While President Obama is having his jobs summit today, National Review Online decided to have one of our own. We asked some of our experts: What’s a realistic policy that could actually create jobs? Who could take it up as a campaign?
Only supply-side economics and reductions in tax rates will stimulate permanent job creation. America’s corporate–income–tax rate is now virtually the highest in the industrialized world, as others across the planet have adopted the successful policies of Reaganomics. Cut the federal corporate–tax rate from 35 percent to 20 percent, if not lower. Allow immediate expensing for business equipment. Cut federal payroll taxes by 50 percent for two years, which would provide powerful, immediate relief to small businesses that create the most jobs. Follow this with a permanent personal–account option for that portion of payroll taxes for younger workers, with the personal accounts substituting for an equivalent portion of future retirement benefits. This would provide a continuing gusher of new savings for capital investment, resulting in more jobs and higher wages. To pay for this, abolish TARP and return the money, end all bailouts, and repeal still unspent “stimulus” funding. Newt Gingrich has a complete jobs program along these lines here.
– Peter Ferrara is director of entitlement and budget policy for the Institute for Policy Innovation.
BURTON FOLSOM JR.
What does history tell us about how to create jobs? For three generations, Keynesian economists have argued that stimulating spending by the federal government is the most effective way to jump-start an ailing economy. That tactic, however, has no record of success. It always fails. The government aid becomes politicized and the higher taxes choke economic growth.
What does work in creating jobs is tax–rate cuts. After World War I and World War II (under Presidents Coolidge and Truman) the U.S. reduced the size of government and also cut tax rates — and that encouraged business to expand. The result was the prosperity of the Roaring ’20s and the huge business growth of the late 1940s. For example, from 1921 to 1923, unemployment dropped from 12 to 2 percent. In a similar vein, unemployment in 1946 was sharply lower than it was during any year of the depressed 1930s.
Who should support tax–rate cuts? In the last 50 years, a Democratic president (Kennedy) and a Republican president (Reagan) have promoted tax cuts in their administrations, and in both cases, U. S. economic growth soared. Those candidates attuned to history should advocate cuts on income, capital–gains, and estate taxes.
President Obama’s Thursday “jobs summit” will seem like an empty media event to many Americans, including many of the nearly 16 million jobless.
How to create jobs? First, abolish the division between companies that fully face the consequences of their actions and companies that don’t. That is, end “too big to fail.” If Obama really needs to have a summit, he should hold one on how Washington can credibly end this policy, because the financial-regulatory “reform” bills won’t do the trick. Smaller businesses cannot create jobs until they can fairly compete for capital. They can’t fairly compete on the merits, though, when large financial companies are extensions of the government and must dole out some of their lending on political, rather than economic, considerations.
Second, ask Congress to fix the stimulus law. Unspent stimulus money meant for states and cities should go only to state and cities that use the funds to credibly cut their long-term spending. It’s okay for municipalities to put some cash toward shoring up pension funds, for example, but only to ease the transition toward a revamp of public-employee pensions. The private sector can’t grow when employers are spending much of their time trying to figure out how to pay or flee ever-rising municipal taxes.
Finally, spend more of the stimulus money on real infrastructure investments — even if it takes longer to plan good projects. The economy doesn’t need “shovel ready.” It needs to know that government has a long-term investment plan for the public assets that support private-sector growth.
– Nicole Gelinas, contributing editor to the Manhattan Institute’s City Journal, is author of After the Fall: Saving Capitalism from Wall Street — and Washington.
REA HEDERMAN JR.
During the campaign, President Obama recognized that high tax rates impede economic growth. One of his campaign ideas was to eliminate capital-gains taxes for business startups. The president should return to this idea and expand upon it. Instead of eliminating the capital-gains tax rate for startups that aren’t profitable anyway, the president should reduce the capital-gains tax for everyone.
Credit and capital constraints are still an anchor on the economy, particularly for small businesses. A lower tax rate for everyone could free up new investment capital, which would encourage new business startups. A lower tax rate means that projects that might have been deemed too risky by investors are now seen as a worthwhile risk.
Small–business startups and job growth are extremely low during this recovery. Firms with fewer than 50 employees have accounted for one-third of job growth over the last two decades. Cheaper capital as a result of the reduction in capital–gains taxes will benefit these small businesses.
The president could also call upon Congress to roll back some of the tougher financial regulations enacted earlier this year. Banks raised interest rates and credit limitations as a result of Congress’s actions. This made it even tougher for small businesses to expand or even to be created.
At a minimum, the president should prevent capital from becoming more expensive by extending the Bush tax cuts that reduced taxes on dividends and capital gains. At a time when small business is struggling to find credit, making capital more expensive is a policy that ensures that job growth from small business remains well below its usual level.
