President Obama outlined a $447 billion American Jobs Act this week that would cut payroll taxes paid by businesses and offer tax incentives for firms to hire new workers. But is this simply stimulus #2? Can our government really spend our way out of the iffy economy? Can building bridges and other infrastructure projects build long-term sustaining jobs? I am not so sure.
Government is a partner in a successful economic environment. Government’s role is to create an environment that encourages business. If we look to history we can see periods when government was not involved enough — times of monopolies and Robber Barrons. Currently, government’s position on business is uncertain at best. This uncertainty does not bolster confidence. And without confidence, there is no demand.
We cannot legislate our way out of this one. Nor can we spend our way out. Confidence from business leaders will come when they feel government is a willing and equal partner. The Jobs Act reduces employer costs for hiring. Sure, less payroll taxes help, but they do not create demand. If we feel that a reduction in taxes and a change tax code will help the economy then why not change the tax for the long run? The temporary nature of the Act does not instill the long term confidence necessary for leaders to make long term investments in their business. Lack of confidence = less demand.
Speaking of demand, a large percentage of our economy is driven by consumer confidence — as much as 70% of it. Without the commitment from businesses, new jobs will come slower than we need. Which means the real spark that can be ignited by the consumer will be slow to come.
I am just an entrepreneur. I don’t have all of the answers. But it is my sole job to know what my customers want and need to run my business accordingly. I either react and respond, or I don’t. That is really every leader’s job — to know their customers, their employees, their stakeholders. All Leaders have constituents. If business leaders fail to listen, their business fails over time. Government leaders? They get voted out of office.
All of this is about creating confidence as a leader. Demand will follow. Trust me. I live this every day.
For those of you that want some of the factoids on the “Act”, I outlined some key points below from an industry report for the staffing industry. The American Jobs Act would:
- • Cut the 6.2% employers’ portion of the Social Security payroll tax in half on the first $5 million in wages
- • Eliminate the 6.2% payroll taxes for any growth in payroll — whether through new hires, increased wages or both, up to $50 million above the previous year.
- • Provide a $4,000 tax credit to employers that hire workers who have been looking for a job for more than six months
- • Provide tax credits to encourage the hiring of unemployed veterans, both a “Returning Heroes Tax Credit” up to $5,600 and a “Wounded Warriors Tax Credit” of up to $9,600
- • Prohibit employers from discriminating against unemployed workers when hiring
- • Expand a payroll tax cut for workers. The tax cut would equal $1,500 to the typical family earning $50,000 a year.
- • Fund infrastructure projects and other stimulus programs as well as provide for unemployment insurance reform.