There is nothing new under the sun in politics and history always repeats itself with devastating effect. The parallels between today and the 1930’s are bloodcurdling, yet we go headlong down a path of failed policy reminiscent of empty-headed farm animals. I guess if you spread enough pork around Washington social welfare can come to mean economic stimulus.
On March 4th, 1933 the Democratic administration of President Franklin Delano Roosevelt was sworn in replacing the unpopular Republican Presidency of Herbert Hoover. The country was in the grips of a severe financial crisis that threatened everything. The winds of isolationism were howling like a blustery blizzard in the dead of winter. Global trade was tied to the whipping post, beaten and bled.
President Roosevelt wasted no time to enact a series of programs he named “The New Deal”. They included banking reform, social welfare handouts and public works projects. Very little emphasis was placed on America’s businesses, both small and large. The New Deal was ideologically anchored in the far-left political organizations and labor unions that coalesced around the Roosevelt campaign. It is the genesis of the permanent rise and power to unionism which we are still reeling from today.
FDR, in a speech along the campaign trail in 1932, made his intensions clear “we require a more equitable opportunity to share in the distribution of the national wealth… I pledge myself to a new deal for the American people. This is more than a campaign. It is a call to arms.”
To compound the problem, the Smoot-Hawley Tariff Act of 1930 increased tariffs on imported goods to record levels. Foreign governments retaliated with vastly increased tariffs on American products. As a result world trade shrank by more than sixty percent. In just two years American unemployment soared 300%.
It is widely believed America’s withdrawal from the world market put the “Great” into the “Great Depression”. It turned a severe but manageable recession into a generation-long depression that only a horrific world war could cure.
Isolationism, anti-trade, social welfare, unionism and wealth redistribution did not work then. And it will not work now to address today’s failing economy.
Take a cursory look at the stimulus package passed by the House and you’ll find that only 12 cents of every $1 can plausibly be considered as having anything to do as an economic stimulus. On the other hand, $252 billion or 30 cents of every $1 is direct social welfare, given to individuals for doing absolutely nothing. Some $70 billion, or less than ten percent of the spending bill, is earmarked for infrastructure projects that simply can not be taken up fast enough to have any immediate economic stimulus impact. Projects such as fixing highways and bridges, airports, waste water treatment, broadband and electric grid development need long lead-times and cannot be considered the impetus for quick start-up job creation. Only $20 billion in the stimulus package is devoted to business tax cuts – something that will actually stimulate the economy.
For this to be a stimulus package it must at its core contribute to sustainable job creation. Congress must recognize that the sector of our economy that has created most of our jobs over the last decade is SMBs (small and medium sized businesses) that can move quickly to innovate and grow the economy. This is also where America’s historic rise in technology breakthroughs and important patents originate. SMBs are the backbone of our economy.
Rewriting the tax code must lead the stimulus package
A real stimulus package would begin with rewriting the tax code so it encourages investment and does not discriminate against U.S. manufacturers and exporters. Our businesses pay a disproportionate share of taxes that fund our schools, support our defense and pay for loony stimulus packages.
We must rid ourselves of an arcane and convoluted income tax system and move to a simple consumption tax or flat tax.
Tax code revisions must include the following provisions:
- Provide tax cuts to every American taxpayer by eliminating payroll taxes for the next six months.
- Permanently repeal the marriage penalty tax and the $1000-per-child tax credit.
- Reduce the corporate tax rate from 35% to 25% indefinitely. If our fifty-states were countries, twenty-four would be the highest taxed in the world. We are suffocating in taxes.
- Irrevocably commit to maintaining the capital gains tax at its current level of 15%.
- Provide tax credits for research and development. After all American ingenuity is the bedrock of our economic success.
- Allow accelerated depreciation on capital expenditures and acquisitions.
- Provide tax credits for new hires.
Let American exporters operate on a level playing field
Ensure American exporters have equal access to markets overseas. Vigorously pursue Free Trade Agreements with all our trading partners and especially those with our largest deficits such as China, Japan, India and Brazil. Demanding reciprocal market access will return $500 billion annually to our economy and create two million jobs.
Forget about trade sanctions. In the past fifty years the United States has gone overboard on sanctions. We have sanctioned more than 80 countries over 175 times. If we include “soft” sanctions such as denying export financing through the EXIM Bank, the number would be much higher. Our sanctions threaten two-thirds of the world’s population. Although it is difficult to estimate, sanctions cost American exporters at least $70 billion annually in lost sales which translates into 600,000 jobs.
Get tough on Intellectual Property Protection and Counterfeit Goods.Counterfeit products produced and sold freely at markets in China and exported around the world cost Americans an estimated one million jobs a year and American businesses $250 billion.
If the new administration intends to stand by its populist philosophy that we are all in this together, then they need to put their money where their mouth is (and where it will do the most good).
Instead of growing the government bureaucracy, let’s inspire the private sector to invest in their businesses. Instead of giving more money to politicians, give it to American taxpayers and small businesses. Instead of taking a trillion dollars out of the economy in wasteful programs, put it back into the economy and create the sustainable jobs that will reverse the course of our economic hardship.
That’s the deal that Americans need and deserve.
By Neal Asbury