President Obama is like the quail hunter who frantically blasts away in all directions as birds sail unpredictably from the underbrush. Last week he tracked Iranian nukes, health care mis-informers, greedy bankers, G-20 imbalancers, the Taliban, balky Middle Eastern adversaries, global polluters and Glenn Beck. (He may have missed Mr. Beck). This week, he will trot off to Copenhagen, adding Olympic deciders to his quarry. In all his flaying about, he is missing the number one target: jobs.
There are 15 million Americans out of work today, and another 2.3 million who have given up looking, but who would like jobs. There are also 9.1 million who are working part-time, but would prefer full-time employment. In all, there are 26 million Americans who need permanent jobs. This is the major challenge facing our country, and Mr. Obama.
Though Fed Chair Ben Bernanke has reassured us that the recession is ending, the United States continues to stagger under the weight of propping up a recovery in the financial sector, the housing industry and in autos. The new narrative on Wall Street questions how and when the government will begin to wind down some of the programs that have arguably boosted consumer confidence and stabilized the free-fall in financial markets. Close inspection reveals shrinking credit and growing mortgage defaults – two indicators that the economy is far from being able to stand on its own feet.
The only way we can expect a happy ending – for President Obama and the American people – is if we generate millions of jobs in the next few years. Jobs will produce income, boost tax receipts and bring government debt under control. How many jobs are we talking? Financial writer John Mauldin recently estimated the need at approximately 15 million jobs over the next five years to get us back to 5% unemployment. That means adding 250,000 jobs per month on average.
The terrible news is, as Mr. Mauldin points out, over the past decade we produced about 91,000 jobs per month. In other words, even during happier times, we haven’t come close to the targeted figure. Moreover, the government has accounted for many of the jobs created recently – that's not the way to fix our finances.
One indicator of the true cost of high unemployment came this week from the Social Security Administration. Because of job losses, the beleaguered agency stands to pay out more than it takes in this year, for the first time since the 1980s. What to do?
What we should not do is raise taxes on businesses. This will prove counter-effective because most countries, eager to lure industry, are taking the opposite approach. (Germany’s just-concluded election of a pro-business government should remind Team Obama that voters believe in the power of the private sector, even if their leaders do not.)
What we should do is push for growth – growth in new business formations, profits, hiring and income. An excellent starting point for President Obama, both financially and politically, would be to resuscitate small businesses. This group is generally trusted by the American people; Obama can help them out without fearing populist anger such as that which greeted his bailout of the banks.
In any case, small businesses don’t need bail-outs. They need reassurance, credit, less burdensome government reporting, flexible labor regulations and a benign tax regime. The entrepreneurs among us, according to the Kauffman Foundation, are not a happy bunch just now. They think the recession will last another year or two and that the economy is heading in the wrong direction. More than half of those starting up new companies say Obama’s stimulus package has stifled entrepreneurship.
This is not good news. For the past two decades, small firms and newly created companies have accounted for over 90% of net new jobs. This downturn has resulted in an unusually severe fall-off in new business start-ups, which has added to the bleak employment outlook. Obama needs to convince entrepreneurs and small business owners that he has their back. How?
First, he needs to put firmly on the back burner all measures that would raise the cost of hiring or retaining workers. This includes so-called "card check" legislation and efforts to expand the Family Medical Leave Act – a proposal which will burden smaller companies by adding as much as $1,000 per employee – money that could otherwise put someone to work. Another is to keep marginal tax rates at current levels. While taxing the rich has become a popular rallying cry, the reality is that 75% of earners in the top bracket are small business owners. This is not the time to provide disincentives to this engine of our economy.
Also, abandon additional reporting and compliance requirements for small companies. The Small Business Administration says that companies with fewer than 20 employees (more than 5 million companies) spend over $7,600 per employee to comply with federal regulations – that’s almost 50% more than such demands cost large firms. For example, one bill winding through Congress promises to help pay for healthcare legislation by requiring all companies to report on a form 1099 any transactions with a vendor that cumulatively amounts to $600 per year – a provision that purportedly will raise $15 billion over 10 years by snaring activity that is underreported. The National Small Business Association (NSBA) estimates that this legislation will increase the number of 1099s filed each year by small companies to over 100 million. That is not the kind of growth we need.
Small business owners are equally concerned that well-meaning efforts to overhaul credit card regulations may ultimately constrict their access to credit. Banks have tightened loan standards over the past year, leading managers of small firms to be ever-more-reliant on credit cards.
Another issue for small business owners is the expected jump next year in estate taxes. The NSBA reports that one-third of those who own small companies will have to sell or liquidate part of their business to pay estate taxes, in the process eliminating millions of jobs.
President Obama has grand plans for reshaping our economy and our society. While his plate is full, his tank is empty. He needs to boost tax revenues but not constrict growth. Aiding small businesses is powerful and politically appealing. Bottom line? It’s time to put away the 12-guage, Mr. President, and haul out the rifle. This may be your only shot.
Liz Peek is a financial columnist and frequent contributor to the FOX Forum.