creation."
No...not "a great deterrent," sorry, it's "THE BIGGEST DETERRENT."
And, Edward: make no mistake about this one, either: there are MILLIONS like me in this same boat right now.
Edward, I'm a small business owner. You know, the type that creates 70% of the jobs in this country? I own two computer repair shops, through a company that I started in June 2009 with a small inheritance I received from my father.
My business has actually grown in the first two years ($2160k total gross last year). My plan actually called for me to take on three new employees this year -- that is, three newly-created, above-average-salaried jobs that were slated to happen but had to be put on hold.
And I'll give you a hint: the decision not to hire this year was not made because my taxes were too low.
Nor was it because I'm a racist.
I am hamstrung right now. I can't hire, because it is impossible in the current climate to calculate how much it's going to cost me.
Obamacare is not the only reason for that...it's just the biggest.
I know I'm just one anecdote out there, but hope you realize there are MILLIONS like me. This data only accounts for three jobs NOT created. But it's a helluva lot more dependable "data" than the BS we all heard last year about "jobs created or saved."
(By the way...no help in Obama's speech the other night for me or my brother and sister enterpreneurs. None at all.)
I just read an AP article on the plan that quoted a gaggle of economics professors and a handful of "wise guys" working for underperforming still too big to fail financial instutitions that maintained that this is a good plan.
One would think that an experienced financial reporter would have at least some knowledge of Friedman's permanent income hypothesis... especially after the last stimulus did so much to turn that theory into fact.
Lower income individuals will probably use the money to buy gas, buy staples that they would buy anyways or buy goods that, for the most part, aren't made here any more anyways.
Middle income taxpayers will probably use the extra money to reduce debt or pound it into savings.
Upper income taxpayers, which includes virtually all still profitable job creators, won't take the bait to use short term extra cash to incur long term cost commitments in a flat demand ecomony.
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