President Obama has proposed the American Jobs Act through his friend and Senate Leader, Harry Reid. President Obama and Reid don't agree on how to pay for the Jobs Act; Reid proposes a millionaire surtax. This tax won't effect too many people, me included, but it might effect your job status, your level of pay or your benefits? After all, what kind of people actually make $1 million per year or more? There are athletes, rock stars, movie stars, a few lawyers and doctors and some people on Wall Street, but the majority of them are small business owners.
Does Reid think these people will just absorb the 5% surtax and that's it? As a small business owner myself, I know when my cost of doing business goes up it has a direct impact on what I can afford to pay my employees or the benefits I provide. If the cost increase is large enough, it will drive my decision about hiring, wage increases or lay-offs.
Martin Feldstein, President Reagan's economic advisor and Harvard economist estimated the Jobs Act will cost $200,000 for each job created. My guess is these jobs will not be those that pay $200k or anything near that level. In defending the proposal, Treasury Secretary Geithner said, "if the alternative plan in Washington is to do nothing, that's not acceptable." I don't hear anyone in Washington saying let's do nothing, but I hear a lot of Republicans and a few Democrats saying that increased spending and new taxes are not an option. In fact, Senator Reid refused to vote the Jobs Act knowing he didn't have the votes to pass it and he doesn't want to embarrass the President by having the bill fail in the Democrat-controlled Senate. Everyone, including Reid and Obama, know it has no chance to pass the House. That begs the question: why does the President spend all of his time stumping for a bill he knows will not pass?
There is clear evidence that tax policy has a direct impact on consumer behavior, but that behavior will last only as long as the policy. When President Obama and Congress implemented Cash for Clunkers, new auto sales soared. When Obama and Congress offered a tax credit for first time home buyers, the sale of homes soared. Similarly, if President Obama and Congress adopt a 5% surtax for millionaires, people who would otherwise sell a business will delay the sale; people on the fringe of making the magic number will delay income or take other actions to reduce their income that year.
Solyndra failed because they made a product that cost them $6 to make. They sold each for $3 (losing $3 per unit). Similar products were available from their competitors for $1.5-$2.0. "Simple math," Mr. President would have told you Solyndra would fail. The Jobs Act will create $50,000 per year jobs for $200,000 per job. Simple math should tell you this is not a sound plan, and it will fail. If the government provided me a $100,000 tax credit to create a job that pays $100,000 per year, I would do that and it would be a permanent job. That won't happen--it shouldn't, we need real, sustainable jobs.
Since I run a small business, I don't create a huge number of jobs (although I do create very good paying jobs at about several times the average household income in my county). There are only two motivations for me to create a new job: (1) because I will make money from that job, or (2) because I will make more money from that job. I have never created a job because of a government program, however, a significant number of jobs created by my company are directly attributable to new government regulations. For example, after Congress passed the Pension Protection Act, the demand for services required by my clients (in this case pension funds) increased significantly. In fact, new complex government regulations are responsible for much of my business' growth. Good for me, but...
The Republicans propose an overhaul of government regulations because they understand that complex regulations significantly increase the cost of doing business. I can't begin to name all of the new laws and regulations that have caused my business to grow over the years because there are simply too many to list. While my company has prospered, the added cost of maintaining employee benefit plans (retirement plans and health plans) has increased significantly. More importantly, it's not just my company that benefited from new laws and complex regulations. I have observed a dramatic increase in the cost to maintain employee benefit plans with higher fees being charged by many other professionals: lawyers, accountants, investment managers, banks, TPAs, offset printing, mailing, insurance companies.
The next time you hear a Republican call for simplifying rules and regulations, remember that these can add a substantial cost burden to companies, and the cost burden means few jobs, fewer benefits and a higher cost for goods and services.
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