Does Newt have the jobs solution?

We’re coming into a slow news period, so it’s time for some thought provocation as we glide into the Thanksgiving holiday (not to mention Christmas and New Years’ Day right on its heels.) A lot of people are writing off the remainder of 2009 as a lost cause and looking forward to 2010.

Newt Gingrich didn’t have all that great of a year politically because he’s best known for backing one of the most liberal Republican Congressional hopefuls to come down the pike in some time. Yet he still has a few conservative thoughts from time to time and this six point plan for job creation seems like a pretty good expression of right-wing orthodoxy:

To get our economy back on track and to create jobs now, we must fundamentally shift power from politicians to small business, from lobbyists to entrepreneurs, and from bureaucrats to investors.

Here is our proposal to do just that:

  1. Cut the Payroll Tax by 50% for Two Years. Every single working American pays the payroll tax. In this economy, many people may not get a pay raise, but this would give every working American a take home pay raise, immediately. This would also free up cash for every employer, immediately.
  2. Incentives for Small Business Investment. Allow small businesses to expense 100% of new equipment purchases each year to help them invest in new, more productive technologies.
  3. Abolish Taxes on Capital Gains. If we want to compete with China and have most productive factories in the world, the best jobs, and the highest take home pay, we should match China’s capital gains rate of zero. This would dramatically increase investment in America.
  4. Reduce the Corporate Tax Rate. When you combine state and federal taxes, America has the highest corporate tax structure in the world. We believe that by matching the Irish corporate tax rate of 12.5%, America would be the most desirable economy in the world to open a factory, create a new job, and develop a new product.
  5. Abolish the Death Tax. If we want to be pro-work, pro-savings, and pro-family, we should not punish, but instead reward people who have worked, saved and created wealth all their life.
  6. Reduce Spending and Reform Government in order to Balance the Budget. While Newt Gingrich was speaker federal spending rose by an average of 2.9% a year, the lowest increase since Calvin Coolidge in the 1920’s. We can apply the same principles that worked from 1995 to 1998 and create a balanced budget with a smaller government with lower spending, lower interest rates, and less debt.

My impressions on these point by point:

  1. Why only two years? The only reason I’d take two years is to allow time to a shift to a consumption-based taxation system, where payroll taxes would be cut 100 percent. I do understand the intent but don’t see a reason to have an arbitrary time limit because, like we saw with “cash for clunkers,” we’d have an artificial spike in economic activity in months 18-24 of the tax break and a crash after it expires. As a compromise measure, though, this would be acceptable step to me.
  2. Since I don’t own a small business where I have to expense equipment I can’t say just how good of an idea this is. Context (such as how businesses are taxed now) would be helpful.
  3. This to me is the biggest winner of the bunch! Why should saving and investment be penalized? I know the class envy crowd will call this a tax cut for the rich but I’m certainly not rich and eliminating the capital gains tax would put a little additional money in my pocket too. At a time where private-sector investment would give the economy a wonderful shot in the arm (and perhaps reverse the trend toward higher unemployment) the government has no such thing as a fair share.
  4. As a non-expert in the field of business taxation, what Newt proposes sounds good as an interim step. But if a consumption tax works why tax business income? In truth, there is no such thing as a tax business pays – it gets passed on to the consumer in the form of higher prices. Lowering prices and, in turn, making American products more competitive in a global marketplace are important secondary benefits in either case.
  5. When Benjamin Franklin said that the certainties in life are death and taxes, I don’t think he was thinking about this combo meal. One can exist without the other, and there’s no use punishing a grieving family with enough assets to qualify for the death tax – indeed, it is long past time to eliminate the death tax.
  6. What I find most interesting about this statement is that during the time period Gingrich cites we had a Republican Congress (with Gingrich as Speaker) making the budget for a Democrat (President Clinton). In terms of fiscal conservatism this worked out well because Congress makes the budget and wasn’t going to allow new entitlements under a Democrat’s watch. Granted, there were items we shouldn’t have compromised on but this lesson is important because once the GOP got into full power (2001-06) they seemed to forget about fiscal restraint because President Bush was a big-government “conservative.” This set the GOP back light-years with conservatives – it’s a division which still exists and hampers Republican efforts to take back government.

One criticism I’ve had about Newt Gingrich since his days as Speaker is that he’s gotten a little too enamored with government as a solution, particularly at the federal level. Among the levels of government (federal, state, and local) the federal government is the most likely to use a sledgehammer to exterminate an ant, dictating one-size-fits-all solutions to its inferiors while taking a large cut of the money it at once confiscates and returns to John Q. Public.

In the private sector, one of the best things you can say to a bargain hunter is, “I can get it for you wholesale.” There’s a quest to cut out the middleman, and to me Fedzilla is the greatest example of a middleman who adds little to no value to the product. (Of course, what’s really sad is when money is filtered through both the federal and state levels, leaving crumbs to the local government.) While Newt is justifiably proud of his efforts to achieve a balanced budget, increasing the federal budget 2.9% a year was still way too excessive.

It’s all grist for the mill I suppose, since the chances of any of Newt’s action items actually being adopted by a President and Congress hellbent on fattening the public sector to a more obscene level than the plumpest Thanksgiving turkey matches the chances of the turkey’s survival past the holidays.

Author: Michael

It's me from my laptop computer.