Support the Real Job Creators

Republicans have drawn a line in the sand when it comes to increasing taxes on the rich. Such taxes, they argue, would only worsen the economy because jobs are created by the investments made the richest Americans. Singling out these job creators for increased tax burdens, they say, would only worsen the American economic situation.
I’m all for creating jobs. God knows we need to do so with unemployment running over nine percent. If the richest one percent were the job creating class than by all means leave them along. However, this is just not the case.
Jobs are created when businesses can no longer fill their orders with the workers they have on hand. By this logic, the government needs to go easy on those segments of the population most likely to place orders – i.e. buy stuff – while taxing those who are holding on their incomes – saving the monies - rather than spending it on investment, goods and services.
Republicans assert that rich Americans are more likely to invest and that investment by the rich creates more jobs in the long run than the same amount of consumption by the lower and middle classes. Many economists dispute this point, but let’s assume that it could be true. If so, than the Republican’s new shorthand for the richest Americans – “job creators” – may be more than a glittering generality.
Suppose, however, that the extra income provided to the rich by keeping a lid on their taxes and special benefits do not increase investment in plant and equipment. If that is the case than – in the interest of lowering unemployment – shouldn’t we be increasing the taxes on rich and lowering them on those lower income groups who will immediately use their extra income to buy stuff and thus create jobs?
Fortunately, data exists to shed light on this conundrum. If the rich were creating jobs by investing in plant and equipment - either personally or via the corporations whose stock they have purchased – we would see increased levels of investment. If, instead, they were holding on to their monies, it would show up in corporate profit taking. (Simply put a corporation either invests its earnings or takes a profit.)

Corporate profits hit record levels in 2010.
Nonresidential fixed investment – where the rich job creators would work their magic either directly or via the corporations they jointly own – has yet to recover to 2006 levels.
At the end of the day, investment decisions by the firms and rich entrepreneurs are based on consumer demand and not on the amount of savings provided to the rich by virtue of lower tax rates. Consumer demand is based, in turn, by the amount of monies in the pockets of the lower and middle income Americans. It is these Americans, not the very rich, who are the true job creators.

Going All In: Taking the Crisis-Afforded Opportunity

The nation faces a true crisis. Sometime next month, unless Congress authorizes an increase in the debt ceiling, the United States will no longer be able to meet its financial obligations. However, if you know where to look and if you are willing to take the necessary risks, every crisis provides the opportunity for real change. The rebirth of the US Automobile industry, following their need for a government bail-out, would seem to be such an example.
Democratic governments, in fact, seem to require a crisis before making hard choices. This does not imply, however, that hard choices will be always be made in crisis situations.
Trying to stay abreast of the ongoing deficit reduction negotiations between the Democrats, Republicans, and President Obama is no easy matter. Interestingly, there are three, not two, groups involved. President Obama’s solution, in many ways, looks more like a Republican than a Democratic proposal.
All three camps agree in the need to bring projected Federal expenditures into balance with projected revenues. The devil – and the debate- is in the details. By way of background, the major contributors to the ongoing debt problem – remember the US was running a budget surplus by the end of the Clinton administration – in order are (a) the decline in tax receipts by virtue of the Bush tax cuts, (b) the costs of the wars in Iraq and Afghanistan, (c) increasing costs of Medicare and Medicaid. The costs associated with offsetting the recession are substantial but transitory: the real dilemma lies in balancing the government’s books if and when the economy returns to full employment.
Early last year, when Congress was unable to gain Republican approval for a congressionally run bi-partisan debt reduction commission, President Obama issued an executive order to form his own bipartisan commission. Their report, released last December, called for major changes to both entitlements and the tax code – stemming the growth in Medicare, Medicaid, and Social Security outlays while reducing tax benefits to certain groups.
The politics, surprisingly, are similarly straightforward. The Republicans wish to balance the government’s books by substantially reducing federal disbursements to the unemployed, poor, sick, and retired. Republicans claim they were elected on the promise to not raise taxes, and argue that this pledge extends to maintaining existing tax advantages, for example to oil companies. To their credit, the party, under Ron Paul’s leadership, has put forth an integrated plan. based on reduced spending and lower taxes, to balance the books.
The Democrats, in contrast, are fighting tooth and nail to preserve entitlements while seeking to return tax rates on the richest to earlier levels. Feeling free to take shots at the Republican plan, the Democrats have not advanced their own integrated proposal to balance the books.
President Obama, reminiscent of the health care debate, chose to let the two parties fight it out before taking a position. He was specifically reluctant to enter the fray unless he felt the Republicans were prepared to enter into serious negotiations. With results of political negotiations mixed at best, and with time running out, Obama, in poker parlance, went “all in”. He took the opportunity afforded by a looming fiscal crisis to advance a proposal for a massive $4 trillion cut in the budget deficit over the next decade, with two thirds of the cut resulting from reduced expenditures – Medicaid, Medicare, and Social Security, and one-third from higher revenues, largely by ending tax breaks.
In offering the Republicans this proposal, the President went against his own party. Validating the recommendations of the bipartisan debt reduction commission, he was willing to substantially reign in government entitlements. At the same time he was standing firm on his personal pledge that he would allow any solution be borne solely by the middle and lower classes. Again, reflecting the recommendations of the debt reduction commission, he called for increased tax revenues, primarily from the wealthy.
While Speak Boehner worked with the President to strike a deal, at the end of the day the Republican leadership was unwilling to similarly challenge their rank and file to seize the opportunity offered by the current financial crisis. Rather than having a responsible and meaningful compromise that restores fiscal responsibility, Congress is likely to follow long standing political traditions and somehow muddle through, at least to the next fiscal crisis.
Each side will spin the President’s motivations and the like: Republicans, for example, will continue to characterize the Democrats as the party of tax and spend. The simple fact remains, however, that President Obama –taking the opportunity afforded by the financial crisis- was willing to make substantial concessions on government spending in return for less substantial Republican concessions on taxes I’m not saying he would have received the support of House and Senate Democrats in this regard, but at least he was willing to risk failure in order achieve meaningful progress. Sadly, the same cannot be said for the Republican leadership. The opportunities afforded by our financial crisis appeared to have gone wanting. The American people will suffer as a result.

