On Wednesday, the Senate passed a $17.6 billion spending bill. It needs only President Obama’s signature to become law.
The hope is that the new spending will create jobs. But hope is not the same as reality. Remember: anything that Washington giveth, it must first taketh away from somewhere else. This jobs bill is a zero-sum game. All those new jobs that politicians will be showing off for the cameras will have come at the expense of other jobs elsewhere. On net, they’re not creating a thing.
Take the payroll tax break for small businesses included in the bill. Yes, those small businesses benefit. Maybe the money they save will even be used to hire more workers. That’s easy enough to see. But that money had to come from somewhere. That is harder to see. Too hard for the Senate to see, at the very least.
The reason is this: the government is foregoing some payroll tax revenue, but it isn’t cutting spending to match. That means it has to borrow more. And there’s only so much investment capital to go around. That means less left over for private businesses.
At the very least, companies will have to offer investors higher interest rates to convince people to invest their money rather than do something else with it — and also make corporate investments look more attractive than government bonds.
That makes getting loans more expensive. And when something becomes more expensive, there tends to be less of it. Because of today’s bill, $17.6 billion less capital will be available to invest in the private sector and create jobs.
The spending bill contains a host of tax cuts. Besides the payroll tax break, small businesses can get a $1,000 tax credit for hiring new workers and keeping them on for at least a year. Tax cuts are often a good thing. Unfortunately, these aren’t really tax cuts.
Because these tax breaks and credits are deficit-financed, they will have to be repaid later. And there is only one way to do that: taxation. Government can borrow and borrow all it wants, but eventually it has to pay the money back. A tax cut today is a tax increase later. Don’t be fooled.
So not only is the spending bill zero-sum as far as job creation goes, it will actually hurt the economy down the road because future taxes will have to be hiked to pay for it. Fortunately, Congress and the President have a tool at their disposal that can more than undo the harm that their jobs bills and stimulus packages are doing: a deregulatory stimulus.
It doesn’t cost anything. It doesn’t require new capital. It doesn’t require new government spending that we can’t afford. Deregulatory stimulus means letting companies take resources they already have and put them to better use. It’s a wonderful way to create jobs. And it’s not zero-sum. New wealth is actually created.
Businesses currently spend about $1.2 trillion complying with federal regulations. State and local rules cost extra. The combined total exceeds Canada’s entire GDP. Federal rules cover everything from what colors surgical stitches can be, to how to weigh farm animals, to the size of holes in Swiss cheese. The level of detail is incredible. And it stifles entrepreneurs — not to mention the competitive process.
Licensing regulations and other red tape rules are routinely gamed by unethical companies trying to hobble their competitors. Repealing just some of those regulations would force those companies to compete in the marketplace instead of in Washington. Not only do consumers win, but so do workers. There would be more of them producing more goods.
Lifting just 1.5 percent of today’s federal regulatory burden would free up enough time and energy to cancel out the harm done by Wednesday’s spending bill.
Enough with the spending bills. Enough with the jobs bills, stimulus packages. Not only do they not actually create net jobs, they are filled with hidden tax increases. There is a better way. Congress and President Obama need to pass a deregulatory stimulus.