– Rea Hederman Jr. is assistant director of the Center for Data Analysis and senior policy analyst at the Heritage Foundation.
The premise of the jobs summit, as far as I can tell, is that we need to pursue drastic temporary measures to address the skyrocketing unemployment rate. My view is a bit different. Basically, I think we’ve been living through a jobs crisis for a long time now, one that was masked by an unsustainable housing boom that, for a brief and happy moment, created jobs for less-skilled men. At the same time, labor-force participation by prime-age men has been declining as more have chosen to live on disability or take part in the underground economy. The deep recession of the early 1980s saw the emergence of a massive employment gap between black and non-black men, in part because of skill-biased technical change. That gap has never closed, and there’s a danger that this new downturn will increase the number of Americans who are frozen out of the mainstream labor market.
Rather than pursue a crisis-driven temporary policy, we should pursue policies that would make sense regardless of the business cycle. The extraordinary news that one in eight Americans now receives food stamps should be a clear indication that something has gone badly wrong. One idea, proposed by economists Aaron Edlin and Edmund Phelps, would offer low-wage employer tax credits designed to lower the cost of hiring and retaining workers. Phelps made the case for low-wage employment subsidies in his excellent book, Rewarding Work, in 1997, and there is good reason to believe that the proposal would pay for itself by reducing welfare dependency and crime.
A perhaps more attractive way of stimulating employment might be offering payroll–tax relief. Michael Boskin has proposed a one-year partial payroll–tax cut while Greg Mankiw has called for a permanent payroll–tax cut funded by an increase in gasoline taxes. The permanent solution is the better one, though the gas–tax hike will raise hackles. It should go without saying that a tax reform that simplifies the tax code along the lines proposed by President Bush’s tax-reform commission and that lowers the corporate–income tax would prove a permanent boon to the economy.
But instead I’m guessing we’ll get gimmicks.
– Reihan Salam writes the Agenda blog for NRO and is the coauthor of Grand New Party: How Republicans Can Win the Working Class and Save the American Dream.
Corporate- and payroll-tax cuts would be nice, and make no mistake: They would lead to more hiring in the short term. But the surest path to long-term job creation is through a stable economic recovery. That can’t happen until the Obama administration forces a true recapitalization of the banking system.
Businesses can’t create jobs without access to financing, and right now, the banks aren’t providing it. The money that the Bush and Obama administrations pumped into the banks failed to recapitalize the system adequately; it merely bailed out the banks’ creditors at taxpayer expense. A true recapitalization of the banking system would require some bond holders to swap debt for equity and leave some equity holders with nothing. Naturally, these guys would rather ride out the crisis on the taxpayers’ dime, hoping that a miracle recovery will restore asset prices to the values they attained at the height of the credit bubble.
The banks have used the bailouts as a cushion to avoid having to restructure all the bad debt that’s still clogging up the system. The Obama administration could expedite the restructuring process by requiring bailed-out banks to accelerate write-offs. It could manage the resulting insolvencies by protecting depositors and forcing stakeholders to shoulder their fair share of the losses.
Instead of coming up with a banking plan, however, the administration has changed the subject to health care and global warming; when Obama does turn his attention to the financial crisis, he treats the public to executive-compensation sideshows and pious lectures about greed. In the meantime, the banking system is still holding its breath, waiting for a recovery that will probably not occur, and job-seekers are the ones who are suffocating.
– Stephen Spruiell is an NRO staff reporter.
It’s time for a serious reconsideration of economic policy. Current policy, as the performance of the economy is demonstrating, is built on ill-considered theories that fail to acknowledge the real source of long-term job growth: private investment.
Until now, the Obama administration has built its policy on a “spending drives growth” view of job creation. The ad hoc collection of government projects popularly dubbed the Stimulus Program focused almost exclusively on propping up consumer spending, whether through individual tax breaks, filling in potholes through “shovel ready” make-work projects, or extending social–welfare spending such as unemployment insurance. Now, with the economy languishing at levels well below benchmarks established by White House economists, we know that propping up consumer spending hasn’t delivered the promised growth.
Rebalancing national economic policy with a strong supply-side strategy would be more prudent, realistic, and honest about the sources of long-term job creation. Private investment in goods and services, many of which consumers buy directly but many more of which flow from business to business, generates the economic output necessary to create new jobs and sustain consumer spending. Slashing, if not eliminating, capital-gains taxes, reducing the overall government drag on the economy through spending restraint, and keeping inflation under control will be the pillars of an approach that will fuel long-term growth and job creation.
– Samuel R. Staley is director of urban-growth and land-use policy at the Reason Foundation and teaches urban and regional economics at the University of Dayton.