Irresponsible Brinksmanship

Am I missing something about this debt crisis? Let’s run down some of the more salient issues at play.

While the costs of two wars and fighting the recession play a role, the major cause of the build-up in debt is the revenues lost by virtue of massive tax cuts under the Bush administration. Not surprisingly, the tax burden placed upon US taxpayers is at a 60 year low. Despite these two salient facts, the Republican leadership will not countenance even a semblance of discussion on cutting the deficit by raising taxes.

Unemployment remains stuck at over nine percent: the rate among minorities is almost three times this amount. Republicans and Democrats alike have essentially given up on developing programs to reduce unemployment for the simple reason that such programs take federal funds.

At the same time that nothing is being done to reduce unemployment, Republican measures to control the debt favor substantially reduced spending on those safety nets such as Medicaid, unemployment compensation, and TANIF that cushion some of the misery associated with being out of work.

The brinksmanship being played over the debt ceiling only serves to exacerbate America’s economic problems. The prospect of a federal debt default, no matter how remote, has caused businesses to stop in their tracks. The economic optimism of a few months past has turned to growing investor pessimism over the ability of the government to govern responsibly.

The key word is ‘responsibly’. To be fair, the Republicans ran on platform promising fiscal responsibility, and it is clear that their message resonated with the majority of Americans. Republican control over the House of Representatives means they control how much money is raised and spent. They have been successful in cutting government spending and can continue to do so.

The debate that has been opened up between the left and right on the proper long term course for America – further tax cuts and heavy spending reductions vice less severe cuts to entitlements along with some tax increases – is a good example of responsible government. It needs time to be fully vetted and explained to the American voters: let the 2012 elections be a referendum on which way Americans wish to go.

Holding the Democrats hostage by tying a vote on the debt ceiling to massive cuts in spending with no tax increases is irresponsible brinksmanship. This is different than the clash between then House Speaker Newt Gingrich and President Clinton that led to a short closure of the US government. In this case the long-term creditworthiness of the United States is threatened: the ramifications of even a short default are long-term in nature, at a minimum raising the cost of borrowing by the US government (paid in the end by US taxpayers).

There is no need for the Republicans to be so heavy-handed at this point in time. The risks to American economic recovery and financial solvency are too great. Although the Republicans control the House of Representatives, the Democrats still control the Senate and the White House. With this in mind, a compromise would seem reasonable. Republican leaders should agree to the increase in the debt ceiling that is required for American solvency while continuing the debate with President Obama on the proper future role for the federal government. If they have it right, Republicans will be rewarded with control of the Senate and the White House next year.

The Obama Way

The strike against Osama Bin Laden speaks volumes about president Obama's leadership style. In his presidential campaign, Obama was very direct on his approach to Osama Bin Laden: if elected he would track down and kill Bin Laden even if it meant unilateral actions in Pakistan. This was a marked departure from candidate Obama's overall stance on national security and foreign policy, where he pledged to end the Bush-era unilateralism in favor of a multilateral approach to international affairs.

President Obama has been true to his word on both counts - trampling Pakistani sovereignty on the one hand while refusing to take a leadership role in the coalition of forces seeking to end the reign of Omar Kadafi.

