A presidential press secretary has never spoken a truer sentence than Jay Carney’s admission last week: “The White House does not create jobs.” This is a rare and welcome expression of humility from a White House that has promised everything from “remak[ing] America” to stopping the oceans’ rise. It’s also an opportunity to get Washington out of the way and lay out a jobs agenda that can succeed.
Free-market advocates know that the best formula for prosperity is low tax rates, neutral tax laws, low regulation and small government. Cutting government spending and eliminating distortions in the tax code will allocate wealth more efficiently and strengthen the economy. But that’s a long-term proposition. It seems that liberals, with their John Maynard Keynes-inspired stimulus notions, are the only ones offering credible (if ultimately mistaken) ideas for short-term boosts. Interventionists always have more tricks in their bag for providing immediate benefits to selected groups. The free-market argument — that these government programs provide narrow and short-term gain while inflicting broad and long-term pain — seems less relevant when economic pain is so acute.
But this is where bad government policy provides an opportunity. There are plenty of policy changes available to Republicans looking for immediate boosts in hiring and to Democrats who perceive that the U.S.S. Paul Krugman has sailed and giant stimulus is off the table.
Democrats say that extending unemployment benefits for those out of work 99 weeks will help create jobs because putting money in unemployed people’s hands creates demand. Republicans argue that paying people not to work is a bad way to get people to work. Both arguments are right. So here’s a compromise: Instead of paying laid-off folks for every week they are out of a job (and thus reducing the marginal gain of finding a job), convert unemployment benefits into a lump-sum payment.
Get laid off? Get one big check for 13, or 26 weeks of benefits. You can still buy things, not starve, help the economy, and not need to settle for the first job opening. But also, the marginal benefit of going to work isn’t artificially depressed because you’re no longer being paid for staying unemployed.
Most of what Congress could do to spur job growth is to stop penalizing hiring so much. Forget these gimmicky one-time tax credits for new hires or short-term reductions in the payroll tax. Hiring someone is a long-term investment, and so employers look at long-term costs of a hire. Instead of payroll tax holidays, pass permanent payroll tax cuts and otherwise reduce the government-imposed costs of hiring people.
Workplace regulations are a huge penalty for hiring. Many regulations, such as Obamacare’s employer mandate, have exemptions for small businesses. Sometimes these rules exempt companies employing fewer than 50 people, and sometimes the exemption is as small as four people. The number of employees set by Congress in these exemptions is arbitrary, so why not double — or triple — all of those thresholds? You’ll see plenty of businesses that are just below the regulators’ radar grow once they know they can do so without getting OSHA, the Department of Labor, or Health and Human Services breathing down their back.
Republicans don’t escape blame on the score of government policy suppressing jobs. By choosing to favor certain business activities over others, “pro-growth” lawmakers have created distortions that artificially suppress hiring. One example: the research and development tax credit. R&D is good. A tax credit for R&D stimulates R&D. What’s to dislike?
For one thing, R&D is just one way companies deploy capital. Another way is purchasing equipment or facilities. Another is employing workers involved in manufacturing, marketing or anything else. All three of those investments are good. Why should our tax code favor one productive use of capital over another? Shouldn’t we let the market decide the best way to deploy capital? And especially at a time when unemployment is so high, why should R&D costs (which include employment costs, but also plenty of other costs) be privileged?
Republicans and Democrats both say R&D tax credits create jobs, but it’s just as likely that it’s simply lower taxes creating jobs. If Washington is willing to forgo the revenue, why not abolish the R&D credit and cut corporate tax rates across the board?
Ultimately, though, Congress is asking for trouble if it seeks too many quick fixes. The unwillingness to endure painful corrections has been the story of Washington economic policy for the last decade, at least. Look at where it landed us.
Timothy P.Carney, The Examiner’s senior political columnist, can be contacted at [email protected]. His column appears Monday and Thursday, and his stories and blog posts appear at ExaminerPolitics.com
