To Create Jobs, Cut Employer Costs, Instead of Adding New Government Programs

Aug
15

By Charles Biderman

 

The most dangerous people are those with power who are not as smart as they think they are. Particularly dangerous are those who think they have the answer to our problems, but unfortunately are not smart enough to realize that they have no clue.

 

And yes I am talking about our president, Barack Obama. But this is not personal. His two presidential opponents, Mitt Romney and John McCain, fit in the same category of not being as smart as they think they are nor as smart as they want us to think they are.

 

I started thinking about this because Mr. Obama has taken to the stump saying we need more government programs to create jobs and opportunity. What nonsense! Show me a government program that actually did something other then pay government workers? I am not talking about public works, like Tennessee Valley or the interstate highway system. I am talking about job creating programs run by bureaucrats. I say not one job program has been anywhere near cost effective.

 

Right now, the US government spends something over $3 trillion a year in aggregate. Does Barack Obama really think if he spent an extra $300 billion or 10% more, on job programs, that would actually create sustainable growth?

 

Ever since 2007 I have been recommending two ways to boost the US economy that could use the same $300 billion a year and make a huge difference to the US economy.

 

First, let’s take $100 billion of the $300 billion and give employers a one-year withholding tax holiday when hiring new full time workers. For example, at a new job that pays $40,000 per year withheld income and employment taxes might be as high as $8,000. Over the first year, the employer keeps that $8,000 instead of sending that in the Treasury. That lowers the cost of hiring, but does not reduce employee take home pay.

 

Hiking minimum pay does give entry level workers more take home pay. But obviously hiking the minimum wage increases costs. On the other hand, giving employers a tax holiday reduces employers costs. Which do you think will work better in creating new jobs and sustainable growth?

 

Then there are corporate taxes. US companies compete globally. Companies will pay about $200 billion in income taxes this year. Adding $200 billion in taxes to all other corporate expenses has to make US businesses less competitive.

 

Forget about fairness for a minute or that rich people will get richer, whatever that means. Look at reality. Companies not having to pay income taxes will have a competitive advantage and will grow faster. So no corporate taxes translates into more workers, more profits taxable to recipients. Yes, in a no company tax world all employee benefits have to be taxed as income. So? Wouldn’t a no corporate tax world result in a more rapidly growing US economy? It has to. No way it won’t.

 

So what is better for the US economy? Spend $300 billion on government programs that in the short run pump some money into the economy, but actually hurt in the long term? Or, use the same $300 billion to reduce hiring costs and making US companies more competitive to create a sustainably growing US economy.

 

The real problem as I see it is that our leadership really think they can improve the economy while promoting fairness and equality. Unfortunately for us, our leadership is not smart enough to effectively do either.

 

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3 Responses to To Create Jobs, Cut Employer Costs, Instead of Adding New Government Programs

  1. Ed_B on August 16, 2013 at 10:48 pm

    Terrific commentary, Charles, as usual. But what if we could have an even simpler and more effective alternative to your proposal? I believe that the only possible solution to a myriad of economic problems today can be summed up by the simple phrase of “too much government is toxic to an economy”. Clearly, we have much more government in this country than we need. Worse yet, this bloated and inefficient government is consuming the resources that our economy needs to thrive and expand. The politicians remind me of a group of wannabee physicians in the patient’s room, debating what’s wrong with him and the best course of treatment while one of them is inadvertently standing on the patient’s oxygen tube. Yes, the patient has a medical problem but it is being greatly exacerbated by a lack of oxygen. Government needs to get off of that tube, become smaller, and consume less of our national financial resources so that business and industry can have more working capital and less interference via ever more taxes, rules, and regulations.

    Unfortunately, this is not likely to happen because no one in government, outside a very few, actually understands anything I’ve written here. About the same number actually understand economics as well. How can the government stimulate the economy when they have no clue as to how an economy really works? They cannot and it is shear hubris for them to think that they can. Instead, all they can do is propose even more government programs, spending, and control via taxing, regulating, and controlling that which they do not understand … the very things that are causing the problem in the first place. Yes, it IS maddening, isn’t it?

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  3. Joey Anchovey on August 25, 2013 at 1:43 am

    The real reason a simple program like this will never happen is that Obama and his complicity media will never allow those with money to catch a break and the govt to sacrifice. It’s ironically funny- Obama wants the rich and those who are successful to sacrifice for the greater good of the govt but conversely it’s anathema to him to have the govt sacrifice this hypothetical $300B for the greater good of the successful. The yachting industry is a great example of this. Obama, if he had his way would add a tax on million dollar yachts im sure because the rich can afford it. But the rich can also afford not to buy a new yacht, or buy a used yacht, or buy a vacation home instead. And all those diesel mechanics and carpenters and fiberglass guys are now out of work because obamas misplaced anger at the “rich” and the yacht companies are now bankrupt. I’m afraid Obama will never see the govt as the problem but always the savior, and as Maggie Thatcher once said , socialism works great until you run out of other people’s money. I don’t thin Obama thinks that money can ever run out.

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Charles BidermanCharles Biderman is the Chairman of TrimTabs Investment Research and Portfolio Manager of the TrimTabs Float Shrink ETF (TTFS)

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