Opinion: Obama's Jobs Problem

(July 16) -- President Barack Obama invited Bill Clinton and Warren Buffett to the White House this week for some advice on how to kick-start the economy's jobs machine -- something that the $787 billion stimulus package passed last year was supposed to achieve.

But Obama doesn't need to go around seeking advice from ex-presidents or wise investors. The answers are pretty straightforward.

In his recent Newsweek column, Fareed Zakaria talks about how "economic uncertainty" is "the primary cause of their caution." Mentioned only in passing, though, is how administration policies are contributing to that uncertainty.

I'm a corporate attorney with a background in finance who deals with entrepreneurs every day in my legal practice. And what I'm hearing time and again are complaints that administration policies are putting a damper on the kind of risk-taking, investing and entrepreneurial activity needed to fuel job creation.

Simply put, we see and react to the current administration's policies, which are no doubt being pursued with the laudable goal of increased fairness and equity, but which are having the effect of discouraging the risk-taking, investing and entrepreneurial activity that is needed to fuel job creation, and may well be depriving the government of revenue by suppressing economic activity. Some examples:

Marginal income tax rate increases. Unless Obama and Congress intervene, the Bush marginal income tax rate cuts for the "rich" will expire at the end of the year. This will arguably make the income tax more fair, but for businesses affected by the change, it reduces the benefits from work and business formation by those who are best equipped to do these things. We need to think more about the negative multiplier resulting from people not spending and investing.

Investment income tax increases. An increase in income tax rates on dividends, interest and capital gains at the end of the year will likewise raise the cost of capital for all businesses, resulting in fewer new ventures and directly removing money from the pockets of those paying the additional tax – money that would otherwise make its way into the economy.

Health tax increases. Business are also looking at the panoply of new taxes associated with the health bill taking effect in 2014 -- yet more taxes on dividends, interest and capital gains for the "rich" and penalties for individuals and employers not procuring or providing insurance. All of it reduces the potential benefits from work and investment, as well as increasing the cost of financing for what does take place and the cost of hiring.

Private equity tax increases. The "targeted" tax increases aimed at the private equity industry -- while politically popular and possibly even defensible in theory -- reduce incentives to provide financing and, by impeding a potential entrepreneur exit strategy, discourage business formation at a time when it is most needed. At the margin, this also takes out of the economy business sale proceeds.

Other policies. On top of this, the administration has pursued policies that could hardly be described as job boosting. Among them: the elimination of caps on offshore drilling liability and the moratorium on deep water drilling, union-backed card-check legislation, a costly energy bill and tough new fuel-economy standards. As with the tax law changes, each may have merit on its own, but they discourage job creation economywide.

Indeed, as I was submitting this column, I received an e-mail notifying me of a new Department of Labor initiative requiring employers who are federal contractors to expressly inform their employees of their right to unionize.

Why? The administration continually points to the limitation of these measures to the "rich" as justification, on the premise that no one else is impacted. But this misses the point that the rich function in the same economy as everyone else. When anyone is discouraged from successful investing or working, this reduces the demand for goods, services and securities.

Why take the additional risk of investing in a startup or initiating a startup or working harder if the government will only punish you for success? These are not the "animal spirits" that facilitate economic progress.

What to do? When you're in a hole, the first step is to stop digging.

There's some evidence that the administration may be catching on. As The Wall Street Journal reports, it's now taking a look at regulations that might be impeding job growth. Perhaps this will extend to continuation of current tax rates.

But more is needed, starting with at the very least a clear recognition that right now, it's government policies that are hurting more than helping job growth.


RELATED
Bill Clinton and Warren Buffett: Business Boosters for Obama, by Alex Wagner, Politics Daily.