Obama’s Jobs Program: More of the Same

Right From the Start

President Barack Obama delivered his “jobs” speech last week to a joint session of Congress. Mr. Obama has learned the speaking cadence of revival preachers and trial lawyers who seek to mesmerize by words in order to disguise the substance. But, like Elmer Gantry, Mr. Obama’s actions have proved ruinous for all of those around him. Don Imus may have said it best when he observed that Mr. Obama’s speech was more about “his job than your job.”

We have learned through repeated experience that there is usually a large gap between what Mr. Obama says and what he does. For instance, the White House public relations office disclosed that Mr. Obama made dutiful calls to House Speaker John Boehner and Sen. Minority Leader Mitch McConnell, requesting that all parties rise above partisanship and work together to lift the country out of its bleak economic condition which has been highlighted by the remarkable lack of job creation.

However, in the weeks leading up to Mr. Obama’s speech he took every opportunity to cast his jobs proposals in the most partisan terms. In speech after speech he told labor and African American audiences that he was offering up his jobs proposals and that if Republicans dared to disagree that they would show the world that they were against working men and women. He peppered his speeches with class warfare rhetoric and basked in the applause garnished from his most inflammatory rhetoric. And he declined to condemn or disavow cruel racial remarks by members of the Congressional Black Caucus and calls to violence by Teamsters’ union leader Jimmy Hoffa.

Until Mr. Obama has submitted the actual language of his proposals to Congress we are left to speculate, much like we did with his national healthcare bill, as to what he actually intends to accomplish. Be that as it may, the concepts he proposed are worthy of comment. As I understood his speech there are five major proposals to boost job creation: payroll tax cuts, a tax credit for those who hire those who have been unemployed for six months or more, a large “public works” initiative focused on highway and railway construction and repair, aid to local governments to avoid layoffs of teachers and emergency personnel and another extension of unemployment benefits. There is nothing new in Mr. Obama’s proposals since each of the elements is already in place or was “utilized” in his trillion dollar “stimulus” enacted and wasted two years ago. So let’s take them one at a time.

1. Payroll tax cuts. This is a program already in place and represents, primarily, an extension and slight enhancement of the existing program. The theory behind this is that by eliminating the payroll tax, employees have additional money to spend thus stimulating consumption, and employers have additional money that can be used to hire additional workers or make additional investments. In all probability, the existing program stimulated spending by workers thus reducing the likelihood that a bad economy could have been worse. One should assume that a continuation of that program will have the same effect – in other words, it doesn’t stimulate the economy, it simply mitigates against it getting worse.

 The “stimulus” effect to employers is much more doubtful. Few employers are going to hire additional permanent employees based on a temporary program. Similarly they are not going to make major capital expenditures based on a temporary program particularly when there are other major anti-business initiatives visible in the near term – the tax increase continuously championed by Mr. Obama and the tsunami of job killing regulations in the works from Mr. Obama’s administration. Until the business climate improves, most employers are going to continue to be circumspect.

And finally, and much less discussed, is the fact that the temporary payroll tax reduction being proposed is the source of revenue intended to fund Social Security. Social Security crossed the Rubicon months ago where payments to beneficiaries exceed revenues to the program. Social Security is going broke and a reduction in revenues only accelerates the process.

2. A tax credit for hiring the unemployed. Mr. Obama proposes to give employers a $4,000 tax credit for hiring those unemployed for six months or more. It is a laudable but temporary proposal. It is also highly doubtful that employers facing the same uncertainties from tax increases and new regulation referenced above, will spend $14,500 (federal minimum wage for an employee) to save $4,000 in taxes – the likelihood lessens as the wage structure increases. It is probable that some businesses on the cusp of hiring will be persuaded to make the decision based on the tax credit but we should not expect a wholesale rush of employment.

3. A large public works proposal focused on highways and railroads. Usually, public works projects are the single instance where government can have a positive impact on economic growth. But even here, the benefit to the nation’s unemployed is somewhat suspect.

