Why Less is More of the Same
Last night President Obama proposed a $447 billion ‘Jobs Act’. What we got from Obama was a 2009 ‘Stimulus Light’ proposal, with all the problems of the prior 2009 stimulus package in the form of inadequate magnitude of spending, wrong composition and targets, and bad timing.
First, on the matter of the magnitude of spending in the proposal. Some think it was bold. But put it in context. $447 billion just won’t achieve the job creation it claims. It’s once again too little for an economy the size of the US, for an economy in as deep an economic hole as it is, and in an economy facing growing downward momentum at home in the context of a global economy also rapidly slipping.
In February 2009 President Obama proposed $787 billion in economic stimulus. Unemployment was about 25 million. More than two years later, after the $787 billion has been spent, unemployment (measured by the Labor Department’s U-6 rate) is still around 25 million. Why therefore should Obama’s latest proposals to create jobs, consisting about half the size of the 2009 stimulus, expect to create jobs when the larger stimulus did not?
Even more important than Obama’s jobs act’s insufficient magnitude, the composition is also seriously deficient—just as the 2009 stimulus was. Like the stimulus in 2009, it is once again overloaded in tax cuts. In fact, a greater percentage (60%) of the total Jobs Act is composed of tax cuts than was the 2009 stimulus (38%). Then, and now, tax cuts simply cannot and will not create jobs, given the kind of ‘epic’ recession in which the US economy now finds itself entrapped.
The 38% tax cut mix in 2009 amounted to about $300 billion in total tax reduction. That $300 billion followed a $90 billion tax cut less than mine months before in spring 2008. Another $50 billion in tax cuts was further added later in 2009-10 in various bills and administrative actions. That’s a total of $440 billion in tax cuts. There’s more. Add to that $440 billion another $270 billion in Bush tax cut extensions in late 2010 for 2011, plus another $100 billion in this year’s payroll tax cut. Now add the ‘Job Act’s tax-heavy $270 additional billion. Now we’re well over a $1 trillion in tax cuts in just the past two years. And what’s been the result in jobs? Still 25 million unemployed today as in June 2009.
If someone needs still further evidence that tax cuts don’t create jobs in today’s environment, just step back a decade. In 2001-04 George W. Bush passed another $3 trillion in tax cuts, overwhelmingly biased again toward the rich and their corporations in the form of capital gains, dividends, inheritance, business depreciation, and other corporate largesse. Over 80% of the $3 trillion went to the wealthiest 20% households and most of that to the wealthiest 5% and 1%. And what kind of job creation resulted? We had the longest jobless recession in US history up to that point. It took 46 months just to recover to the level of jobs we had before the first Bush recession in 2001.
Furthermore, most of the jobs that were created under Bush were in the Finance and Housing sectors of the economy at the time, which were both undergoing a boom due to speculative excesses before an eventual bust. The jobs mostly created in Finance and Housing had little to do with Bush’s tax cuts of 2001-04, however. Instead, millions of jobs were being lost in manufacturing while the tax cuts were taking effect last decade.
In 2004 Bush also pushed through a bill to allow multinational corporations to repatriate their then $700 billion hoard of cash they were keeping offshore in their subsidiaries in order to avoid paying the US 35% corporate tax rate. The multinationals blackmailed Congress to let them pay only 5.25% instead of 35%. In exchange, they said they’d bring back the money (saving 29.75% for themselves) and use it to create jobs. Did they? No. They money brought back was used to buy back their stock, payout more dividends, and to use for mergers and acquisitions that in fact resulted in fewer jobs. Now the same ‘game’ is being proposed in Congress, except this time their offshore cash hoard is $1.2 trillion.
The historical record of the past decade is clear: tax cuts simply don’t create jobs, especially tax cuts for the rich and corporations. So why has Obama given them $1 trillion in tax cuts the past two years and is now proposing more?
Neither Bush nor Obama policies of tax cuts have created jobs. Big corporations today are sitting on a cash hoard of $2 trillion—a result in large part of the nearly $1 trillion in tax cuts of the past two years—and they aren’t using it to create jobs. How much more will Corporate America have to be given in tax cuts to finally create jobs? Will another $1 trillion do it? $500 billion? Will the roughly additional $270 billion proposed by Obama yesterday suffice? What’s the magic number in more tax cuts that will finally result in job creation?
But the tax-heavy proposal once again by Obama is not the only problem with his ‘Jobs Act’. The Jobs Act shares another similar deficiency with the President’s prior 2009 stimulus. It’s too heavily weighted as well in favor of subsidies to the states. The 2009 stimulus provided $264 billion in subsidies to the states. It was supposed to create jobs. It didn’t. Local government laid off hundreds of thousands of workers since June 2009 despite the $263 billion. What guarantees are there that won’t be repeated this when they’re given the added subsidies? Will they get the subsidy only if they first prove they’ve added the jobs? Don’t count on it.
