What Is Needed Is a Whole New Approach to Job Creation

With data on September's unemployment rate and payroll jobs creation due to be released Friday by the Labor Department, politicians are campaigning across America discuss what many Americans worry about more than health care, Afghanistan, or anything else--jobs.

Americans are right to be concerned.  Although the NBER said the recovery was over in June 2009, unemployment is at 9.6% and there are almost 15 million Americans unemployed.  Over the past year, the economy has only created 229,000 jobs.  And all this despite almost a trillion in stimulus programs.

So today I was asked to talk about how to create jobs. Well, I don't have to tell you how to create jobs.  You're out there every day, running these companies, not just across America, but across the world.

You know that it's tough to know whether to expand your business if you don't even know what your tax rate is going to be next January.  If you file as a sole prop, will your tax rate be 35% or 39.6%?  If you're a corporation, what about the taxes on dividends, if your company issues dividends?  Will it be 15%, or will dividends be taxed at ordinary income levels?  How about capital gains taxes?  Will the long-term capital gains tax rate be 15%, 20%, or 25%?

Will you get business expensing and a permanent research and experimentation credit?  That might help you build capital, but you don't know, so you can't plan.

If you run a fast food chain or a hotel, you're facing a federal minimum wage that has risen from $5.15 to $7.25 per hour over the past three years, affecting low-skill workers and teens. The teen unemployment rate exceeds 26%, but many of these teens have skills of less than $8.00 an hour—that's the minimum wage plus your Social Security, workers' comp, and unemployment insurance payments.  So you can't hire them.  Instead, you bring in lettuce already chopped and hamburger patties already made, rather than making them on the spot—and you hire more highly-skilled workers to put it all together.

If you have more than 50 workers, you're preparing for new annual penalties of $2,000 per worker in 2014 if you don't offer the right kind of health insurance. If you have fewer than 50 workers, you won't want to hire more than 50, and if you have 55 to 60 workers, you're probably thinking about how to contract out some services or shed labor to get to the magic 50 number.  

Plus, whether you run a small sole prop or large corporation, starting from 2011, all of you will have to file 1099 forms with the IRS if you buy more than $600 from one supplier.  That's more than $600 in office supplies, document shredders, computers, gasoline.  That's paperwork that will take time and money away from running your business.

Construction. Those of you who run construction companies—and I know you're out there, this isn't a man's world anymore—are affected by the executive order encouraging the use of union labor for federal government construction contracts over $25 million. Most of the labor component of the $50 billion of infrastructure spending has gone to union jobs. But since union workers are only 7% of the private sector workforce, that's leaving out a lot of small companies.

Green jobs. You might be a winner if you're in an industry that creates green jobs. No one has properly defined a "green" job (a vague term now in vogue), the kind that the government wants to encourage, but many believe such jobs include installers of insulation and energy-efficient windows, and producers of renewable energy, as from sunshine and wind. Tax revenues used to subsidize the manufacture of these products create jobs in those sectors, but leave less to be spent on other activities. You might want to invest in those sectors—but again, what the government gives it can take away, so you don't know if the fad will last.

On the other hand, if you're in the oil and gas business, you're in trouble.  Every new government proposal seems to be funded by raising taxes on oil and gas.

The problem is that since none of us know what legislation Congress will pass, all of you are moving slower than you would do otherwise. The uncertainty is killing jobs. You're hiring a few more temporary workers, but not permanent workers. Plus, your customers are wary of spending because they're afraid of tax hikes and further shrinkage of the values of their homes and their retirement savings.

What is needed is a whole new approach to job creation. Not stimulus, i.e. more government spending, but certainty. Certainly low tax rates, certainly low regulation, so you have the confidence to expand and hire and your customers have the confidence to go shopping.