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The Senate Still Doesn’t Get the Message

Posted By J.D. Foster, Ph.D. On February 12, 2010 @ 12:15 pm In Economics | Comments Disabled

Senator Harry Reid (D-NV) [1]

Senate Majority Leader Harry Reid (D-NV) says [2]“the American people need a message. The message that they need is that we are doing something on jobs.” Reid’s real message is to confirm what is now obvious to all, which is that he and his congressional allies have nary a clue as to how an economy creates jobs.

In lieu of an ineffectual bi-partisan compromise bill crafted by Chairman Baucus (D-MT) and Senator Grassley (R-IA), Reid has reportedly developed a slimmed down, equally ineffectual bill including a new payroll tax exemption plus extensions to three existing programs – Build America Bonds, small business expensing, and a one-year extension of the highway program.

To get a sense of how nonsensical this is, suppose the Federal government actually had an effective stimulus program somewhere, and suppose it was slated to expire. Extending the program would not create any new jobs, but would merely preserve the jobs already created. Calling such an extension a “jobs bill” demonstrates messaging once again trumping substance. Yet this is essentially what is happening with the three existing programs reported to be included in the Reid bill, except of course that two of the three have little or nothing to do with employment one way or the other. Only the small business expensing clearly is a job creator.

So the only new element of the Reid jobs bill that offers a glimmer of hope for creating jobs is a payroll tax exemption. This exemption would encourage businesses to create some jobs but only if paid for by cutting spending [3]. Whatever job gains it might create would be lost if the exemption were paid for through more borrowing or through harmful tax hikes on other taxpayers. And even analysis by the Congressional Budget Office [4], which casts a disturbingly benign eye on such proposals, suggests that $10 billion in payroll tax relief would create as little as 80,000 jobs. To put that in perspective, that’s creating 1 job for every 100 jobs lost thus far, and again even that figure ignores the actions Congress would be taken simultaneously to destroy jobs.

Whether the Reid mini-bill, the Baucus-Grassley compromise, or last year’s $872 billion monster stimulus, the result is the same – failure. And these bills fail because they ignore the processes by which the private sector creates jobs. Jobs are created when businesses are hopeful about the future. When they see opportunity and are confident enough to take the risks in pursuit of gain.

The American economy is a fountain of opportunities for new businesses, growing businesses, and jobs. The entrepreneurial spirit is alive and willing. But it is not foolish. American businesses see Washington awash in conflict, its leaders messaging on jobs while threatening higher taxes and more regulations. They see an endless train of trillion dollar budget deficits. They worry about resurgent inflation.

Risk and uncertainty are fundamental to business investment. Without risk, there would be no reward. But businesses considering the investments that lead to hiring today must weigh the risks emanating from Washington along with the risks inherent in business. If Senator Reid and his colleagues want a message on jobs, a good one would be: We get it. We’re the problem.

He would then vow to oppose any tax hikes for the balance of this Congress, and offer legislation delaying the tax hikes scheduled for 2011 for at least 5 years. President Obama would join in by telling his bureaucracies to freeze all regulatory projects that involve imposing more risks and more burdens on business. And together with Republicans, they would slash federal spending to restore some sense of fiscal discipline to the federal budget.

According to a CBS/NY Times poll [5]out this morning, only 1 voter in 8 approves of the job Congress is doing. The Reid bill is a good of example of the source of the voters’ ire.


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URL to article: http://blog.heritage.org/2010/02/12/the-senate-still-doesn%e2%80%99t-get-the-message/

URLs in this post:

[1] Image: http://www.foundry.org/wp-content/uploads/100212-sen-reid-wistful.jpg

[2] Senate Majority Leader Harry Reid (D-NV) says : http://www.washingtonpost.com/wp-dyn/content/article/2010/02/11/AR2010021104716.html

[3] only if paid for by cutting spending: http://www.heritage.org/Research/Taxes/wm2791.cfm

[4] analysis by the Congressional Budget Office: http://www.cbo.gov/ftpdocs/110xx/doc11042/02-03-CaseyLetter.pdf

[5] CBS/NY Times poll : http://www.cbsnews.com/htdocs/pdf/poll_Obama_Congress_021110.pdf

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