IF JOBS ARE JOB ONE: FIRST, DO NO HARM
February 1, 2010
The president could spur investment and job creation if he would calm the market's nervousness about policy changes. He should take steps to reassure markets about his intentions on taxes, health care and carbon, so investors do not have to speculate about what the government will do to their future profits, says Josh Barro, a Senior Fellow with the Manhattan Institute.
The clearest opportunity is on tax policy, says Barro:
- President Obama has already made clear that he intends to let the Bush tax cuts for high earners sunset next year, restoring a top income-tax rate of 39.6 percent.
- But that's a floor -- investors don't know how high tax rates could go; for example, the House health care bill would take the top rate to 45 percent and also raise taxes on capital income.
- Obama should announce that he will veto any bill that raises income taxes higher than Clinton-era levels, so investors and small- business people have clear expectations about how they will be taxed.
- It would be best to also maintain the 15 percent capital gains tax set in 2003; but even a firm commitment to a 20 percent rate -- again, the Clinton-era level -- would provide valuable certainty.
The health care bill is also a source of market uncertainty, says Barro:
- The primary risks to employment from the health care bill come from damaging tax provisions and potential increases in employee insurance costs.
- So long as he holds the line on tax and cost-control measures -- essentially, insisting that the Senate bill remain as untouched as possible, with principal reliance on an insurance premiums tax instead of new income taxes -- Obama can greatly reduce investor nervousness (calming the restive electorate is a separate matter).
On carbon regulation, Obama should admit the obvious -- cap-and-trade is politically radioactive until the economy improves -- and put it on the shelf. Climate change is a long-range problem, and there is no need to attack it during a major recession when the electorate is least receptive to energy taxes.
We've heard enough about what the government will do to "create jobs." If President Obama really wants to spur job creation, he must start making promises about what the government will not do, says Barro.
Source: Josh Barro, "If Jobs Are Job One: First, Do No Harm," Investor's Business Daily, January 29, 2010.
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