Pro & Con: Does President Obama have the right strategy for job creation?
NO: Policies that alter after-tax incentives for business kill jobs.
By Don Sabbarese
(Feb 9, 2010) — NO: Policies that alter after-tax incentives for business kill jobs.
Link To Articlehttp://www.ajc.com/opinion/pro-con-does-president-294204.html
By Don Sabbarese
President Obama was right on target when he said in the State of the Union address
in late January that “jobs must be our number one focus in 2010.”
But the Obama administration has got it all wrong when it comes to how. Raising taxes
on banks and other big businesses, as Obama proposes in his new $3.8 trillion budget,
may help with the budget deficit, but is not going to result in the creation of many
new private-sector jobs or induce companies to invest.
If the government wants to use fiscal policy to help the economy, then the most effective
approach is implementing permanent tax cuts.
In fact, what we need is for the government to stay out of the business of regulating
the private sector and creating jobs. Increased spending by the government, including
the administration’s new jobs bill, will not lead to sustainable job creation.
These well-intentioned measures will ultimately increase the cost of doing business
for the private sector by eating into their after-tax profits.
What the private sector lacks and needs more than anything is renewed confidence in
the economy. Businesses need as clear a view as possible of an economy that is on
the mend and that is not changing the rules.
Policymakers must resist the temptation to pass any policy changes that may impair
the willingness of businesses to invest in more capital and labor. At this moment,
businesses would welcome less uncertainty.
Once the economy reaches a sustainable level of growth, then policymakers could revisit
the more drastic policies the administration proposes — such as the EPA proposal on
taxing carbon, cap-and-trade, health insurance reform and a new tax on large banks.
Delaying these policies would prove to be less destabilizing.
For the time being, the federal government should concentrate on fiscal and monetary
policy solutions that enhance long-term economic growth.
One necessary condition for a recession to end, and for a recovery to take hold, is
for businesses to have renewed confidence in the economy. And right now we do not
As long as consumers and businesses have any lingering doubts about the sustainability
of economic growth, they will remain cautious toward increased spending on capital
In tough economic times, as businesses switch to a “survival mode” of cutting capital
and labor costs, an inertia sets in that is hard to reverse when things start to improve.
The same holds true for consumers.
Although GDP growth is a positive sign that the worst is behind us, it is still far
removed from the everyday decisions that small and large businesses make. Businesses
are constantly monitoring and weighing the signals from their particular markets against
the distant signals of the overall economy.
As a consequence, increased spending on their part will only come when they are convinced
that the improvement in the broader economy is synchronized with their particular
So the message to policymakers is to minimize policy changes that complicate business
and consumer decision making. The economy will be better served by policymakers simplifying
the regulatory and tax environment that the private sector must navigate through.
Massive stimulus spending financed with debt creates the expectations of higher taxes
in the long term, which also begs the question of who is going to pay for this debt.
Major policy changes should remain on the back burner until they can be fully debated
on their merits and when their passage will not prolong an already long recession
and slow recovery.
Don Sabbarese directs the Econometric Center at the Coles College of Business at Kennesaw
A leader in innovative teaching and learning, Kennesaw State University offers undergraduate, graduate and doctoral degrees to its more than 41,000 students. With 11 colleges on two metro Atlanta campuses, Kennesaw State is a member of the University System of Georgia and the second-largest university in the state. The university’s vibrant campus culture, diverse population, strong global ties and entrepreneurial spirit draw students from throughout the region and from 126 countries across the globe. Kennesaw State is a Carnegie-designated doctoral research institution (R2), placing it among an elite group of only 6 percent of U.S. colleges and universities with an R1 or R2 status. For more information, visit kennesaw.edu.