What then, have we learned about President Obama's presidential timber? Firstly, he is deliberate in his decision-making while having the mettle to make the hard calls. Secondly, the buck really stops on his desk on important matters: pundits have criticized his use of the first person when discussing the mission, but the shoe fits - Obama is intimately involved in key administration decisions. Thirdly, everything is situational. While he ha over riding domestic and foreign policy visions, President Obama decides each issue on its own merits. These characteristics - on vivid display in recent days - hold true on domestic issues as well.

Uber-Rich or Rank and File

In a recent op-editorial E.J. Dionne discussed the obligation of the elites to ensure the continued well-being of the larger society. In effect he was blaming the uber-rich for the battle against higher tax rates.

I’m not sure the very wealthy are the problem. President Obama opined, in his recent speech, that he wasn’t getting much mail from the people who would bear the brunt of higher taxes. Some of America's wealthiest have publicly stated their willingness to shoulder a higher tax burden.

The political problem has a different dynamic. The Republicans defend tax increases the way that the NRA reacts to gun control: defend each potential inroad at all costs. Is it possible that higher taxes have become so politically intertwined with big government that the two cannot be separated in the context of diminishing federal deficit spending? Presidents Reagan and Bush I supported higher taxes to deal with mounting deficits. In contrast Speaker Boehner has declared that discussion of tax increases are 'dead on arrival'.

While the uber-rich have certainly enjoyed their good fortune, I’m not sure they are the problem.

Defunding Socialism

Paul Ryan’s budget proposal is consistent with a vision of America where all Americans must ultimately fend for themselves. It reflects the notion, held by many, that America must not go the way of those West European societies which ascribe to the notion that citizens are collectively responsible -by paying significantly higher taxes - for ensuring an minimum standard of living for all, to include universal access to health care and quality old-age care.

Our nation has remained conflicted on these issues since Social Security was introduced by FDR. Democrats and moderate Republicans have been supportive of expanding social safety nets to include Medicare/Medicaid, Food Stamps, and support to low income families. The costs of these safety nets are on the rise, to the point where higher taxes are now required if they are to be sustained. Congressman Ryan has opened the door to a fundamental reappraisal of America’s commitment to one another. At present there is no one on the left picking up the gauntlet he has thrown down. If the Democratic leadership fails answer the challenge, than someone else will.

KISS

I used to believe that an informed citizen could stay sufficiently abreast of government happenings but no longer hold this opinion. My tipping point came last week. Sixty-Minutes’ report on the adverse impact of high corporate tax rates convinced me that something had to be done to help out corporations; the subsequent disclosure that GE paid nothing in corporate taxes evoked a similar outrage albeit in the opposite direction. In 2009 the World-Bank International Finance Corporation estimated that the United States has a lower effective rate of corporate income tax than Germany, Japan, Canada, China and India. I now understand President Obama’s stated willingness to cut corporate tax rates on the condition that special exemptions are concomitantly eliminated. Apropos of Jon Stewart’s Daily Show segment, I “give up” on understanding government.

Apparently most Americans share my distrust. Last April, only 22 percent of Americans surveyed by Pew Research say they can trust government in Washington almost always or most of the time. Their fears are well based. In theory, we send Congressmen to exercise their best judgment on our behalf. We expect laws will be crafted and tweaked to reflect subtle situational differences such that all are treated fairly in the end. In reality, our government is hyper-pluralistic: corporations and interest groups – working through hired lobbyists and by providing campaign contributions – are extremely effective in getting their way. Our elected representatives and their staffs invariably seem to craft and tweak laws to serve the interests of a select few at the expense of the many.

The answers to this disconnect lies in following the bright-line rule whenever possible. The benefits of simple and transparent laws, to include regaining the public’s trust, outweigh the hardships borne by individuals and corporations in special circumstances. Following the bright-line rule when writing legislation would severely mitigate if not curtail special interest legislation. One example would be a single tax rate on corporate profits with no other conditions. A second example would be to limit virtually all adjustments to and deductions from personal income earnings when calculating personal income tax payments. The health insurance reform law’s two thousand pages speaks volumes to the obfuscation associated with Federal lawmaking. People don’t know what to think and are prey to the political spin emanating from both sides of the isle. Exemptions to government regulations – environment, food and drug-- would be similarly restricted.

At the end of the day, even though some conditions or situations qualify for special treatment when writing federal legislation, they must be ignored in order that laws are straightforward, transparent, and easy to monitor. The costs to the few should be outweighed by the gains to the many. Bright-line lawmaking offers a path to restoring trust in government and ending hyperpluralism’s strangle hold on the legislative process.