Public works projects are subject to the Davis-Bacon Act that requires union wages to be paid by contractors. Thus, by application, public works projects tend to benefit union contractors and union members. Less than 7.2 percent of workers belong to unions. As a general benefit to America’s unemployed, public works projects are minimal.

Additionally, every public works project requires a government bureaucracy to plan and administer it, which ensure additional payments to Mr. Obama’s primary supporters in the nation’s public employee unions.

4. Aid to local governments. Mr. Obama has stated that his proposal is designed to avoid layoffs of teachers and emergency personnel. But the last time Mr. Obama used this tool, the funds were used to pay for raises for existing teachers and simply increased the recurring costs to local governments. When the temporary aid ended even more layoffs were required to sustain the wages enhanced by the previous “temporary” aid. The point here is while this may benefit one of Mr. Obama’s key constituencies – the teachers unions – it simply exacerbates an already difficult situation.

5. Continuation of unemployment benefits. Let’s be honest, this has nothing to do with job creation. It is a form of welfare and subject to the same frailties as any other welfare program. There is a duty in civilized societies to provide care for those who cannot provide for themselves. Unfortunately, the application of welfare programs has resulted in indistinguishable benefits to both those who cannot and those who will not provide for themselves. In the case of unemployment benefits, there is a significant body of evidence that long term continuation of unemployment benefits delays the actual search for employment. One only has to recall the recent events in the State of Washington where growers had to import farm workers from Jamaica to harvest apple and cherry crops. The marginal benefit between what Washington workers received from unemployment and other welfare benefits and what they would have received from the hard work of harvesting was insufficient to incentivize them to seek employment. The extension of unemployment benefits beyond the initial twenty-six week period may provide an increased likelihood of employment if benefits were tied to a requirement that recipients accept any work offered rather than work they find desirable.

Missing from Mr. Obama’s proposals are the primary factors that would encourage private sector growth and increased employment. Mr. Obama appears to be permanently stuck in the fantasy world of Keynesian economics where government is the pivot upon which the entire world turns.

As an example, in Monday’s edition of the Wall Street Journal, Mary Anastasia O’Grady contrasts Canada’s complete recovery of jobs lost during the recent recession with America’s faltering economy and static job growth:

“Having spent an hour the day before with Ron Leipert, the energy minister from the Canadian province of Alberta, I found it especially disturbing to hear nothing in the speech about reversing the administrations anti-fossil fuels agenda. Canada has recovered all the jobs it lost in the 2009 recession, and Alberta’s oil sands are no small part of that. The province is on track to become the world’s second largest oil producer, after Saudi Arabia, within 10 years. Meanwhile Mr. Obama clings to his subsidies for solar panels and his religious faith in green jobs.”

If Mr. Obama was serious about economic recovery and job growth instead of political advantage and liberal dogma, he would consider and incorporate the following items:

1. Eliminate corporate welfare. That means the elimination of special tax considerations for oil and gas producers, hedge fund managers and others. It also means elimination of direct subsidies and tax subsidies for wind and solar generators, biofuels, ethanol, and other nascent but uneconomic energy suppliers. Add crop subsidies and other agricultural support mechanisms.
2. Utilize the revenues gained from the elimination of corporate welfare to provide a general reduction in income taxes for all businesses.
3. Eliminate the tax penalties for foreign investment thus allowing the repatriation of those profits. (The taxes have already been paid to the countries in which the income was earned. The United States is one of the few nations imposing this form of double taxation.)
4. Confine mortgage interest deductions to primary homes.
5. Roll back new regulations to those in place at the end of 2008. A recent report from the Heritage Foundation indicates that Mr. Obama has added an additional $83 Billion in annual costs to the economy through new regulations and that does not include the effects of Obamacare.

The key to economic growth and job creation is to provide stability and predictability in an environment where government fiat is not the determinant of success and failure.