Braindead on Arrival


ACRU Staff


September 14, 2011

This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published September 14, 2011 on The American Spectator website.

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 jobs 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.

So the President proposes now to expand that to a temporary, one year, 50 percent cut in the Social Security payroll tax for both workers and employers. But because it is temporary, it will not promote jobs. Employers are not going to take on a permanent employee in return for a temporary, one year tax reduction covering just three percent of his salary.

Even worse, the payroll tax cut for employers is just on their first $5 million in payroll. So that cut will not encourage new hiring in any event for any firm with payroll above that. In seeming recognition of this problem, the President proposes a temporary, one-year, payroll tax holiday entirely for businesses that hire new workers or increase wages for current workers, for up to $50 million in payroll increases.

What these proposals reveal is the more fundamental problem, which is that these payroll tax cuts are effectively not temporary. Any time we try to end these “temporary” payroll tax cuts, that will be portrayed as an increase in taxes on working people and jobs. President Obama proposes to get these cuts into law on the grounds that they are temporary. But there will be hell to pay if anyone ever tries to allow them to expire.

Social Security is already in deficit this year, for the first time since President Reagan saved the program from bankruptcy 30 years ago. And Social Security is already projected by government actuaries to go completely bankrupt in about 25 years.

President Obama says not to worry, because we can just borrow even more — another $150 billion a year, and put that money in the Social Security trust fund to replace those lost payroll tax revenues. But is that how we are going to finance bankrupt Social Security for the long run? Save Social Security by bankrupting America?

Social Security was supposed to be a program where workers earn their benefits by paying for them during working years. But now Obama is turning it into a program where it is unfair to workers to expect them to pay for it. What he is doing is trashing Social Security’s financing, and daring any one to try and stop him from doing it.

Government Spending is the Problem, Not the Answer

Apart from the above foolishness and irresponsibility, the rest of the Obama jobs involve
s increased government spending that has already been tried to produce recovery and jobs. President Obama’s most fundamental economic fallacy is his college freshman simple mindedness that increased government spending is the foundation for economic recovery, growth, and jobs.

He proposes more bailouts to states, which he calls “preventing layoffs of teachers, cops and firefighters.” That was a central feature of his 2009 “stimulus” plan. He proposes spending another $25 billion to “modernize over 35,000 schools,” as if we were not already spending more on education than any other nation in the world (the most in world history in fact).

Obama further proposes another $50 billion in increased infrastructure spending for highways, mass transit, rail, and aviation, plus another $10 billion for a National Infrastructure Bank that is a downpayment on endless fiscal mischief. Such supposed “shovel ready” jobs are what we were told the $1 trillion 2009 stimulus bill was all about. So with that having failed, the president proposes still more of the same. Federal highway bill spending already involves tens of billions each year, even though there has not been a regular federal highway bill passed since Democrats first took back control of Congress.

The president proposes increased government spending for unemployment insurance benefits for almost two years, saying such spending is “the highest bang for the buck option to increase economic activity.” Paying people who are not working does not provide any bang for the buck in increased economic activity. Such illogical economic fallacy is what is killing our economy. Providing people with unemployment benefits to help them get through is humanitarian. It is not a prescription for booming economic growth and prosperity.

Worst of all, the president proposes to increase taxes by another half trillion, on top of what is already scheduled for 2013, to pay for all of this. But he doesn’t consider at all what economic impact that will have. That will take far more out of the economy than his spending puts in.

Pass the GOP Plan

What congressional Republicans need to do is scrap this transparently braindead Obama “jobs” plan, pass their own plan that will work through the Republican controlled House, and barnstorm the country to explain it and promote it. They should not get trapped in “negotiations” with Obama, who has demonstrated he has no meaningful understanding of how the economy works, or how to promote economic growth. Obama is the one who has demonstrated he is only interested in reelection politics, and that is what any negotiations with him would be all about.

What congressional Republicans can do is hammer out a deal with congressional Democrats for tax reform somewhere between what House Budget Committee Chairman Paul Ryan proposed in the budget passed by the House, and what the Simpson-Bowles Commission appointed by President Obama proposed. There are enough Senate Democrats who support the Simpson-Bowles proposals to pass such a bill through the Democrat controlled Senate. Obama himself endorsed the idea of corporate tax reform in his next to last address to a joint session of Congress on September 8.

That would involve reducing the federal corporate tax rate from 35 percent to somewhere between 20 to 25 percent, and closing enough loopholes to make Obama corporate crony General Electric pay some corporate income taxes. Ryan proposed individual tax reform with a 25 percent top income tax rate for families making over $100,000 a year, and 10 percent for families making less. The GOP House can pass that popular plan too and call on Obama to get it or something better through the Senate, which can then go to conference.

The GOP House should also pass the REINS Act, which would require major federal regulations costing more than $100 million to be approved by Congress before becoming effective. They should pass a moratorium through the rest of Obama’s term on all further EPA regulations, and campaign on the disastrous economic consequences of anything imposed by Obama’s EPA, which insists it is illegal for them to even consider the economic consequences of their regulations. They should repeal Dodd-Frank and its job-killing excessive regulation squelching America’s finance and credit. They should repeal Obamacare a second time, for emphasis.

The GOP House should pass restrictions on the discretion of the Fed’s monetary policy, requiring it to follow a price rule restricting its policy when the price of gold and other commodities rise and the dollar falls, and loosening its policy when the price of gold and other commodities fall, and the dollar rises. That would end inflation and maintain a stable dollar, encouraging job creating investment in America.

And the GOP House should pass appropriations bills implementing the Ryan budget. Then House Republicans should fan out across the country to campaign on these popular measures against a do nothing Democrat Senate, and a Marxist infiltrator president that is trashing America.



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