Bad ideas in 2009 are even worse when cynically and wrecklessly reintroduced in 2011. Luckily, there’s a GOP plan.
If President Obama’s jobs plan is such a good idea, then why did he wait until the third year of his presidency to propose it?
Oh wait, he didn’t actually. The so-called jobs plan Obama is trying to con the nation with now is the same plan of government spending, tax credits, and temporary measures he passed in his trillion dollar stimulus bill in his first month in office in February 2009, only half as large. And one half the effect of zero is still zero.
But not to worry, because President Obama’s job’s plan is not about your job, or the jobs of your friends and neighbors, or the jobs of your sons and daughters. It is about his job, and pinning the blame on the Republicans for the economy if they don’t pass his silly “jobs” plan. Obama’s American Jobs Act is not an economic plan, but a political plan for his reelection.
You see, America did not vote for a New Deal-sized Republican Congressional landslide in 2010 for the Republicans to pass still further increase in government spending and taxes. And he knows that. So he figures he has the Republicans cornered. If they vote for his increased spending and taxes “jobs” plan, their own voters will crucify them. And if they don’t, Obama will run against them next year for standing in the way of his brilliant plan for economic recovery and jobs.
The Opposite of Tax Reform
Tax reform is supposed to involve closing loopholes and reducing rates. But President Obama’s tax policies, starting with the 2009 “stimulus” and extended further in this latest “jobs” plan, is just the opposite. It involves creating new loopholes and increasing rates.
In the so-called American Jobs Act, the President proposes a new tax credit of $4,000 for hiring the long-term unemployed. He also proposes a tax credit for hiring veterans who have been unemployed for more than six months, and another tax credit for hiring the unemployed with service connected disabilities.
This echoes Obama’s 2009 stimulus, which included over half a dozen new tax credits, such as the Making Work Pay tax credit, which grant those who qualify under the government’s criteria an arbitrary reduction in their total income tax bill, or cash from the IRS if they don’t pay income taxes. The president’s so-called green energy policies also include a raft of new tax loopholes, which is what enabled General Electric to avoid paying any taxes last year on billions in profits.
The tax cuts that drive economic recovery, growth and jobs are permanent reductions in tax rates, particularly the marginal tax rate on the last dollar of investment, which allow producers to keep a higher percentage of what they produce. That expands the incentives for productive activity, such as investment, business startups and expansion, and job creation. Moreover, once the new, lower rate is established in law, it affects every economic decision throughout the economy, not just the dollar amount of any tax cut. This is what worked so spectacularly under Reaganomics.
Tax credits, by contrast, don’t promote economic recovery, growth or jobs. They are just cash grants that do not change the fundamental incentives defined by the tax rates. Effectively, a tax credit is just another welfare check from the government, and the economy doesn’t grow or boom based on increased welfare. Moreover, when the tax credit is financed by borrowing money out of the private sector, the economy gains nothing on net. Even worse is when the tax credit is financed by tax increases, which reduce incentives for investment, business start ups and expansion, and job creation, resulting in a reduction in the economy and jobs on net. This is why Obamanomics has not worked.
Indeed, Obamanomics involves precisely increases in tax rates, as Obama has already enacted under current law. He increased in the top tax rates for virtually every major federal tax for 2013. That is when the Obamacare tax increases become effective, and the Bush tax cuts expire. Obama has refused to renew Bush’s cuts for the nation’s small businesses, job creators and investors. The only important tax rate not scheduled to go up is the federal corporate tax rate, which is already virtually the highest rate in the industrialized world. That high rate sharply slashes the competitiveness of American businesses and employers in the global economy. Yet Obama continually proposes still more tax increases on American business.
These tax rate increases will have the opposite effect of tax rate cuts, and they are already discouraging job creation today, as businesses plan for the long term. Every thinking person can see the obvious failure of Obamanomics today. But just wait till that tidal wave of tax rate increases in 2013, when the failure will hunt you down, and punch you in the face.
And with these tax rate increases, we will have the complete opposite of tax reform with Obamanomics, new loopholes, in the case of GE leaving a multibillion dollar corporation with no tax liability, with higher rates.
Trashing Social Security Financing
Another central feature of the Obama jobs plan is to trash the financing of Social Security. The Making Work Pay tax credit morphed last year into a temporary, one year, two percent cut in the employee payroll tax. It didn’t work to create jobs and economic recovery. But that seems to appeal to President Obama, who is always glad to double down on what doesn’t work.