The President wants businesses that hire new employees this year to get $5,000 per hire, in the form of a tax credit. That will come to about $33 billion. It's good step. He's also supporting a cut in the capital gains tax for small businesses. That makes sense; after all, small businesses generate most jobs.
But here's the problem. Both of these measures, and many of the other tax cuts he's proposing, give ammunition to supply-siders who think the way out of this awful economy is simply to cut taxes on businesses. If a new jobs tax credit is a good idea, why not a cut corporate income taxes? If it's useful to reduce capital gains taxes for small businesses, why isn't it useful to reduce them for all businesses?
...The answer, of course, is that across-the-board supply-side
tax cuts for businesses don't increase the demand for the things businesses produce. They're useful only to the extent businesses are confident consumers are out there, able and willing to buy.
...f John Maynard Keynes taught us anything, it's that a federal budget is not at all like a family budget. In fact, it's precisely because families have to pull in their belts that the federal government has to let its belt out. When consumers and businesses aren't buying much of anything, the government has to
fill the gap. That's the only way to get jobs and get the economy moving again. Once the economy is percolating, the government can pull back. By then, tax
revenues will soar, and the
long-term deficit will shrink.
...if the public learns the wrong set of lessons -- that tax cuts for businesses are good, and deficit reduction starting now is good -- there's no hope for
getting wise policies out of Congress. The debate is framed all wrong.
The President -- any president -- is the nation's educator in chief. Everything he proposes contains an implicit lesson. The economic lesson President Obama ought to be teaching is that targeted tax cuts, mostly for small business, are good to the extent they give businesses a nudge toward creating more jobs. But
businesses won't begin to create lots of jobs until they have lots of customers. And that won't happen until lots more Americans have work. The only way to get them work when businesses aren't hiring is for government to prime the pump.
One final lesson I wish he'd teach: The best and
fastest way for government to prime the pump is to help states and locales, which are now doing the opposite. They're laying off teachers, police officers, social workers, health care workers, and many more who provide
vital public services. And they're increasing taxes and fees. They have no choice. State constitutions require them to balance their budgets. But the result is to negate much of what the federal government has tried to do with its stimulus to date.
We need a second stimulus directed at states and locales. I wish our educator-in-chief would say that loud and clear, explain why, and then do it.
http://www.huffingtonpost.com/robert-reich/obama-needs-to-teach-the_b_441369.html">More from Robert Reich on the subject