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September 7, 2011

Real Job Creation Ideas

Recently, President Obama has once again put jobs on his radar as a priority (after nationalizing health care and taking a trip to Martha’s Vineyard). Many liberals believe that the government should spend money in order to create jobs. A “stimulus” (as we were told in 2009 would avoid 10% unemployment) is designed to fund construction projects that would thus put Americans to work and generate the income growth necessary to create more demand and, consequently, employment.

However, we’ve found that the stimulus only temporarily increased employment in construction and, more than 18 months after we were told it would avoid 10% unemployment, the unemployment rate remains over 9%. So, how would Common Sense Capitalism create jobs?

Tax Clarity. The first step to creating jobs is giving the employers some clarity as to what their tax liability will be. This can be done by simply passing a bill that freezes corporate taxes for at least two, if not three years. An expiration of this bill would not mean that taxes go up (like the Bush tax cuts), but that the tax rate can be altered with new legislation. This is different from the Bush tax cuts because action (which our Congress is terrible at) would be required to raise taxes, as opposed to keeping them down.

Additionally, employers now know what their tax liability is over the next two to three years. Given that information, an increase in demand will generate more hiring versus more overtime as employers can better predict what levels of employment can be supported by certain levels of output. Nobody can argue that the current administration has come even close to providing employers with tax clarity.

Communication of Current Tax Credits. Did you know that in 2010, if an employer hired someone after March, they received a tax refund on all Social Security taxes paid when they filed their fourth quarter payroll taxes? It’s an interesting incentive to try and hire, and while the effects of this are uncertain on jobs creation (it does make hiring temporarily cheaper), how many people actually knew this?

The IRS could have put some of its tens of thousands of employees to work communicating incentives available for employers to hire. If the tax credit remains unknown, an employer on the fence about whether or not to hire may very well choose not to, especially if (like mentioned above) they do not know their tax liability. Combining communication with clarity can have a much stronger impact on the employment market than having each done separately.

Deregulation. In Dayton, Ohio, medical device manufacturers are concerned that new FDA regulations on the products they produce could cost the region more jobs. They should be concerned as Obamacare cost the industry roughly $4 billion (article here). I wonder if those increased costs led to jobs? Instead of creating new, burdensome regulations, the agency should be more concerned with discontinuing what doesn’t work, and simplifying what does (the FDA alleges current regulations are outdated). That strategy would reduce costs, makingLink it easier to create jobs when demand increases.

While the President is not likely to take these things into serious consideration, he should look at the performance of all previous jobs initiatives and ask if more government involvement is really the answer.

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