With health care reform a bust, the Obama administration turned to jobs speaking at Brookings last week. He's been looking for new ideas, recently holding a White House jobs forum and asking communities to hold their own forums. So far what they've come up with are more tax cuts, eliminating the capital gains tax on small business investment and an extension of write-offs. The latter is probably that carry-back extension that was secretly slipped into the unemployment benefits extension and it helps more large home builders than small businesses innovating around anyone's kitchen table.
The Administration is also proposing more fee waivers and SBA loan guarantees and offering more TARP money to banks to make more loans to small businesses. We all thought that was what the first TARP payout was for, but the Bush administration forgot to put that in the law. Unfortunately, most of the same people are still in charge.
Now that bipartisanship a la republican is satisfied--they get everything they want even though we won the last election, we get to move on to a few progressive proposals. To that end, President Obama proposed more infrastructure investment. Here's where Obama stopped to discuss the large potential for abuse. Due to the large potential for abuse when federal money goes to infrastructure projects, the whole thing had to move slowly. Obama assured us that Vice President Biden paid close attention to make sure the money was spent wisely. It's not so easy when you're dealing with American workers. You simply cannot trust them with federal bailout money as much as... say... AIG or Goldman Sach executives, can you?
The Administration's third proposal is the homeowner energy incentive and the final is made up of relief benefits like COBRA and unemployment insurance. The rest is up to our entrepreneurial ingenuity. To his credit, President Obama didn't leave it at that. It was his seque into education. A Race to the Top fund has been created to reform schools and improve math and science education.
Also addressing jobs crisis, a recent report by the New America Foundation called for a long term economic growth program rather than temporary stimulus measures. NAF argues that the current recession is not simply a cyclical downturn that would benefit from an economic tickle that can come from tax cuts and SBA loan guarantees. It's a global financial crisis accompanied by a collapse of asset value. Basically, NAF argues that our prosperity of the past 20 years or so has been false, based on a false valuation of assets, and because, the economy perceives a real loss in value, it cannot be expected to cycle up for a temporary stimulus as it would after a conventional rescession.
The sustained economic growth program proposed by NAF includes infrastructure investment, public service investment and pro-growth tax reform. On the surface, it doesn't sound a whole lot different from what Obama proposed. The big difference is in the scope of the project. NAF proposes long term investment and a pretty big change in our tax structure.
For its infrastructure investment proposal, NAF looked to the American Society of Civil Engineers recommendation of $2.2 trillion over 5 years and to include investment in R&D. For public service, NAF proposes permanent revenue sharing rather than individual local government bailouts. They point to the problems in California where Californians have used their referrendum power to tax reduce and spend themselves into a whole. Federal funds would be used to take up the slack on local needs such as unemployment, pensions, fire, police, and schools. The very same people who voted away their local governments' ability to provide needed and demanded services would pay for it through their federal taxes.
Of particular interest are some of the suggestions for public service investment such as a home health care corps for senior care. States are now looking to community care over nursing care and even Illinois has some pilot programs to use Medicaid for community care rather than requirng that poor seniors be dumped into nursing homes to obtain the financial benefits. NAF also proposed a neighborhood conservation corps to purchase, renovate, and manage mortgages of foreclosed-upon houses in order to preserve neighborhoods.
NAF proposes tax cuts, but different cuts than proposed by Obama. NAF proposes permanent cuts to payroll taxes to lower the cost of hiring and to corporate income taxes. To pay for these tax cuts, NAF proposes a new federal value added tax (VAT). A VAT taxes consumption rather than work, and is levied at each stage of production based on the value added at each level. The VAT is already under discussion in the House where Nancy Pelosi has made the proposal to level the playing field between US manufacturers and foreign manufacturers who benefit from VAT funds taking the burden of workforce benefits off their books. Conservatives call the VAT a national sales tax, but it differs from a sales tax in that the sales tax is levied on the retail sale of good where the VAT is levied at the different stages of production. The VAT avoids cascading and sits at the final production and not the final sale of the goods. The VAT is more neutral to the level on which it is being charged. The VAT is a regressive tax on consumption, but it's a lesser burden than a true sales tax because of its level neutrality. It can be made more progressive by changing the rates for different goods.
Much of the NAF proposals come from stimulus multipliers calculated by Moody's. Infrastructure spending earns $1.59 per $1 spent. The Bush tax cuts would earn $.29 on each dollar lost which is why suggesting making them permanent or even temporary until the recession is over is nonsense. The biggest bang for our stimulus buck? Food stamps earning $1.73 per $1. Mark Kirk has called food stamps wasteful pork.
NAF is calling on President Obama to use taxation and spending to restructure the economy rather than create a short term fix. They conclude that short term bubble economy thinking put us where we are today, so long term thinking is needed to get us out of it and keep us from going back.
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