Obama’s plan should depend more on job creation and less on giving more money to people who have jobs

The tax cut part of the Obama plan is a big mistake because it gives more money to people who already have money, instead of directly creating jobs for people who don’t have jobs.

The centerpiece of the Obama plan, what he’s selling on his current road show, is that the temporary cut in the payroll tax be continued, and be extended to businesses.  The government assumes that both consumers and businesses will spend the extra cash, despite overwhelming evidence that the businesses will pocket the money as profit and some evidence that debt-ridden consumers will pay off loans instead of buying more things.

The other problem with further cutting payroll taxes is that we weaken the Social Security Trust Fund, since that’s where the taxes we are cutting go, or are eventually supposed to go.  As I have discussed in the past, Social Security needs a few minor adjustments to be sustainable through the retirement years of the enormous baby boom generation.  But if we keep robbing Social Security to pay for tax cuts today, we may create the retirement apocalypse that Rick Perry and others are predicting.

Apart from the Social Security issue, the simple fact of the matter is that lowering payroll taxes gives money to people who already have jobs at a time when we have more than 16% of the country unemployed or underemployed and a poverty rate of 15.1%, the highest in 52 years.  Why not directly create jobs?

  • When the government funds the repair of roads, bridges, mass transit and sewers, it directly creates jobs.
  • When the government gives school districts grants to hire more teachers, it directly creates jobs.
  • When the government loans more money to companies developing solar, wind and other alternative energy technologies, it directly creates jobs.

And how do we pay for this government infusion of job-creating capital into the economy?  Not by lowering taxes, but by raising taxes.  So I like the part of the Obama plan that ends loopholes for people who make over $250,000 per year.  But it’s not enough.  We need to raise taxes on the wealthy more and invest that money directly into jobs.

A strong argument against my proposal is that the Republican-controlled House of Representatives will never go for it.  But all they say they’ll go for is further tax cuts for the wealthy, and maybe some cuts for the middle class as well.  And we know that this approach—also known as austerity government–will not work.  It’s what killed the recovery that we began to experience last year, and it’s what killed the initial recovery from the depression of the 1930’s. 

Why compromise to achieve a plan that isn’t going to work?  Obama would be better off laying out a plan that actually creates a lot of jobs and then winning the November 2011 elections by blaming the Republicans if the Republicans decide to continue to imitate the Roman Emperor Nero and fiddle away while the country burns.  Most surveys suggest that the country is really on the side of raising taxes on the wealthy, protecting Social Security and having the government invest more in creating jobs.  Rather than try to compromise into something that will fail, the President should stand up for what will work and let the voters see the contrast.

President Obama compromised when he said the Department of Justice would not pursue indictments against those who illegally create an American torture gulag.  He compromised when he extended the temporary tax cuts for the wealthy before the November 2010 elections and he compromised in January of this year when he agreed to pay for extending those cuts by cutting government programs for education, the unemployed and infrastructure development.  And he compromised by agreeing to link the debt ceiling increase to more cuts.

It’s about time for the President to stand up for the ideals that he claimed to uphold while serving in other offices and running for President.  Some people are saying that he is finally taking a stand with this jobs program.  The trouble is that the plan already makes the compromises before the discussion.  So once again, instead of standing up, our President is standing down before the skirmish begins.

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