Instead of Obama's Jobs Plan, Pass Something that Will Work


ACRU Staff


September 15, 2011

This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published September 15, 2011 on

President Barack Obama’s first, nearly $1 trillion “stimulus” bill enacted in February, 2009, was intellectually quite shocking for its total devotion to an unreconstructed, 1970s style, college freshman’s understanding of Keynesian economics. It had a Rip Van Winkle quality in that it seemed to pretend that nothing had happened since 1980 to prove that the newer, more modern, supply side policies of Reaganomics were what would work to restore booming economic growth.

So Obama and the left wing cabal that now runs the Democrat Party put the entire nation through what seems more and more like an historical reenactment of the 1930s. Obama apparently thinks it is a brilliant political insight to pattern his Presidency after Franklin Roosevelt’s, as if the America of today is not fundamentally different or any more sophisticated than the America of the 1930s.

As a result, the experience of the Obama presidency has been to prove one more time what should have been realized by 1940, but what thinking people all knew by 1980: Keynesian economics doesn’t work. That is because what drives economic recovery, growth and prosperity is not government spending and deficits, but incentives to produce. Borrowing one trillion dollars out of the economy for the government to spend back into the economy, as in the first Obama stimulus, does nothing to improve or increase those incentives, or expand the economy on net.

That is why there has been no real recovery, even though recovery is long overdue based on the history of the American economy. Before this last recession, since the Great Depression recessions in America lasted an average of 10 months, with the longest previously lasting 16 months.

But in August, 2011, 44 months after the last recession began, unemployment was stuck at 9.1%, with exactly zero jobs created for the month, leaving over 25 million Americans unemployed or underemployed. This is the longest period of unemployment that high since the Great Depression, when Keynesian economics first reigned supreme.

Unemployment for African-Americans in August was 16.7%, stuck at depression levels for over 2 years. Hispanic unemployment at 11.3% has been in double digits for over 2 years as well. Teenage unemployment was a depression level 25.4%. Black teenage unemployment was at a Jim Crow level 46.5%.

The U6 unemployment rate, reflecting total unemployment and underemployment, was 16.2%. And that still doesn’t fully count the millions of Americans who have given up and dropped out of the work force altogether.

Then on Tuesday came the Census Bureau report fleshing out the full meaning of no economic recovery. Median family income has fallen all the way back to 1996 levels. The Wall Street Journal reported on Wednesday, “Earnings of the typical man who works full time year round fell, and are lower–adjusted for inflation–than in 1978.”

The poverty rate climbed to 15.1%, higher than in the late 1960s when the War on Poverty was getting underway, $16 trillion ago. The child poverty rate climbed to 22%, nearly a quarter of all American children. The total number of Americans in poverty is higher than at any time in the over 50 years that the Census Bureau has been tallying poverty. Moreover, the number of Americans ages 25-34 living with their parents has soared by 25% since the recession began.

Obama apologists cannot argue that this is because the recession he inherited was so bad. The historical record for the American economy is the worse the downturn the stronger the recovery. Based on the historical record, we should be completing our second year of a booming recovery by now.

So it is particularly shocking that the new Obama Jobs Plan, now in the third year of his Presidency, is just more of the same retro Keynesian economics, except that this time it involves nearly $500 billion in increased spending and temporary giveaways, along with $500 billion in permanent tax increases on net. The result of that will be even worse than the borrowed stimulus spending. The plan will still draw $500 billion out of the economy only to put $500 billion back in, but this time the tax increases will worsen incentives, decisively driving the economy down further overall.

And this is on top of the tax increases already enacted for 2013 raising the top rates of virtually every federal tax, with the Obamacare tax hikes becoming effective, and the Bush tax cuts expiring for the nation’s small businesses, job creators and investors under Obama’s policies. I argue in my recent book, America’s Ticking Bankruptcy Bomb, that along with Obama’s reregulation tsunami building to a crescendo by then, the result will be a whopping double digit recession in 2013, unless these policies are quickly reversed. If that happens, we really will be suffering an historical reenactment of the 1930s.

The Obama Jobs Plan further extends what has been another central fallacy of Obamanomics. Tax reform involves closing loopholes in return for lowering tax rates. But Obamanomics, from the new and expanded tax credits of the 2009 stimulus, to the green energy tax loopholes that left GE paying no income taxes on billions in corporate profits, to the proposed new tax credits of the Jobs Plan, to the 2013 tax rate increases, involves just the opposite, creating numerous new tax loopholes in return for higher tax rates.

Another central feature of the Jobs Plan only extends what has been proven to fail in the past. Last December, Obama proposed and won in the tax package a temporary, one year, 2% cut in the employee payroll tax. As should have been expected, a temporary, one year reduction in payroll taxes failed to create jobs or stimulate the long overdue recovery.

Yet, the President proposes now in his Jobs Plan to expand that to another, temporary, one year, 50% cut in the Social Security payroll tax for both workers and employers. But, again, 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 3% 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 that, 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 a more fundamental problem, which is that these payroll tax cuts politically are 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 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’s emerging policy is to increase other taxes, by $150 billion a year and more, and put that money in the Social Security trust fund to replace these lost payroll tax revenues.

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 for the long run. For these reasons, Congressional Republicans should not go along with the payroll tax provisions in the Obama Jobs Plan either.

What should be obvious upon analysis is that Obama’s American Jobs Act is not an economic plan, but a political plan for his reelection. What Obama is worried about and focused on is not your job, but his job. Obama and the political advisors that run his Administration know darn well that America did not vote for a New Deal size Republican Congressional landslide in 2010 for the Republicans to vote for another $500 billion in increased spending and temporary handouts financed by another, permanent, $500 billion increase in taxes. So the Obama Jobs Plan is really designed to be a political trap for Republicans.

If Republicans vote for Obama’s increased spending and taxes “jobs” plan, their own voters will crucify them. And if they don’t, Obama will run against them next year blaming a “do nothing” Congress for the historic failure of Obamanomics to generate any recovery, in a reprise of Harry Truman’s 1948 reelection strategy (Obama is so au courant).

What Congressional Republicans should do is scrap the Obama Jobs Plan in toto, and pass what will really work through the Republican controlled House. 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. They should negotiate instead with Congressional Democrats, who will be far more receptive to compromising with Republicans, and far less likely to stick with Obama, after Tuesday’s special election Republican victory in a district that hasn’t been represented by Republicans since before the New Deal.

Congressional Republicans can 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.

That would involve reducing the federal corporate tax rate from 35% to somewhere between 20% to 25%, and closing enough loopholes to make Obama corporate crony General Electric pay some corporate income taxes. Ryan proposed individual tax reform with a 25% top income tax rate for families making over $100,000 a year, and 10% 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.

House Republicans should also pass legislation to shut down Obama’s regulatory tsunami. That should include a

moratorium on any new EPA regulations for the rest of Obama’s term, the repeal of Dodd-Frank, and the REINS Act, which would require major federal regulations costing more than $100 million to be approved by Congress before becoming effective.

The GOP House should also pass appropriations bills implementing the Ryan budget. And they should repeal Obamacare a second time, for emphasis.

Then Republicans should campaign next year against a do-nothing Democrat Senate, and a do no good president, who sold himself to the country in 2008 on the false pretenses that he was a non-partisan moderate.



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