Ford is in trouble again today, but so far has avoided the bankruptcies and federal takeovers that swallowed up both General Motors and Chrysler last year. Meanwhile, the White House has promised to make a “hard pivot” from a focus on health care to a focus on jobs. For the Obama administration, then, “job growth” is now “job one.” As well it should be.
The national unemployment rate, after all, seems stuck at nearly 10 percent. That’s true even though workers are less likely to have lost their jobs than they were in our country’s previous recession. “Employers shed 2.6 million more jobs at this point of the 2001 recession than in the current recession,” notes labor policy expert James Sherk of The Heritage Foundation.
But despite far greater job losses, the 2001 recession never produced such high unemployment. Why? Because the current economy simply isn’t generating nearly as many jobs as it did in 2001. “Lower job creation accounts for 59 percent of the recession’s decreased employment,” Sherk explains.
There are many reasons businesses aren’t hiring. For one, the collapse in housing values wiped out capital and made investors skittish. But an even larger problem is that businesses are uncertain what laws Congress may pass and how much these policies would cost them. “One in 10 small owners surveyed by the National Federation of Independent Business said that because of the current political climate it is a bad time to expand,” Sherk notes.
Last month, lawmakers passed health care legislation. Businesses took an immediate hit. AT&T says the law will cost it $1 billion this year. Other major employers, such as 3M, John Deere and Caterpillar, will also incur huge extra expenses because of the law.
Lawmakers are also considering cap-and-trade regulation of CO2 emissions, an approach that would significantly raise taxes as well as business costs. And, of course, there’s the exploding federal budget deficit, which will eventually lead to higher taxes and inflation—two more job killers.
Meanwhile, the government’s attempts to help seem instead to have hindered our recovery efforts. Economist Veronique de Rugy has studied last year’s stimulus, which is now expected to cost more than $800 billion. She found it has cost $286,000 per job created so far; hardly a good investment.
And the money Washington spends on such ineffective programs doesn’t materialize out of thin air. As the federal government borrows more, there’s less money available for business owners to tap. That means they’re less likely to expand and hire.
Of course, for anyone who’s out of work, the cause of high unemployment isn’t as important as the effect. Most of these people just want to find work. Our federal policy should be geared to make that easier.
Instead of another “stimulus,” lawmakers should begin by reducing the corporate tax rate. The U.S. rate is second only to Japan’s—another country that’s failed to create enough jobs in recent years. Heritage Foundation analysts have found that reducing the corporate tax rate from 35 to 25 percent, while keeping the capital gains tax at 15 percent, could create an average of at least 2 million jobs a year over the next decade.
Lawmakers should also get their spending under control. They could implement a freeze on new spending, and rescind all unspent stimulus money. And instead of passing new laws and regulations, they could scale back existing restrictions, such as Sarbanes-Oxley, that make it more difficult to grow a business.
Federal Reserve Chairman Ben Bernanke recently told Congress that, while there are signs of economic growth, “a significant amount of time will be required to restore the 8.5 million jobs that were lost during the past two years.”
That’s why lawmakers should make it easier for businesses to create more positions and hire more workers. For Washington, that’s truly Job One.