To solve the problem of creating more jobs, one has to understand what motivates and fosters the creation of new jobs and what discourages the creation of new jobs.
Most of my adult life was spent as an international banker, evaluating and financing business expansion proposals which created hundreds of thousands of new jobs. There were some consistent trends.
When any government raises taxes and/or imposes expensive mandates (e.g. Health Care), it makes it more difficult for a business entity to make money and/or be competitive. Businesses then do not have the money available to expand which they usually need to hire more people. Unemployment goes up.
Over-burdensome regulations also raise costs and inhibit business expansion. Things like our Federal government refusing to allow relatively safe oil drilling in shallow waters off our coasts and forcing oil companies to drill five miles below the surface far offshore raises costs and safety issues. Does anyone doubt that now?
Any increased cost caused by the government is passed on to us consumers. It is taking money out of our pockets. This means that we have less money to buy things.
This also means that a business somewhere has to cut back on its expenses due to reduced sales. Usually they lay off people because they don’t have the demand to make as many goods or provide as many services as before.
If you know your economic history, you know that every time there has been a major cut in taxes, there has been an explosion of new jobs. For example, when Ronald Reagan cut the highest marginal tax rate from 70% down to 28%, 22 million new jobs were created.
At the same time government tax revenues increased by almost 100% over the next ten years because so many new people were paying taxes as a result of the economic expansion. The increased number of people paying taxes more than offset the lower tax rates.
Similar job expansion happened after reducing taxes and regulations during the presidential administrations of Harding, Coolidge, and Kennedy. The opposite happened in the administrations of Wilson, Hoover, FDR, Nixon, Carter, and Obama when they raised the cost of doing business with new taxes and/or regulations.
As long as our Federal, state and local governments keep increasing their expenditures, bureaucracies, debt and regulations, there will be no job growth in the private sector here or anywhere else. If our state has the highest corporate tax rates in the southeast, new businesses will also be reluctant to set up here.
All spending originates in the U.S. House of Representatives. The Democrats took over control of both the House and Senate in 2006.
Since 2006, annual Federal government spending has gone from $2.79 trillion to over $4 trillion this year, a staggering 40% plus in less than four years. During the same time we have lost approximately 8 million private sector jobs.
I cannot get into the heads of our government leaders who have made the economy go into a tailspin. They may be ignorant of economic history or they do not care and just want to make more people dependent on the government to increase their power.
James F. Davis is the president of Accuracy in Academia.