Another problem with the ‘composition’ of yesterday’s Jobs Act announcement by the President is it once again repeats the promise of the 2009 stimulus that infrastructure spending will quickly create jobs. In 2009 about $100 billion was allocated to infrastructure related spending that was supposed to create 4 million jobs. That didn’t happen. There were 6.4 million construction workers employed in June 2009. There are 5.5 million today. Nearly a million fewer construction jobs was the result. There just weren’t as many ‘shovel-ready’ jobs as was claimed. Construction and infrastructure jobs are long term. What is needed today is immediate job creation. Infrastructure programs just won’t cut it. Especially when of the minimal magnitude in Obama’s recent proposal.
Obama yesterday promised his proposals would focus on small business by subsidizing their hiring of workers for each job they create. But for small business to create jobs it needs more than a partial hiring subsidy. It needs funds in addition to cover all the other costs of production. For that small business needs bank loans. And for two years now they just can’t get the loans from the big banks. Bank lending to small business declined for 15 consecutive months after June 2009 and it’s not much better today. Obama and the Federal Reserve bailed out the big banks to the tune of $9 trillion in recent years, in the expectation they would start lending. They didn’t. They still aren’t. Like the big corporations hoarding their $2 trillion and not creating jobs, the big banks are hoarding their cash reserves as well and lending to small business that might create jobs if they could get the loans. Obama would have done better to propose the Federal government bypass the banks and directly loan to small business at 0.25%. After all, that’s the interest rate at which the Fed today ‘loans’ to the big banks? No, I take that back. Actually it’s only 0.1%, and then the Fed pays the banks 3% to temporarily park the free money with the Fed in the interim. What a deal: the Fed pays the big banks to take its free money.
In summary, what we got from Obama’s ‘Jobs Act’ last night was more of the same in terms of poor composition (i.e. excessively tax cut heavy), poor timing (long term infrastructure projects), and too little magnitude spending in any event.
There’s no reason to believe that the Obama jobs package that repeats the problems of poor composition and bad timing of the 2009 stimulus—which didn’t create jobs—is going to do any better when it’s also half the size of the stimulus.
Of course, the proposed Jobs Act won’t pass anyway because the Teapublicans will oppose it. At best, they might try to cherry-pick out the business tax cuts proposed by Obama, and then add even more tax cuts to the ‘Jobs Act’—a proposal which anyway should be appropriate renamed ‘The Business Tax Expansion Act of 2011’.
Just a day before the president’s address, the Teapublican candidates gathered to hold their latest debate. They stumbled all over each other to see who could promise Corporate America even greater tax cuts. Rick Perry even promised to end all corporate taxes. Rick Santorum promised to lower capital gains and dividends taxes to zero. Others proposed no income taxes whatsoever for earners of $200,000 income a year. Grovel for those campaign contributions, fellas. These same candidates, after proposing cutting hundreds of billions a year in tax cuts for the rich and corporations, will turn around and cry about the budget deficits and demand equivalent cuts in social security, medicare and Medicaid to make up for their ever-generous handouts to the wealthy.
But this kind of mercenary, Robin-hood in reverse, policy of ‘No taxes whatsoever’ for the rich and their corporations is expected from the radical right. Yet it seems Obama is being drawn into their tax cut for the rich frenzy with his proposal last night for yet another $270 billion in cuts. He just agreed, less than nine months ago, to give them $270 billion by extending the Bush tax cuts last December. Now hundreds of billions of dollars more. This past year witnessed the President’s adopting their central agenda demand to cut deficits. Could he now be tailing the Teapublicans once again down the ‘Cut more taxes for Corporate America’ road as well?
A real job program today would be proposals and programs to re-create, in 21st century form, of a Works Progress Administration—paid for not by giving the rich and their corporations still more tax cuts but by taxing their $2 trillion cash hoard, their $1 trillion in excess free Fed money bank reserves, their $1.2 trillion held in offshore subsidiaries, and by taxing the more than $6 trillion they’ve all stashed away in their tax havens around the globe from the Cayman islands to the Seychelles to Vanuatu and, of course, Switzerland.
Politics in America today sadly is not about what will ensure true economic recovery and give the 25 million Americans a job. It’s about how to extend tax cuts for Corporate America and its shareholder beneficiaries; it’s about how to ensure the Great American Tax Shift of recent decades is never rescinded and instead further extended; and it’s about how to make everyone else in American pay for their bailouts so that the corporations and wealthiest themselves do not have to.
Jack Rasmus is the author of Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave-Macmillan, 2010; and the forthcoming Obama’s Economy: Recovery for the Few, 2011, same publishers. His blog is jackrasmus.com and website: www.kyklosproductions.com.