A Speech Only Washington Could Love

The more things change, the more things stay the same. A little over a year ago, President Barack Obama came to office expecting to pass a “big bang” of policy changes all in the first year: health care, cap-and-trade, and banking regulation. With the big-bang strategy officially a failure, President Obama’s State of the Union address last night desperately tried to keep all of these legislative efforts alive while also acknowledging that the country has firmly rejected his policy agenda.

The result was an incoherent mess of promised tax cuts for small businesses coupled with the threat of tax hikes from his health care and energy proposals; more federal money to encourage banks to lend to businesses, coupled with new taxes on banks and individuals; the continued waste of his $862 billion stimulus plan and $2 trillion in new health care spending, coupled with a delayed and temporary spending freeze. As one of the longest State of the Unions in the past 45 years, we cannot cover everything here. But our crack team of Heritage experts did hit almost every issue last night, and you can read their full reactions here. Highlights include:

The New Hire Tax Credit
The tax credit for new hires is another recycled idea from Washington. Last tried in the 1970s, the tax credit proved to be a windfall for big businesses that were planning to hire anyway. Small businesses, the engine of job growth, did not use the tax credit largely because they were unaware of it and did not understand how to take advantage of the credit. The jobs tax credit proposal will likely also delay hiring since businesses that understand the tax credit now face an incentive to postpone hiring decisions to take advantage of the tax credit. Extending the Bush tax cuts and undoing the heavy taxes in the health care legislation is a better step to job creation than this tax credit.

The Bank Tax
President Obama tonight called for a new tax on banks and other large financial institutions, “a modest fee,” he said, “to pay back the taxpayers who rescued them in their time of need.” That sounds great, but in truth, the new tax would do nothing of the kind. Mr. Obama knows that almost every major bank has paid-back their bailout funds, with interest. Taxpayers made substantial profits on those repayments. On the other hand, most of the companies that still owe billions to taxpayers, including Fannie Mae and Freddie Mac, and auto firms GM and Chrysler, would not be subject to the tax. In short, Mr. Obama would tax those that have paid back taxpayers and exempt those who have not.

The Spending Freeze
Obam’s spending freeze would apply to a narrow sliver of spending (somewhere around 1/8th of total spending) and at best, savings would be less than one percent of the total budget. Moreover, it explicitly exempts the very entitlement programs driving future deficits. At a time when the deficit is $1.4 trillion and we face a sea of even worse red ink as far as the eye can see, such a freeze is tantamount to bailing out – forgive the double entendre – the Titanic with a dixiecup. And it would start next year, conveniently after the elections. Freezing spending is the right idea, but this freeze falls short of real action.

Energy Production
His calls for new nuclear power, offshore oil and gas exploration, and other new energy technologies are certainly welcome. The problem is that his program of subsidies, special tax treatment, and government support will not work. While government programs can create jobs in specific sectors, the President ignores the evidence that these programs end up killing more jobs than they create. Spain has already gone down this road, and its experience should give the President caution. Between 2000 and 2008, the Spanish government spent $36 billion in taxpayers’ money on wind, solar and mini-hydro development. Each green job created cost on average $758,471.

Foreign Policy
Many around the world have expressed concern that a U.S. administration so focused on domestic priorities and troubles as the current one will be too inward-looking to be deeply engaged in the world. Judging by its placement in his list of priorities, foreign affairs did seem like an afterthought, briefly addressed. In Afghanistan, allied nations are hardly coming together to support the President’s surge — indeed French President Nicolas Sarkozy very publicly stated this week that he would not be contributing any more troops to the endeavor, this on the eve of the Afghanistan conference in London.

And the fight on terrorism has not, as stated, been advanced by the Obama administration — quite the reverse as the nation has become more vulnerable. Nor has the administration distinguished itself by its support for human rights in Iran — in fact it missed a critical moment to get involved during last summer’s uprisings against the Iranian regime. As for the President’s aspiration to control nuclear materials around the world, a goal to be reached through an international conference — that horse left the barn a long time ago.

In “Government’s End,” Jonathan Rauch writes: “Economic thinkers have recognized for generations that every person has two ways to become wealthier. One is to produce more, the other is to capture more of what others produce. … Washington looks increasingly like a public-works jobs program for lawyers and lobbyists, a profit center for professionals who are in business for themselves.” From complicated new tax credits that small business owners don’t have the time or expertise to take advantage of, to new energy, financial and trade regulations that only large corporations have the lawyers and lobbyists to take advantage of, every policy proposal in Obama’s speech last night is a boon for the lawyer/lobbyist economy in Washington and a hindrance to wealth-creating Americans everywhere. This was a speech only the entrenched interests in Washington could love.

Government Unions Win, You Lose

Since President Barack Obama was sworn into office, the U.S. economy has shed 3.4 million jobs and the unemployment rate has risen to 10%. But not all sectors of the economy have been suffering equally. In fact, the sector of the economy most supportive of President Obama has not only avoided contraction, but has actually managed to grow instead.

According to a report released by the Bureau of Labor Statistics (BLS) last Friday, in 2009 the number of federal, state and local government employees represented by unions actually rose by 64,000. Coupled with union losses in the private sector economy, 2009 became the first year in American history that a majority of American union members work for the government. Specifically, 52% of all union members now work for the federal, state or local government, up from 49% in 2008. Or, to better illustrate these statistics: three times more union members work in the Post Office than in the auto industry.

So what? Why should Americans care if unions are now dominated by workers who get their paychecks from governments, instead of workers who get their paychecks from private firms? There’s one simple reason: private firms face competition; governments don’t.

Collective bargaining, the anti-trust exemption at the heart of a union’s power, was created to help workers seize their “fair share” of business profits. But if a union ends up extracting a contract from a private firm that eats up too much of the profits, then that firm will be unable to reinvest those profits and will lose out to competitors. But when a union extracts a generous contract from a government, the answer is always higher taxes or borrowing to pay for the bloated spending. And make no mistake: unionized government worker compensation is bloated.

As Heritage fellow James Sherk notes “[t]he average worker for a state or local government earns $39.83 an hour in wages and benefits compared to $27.49 an hour in the private sector. While over 80 percent of state and local workers have pensions, just 50 percent of private-sector workers do. These differences remain after controlling for education, skills and demographics.”

Unionized government employees not only want to keep their bloated compensation packages, but their leaders are desperate for more members and more union dues. That is why public-sector unions have become a fierce lobbying force for higher taxes and more spending across the country. Organized labor once fought against taxes and regulations that impeded the economic interests of their employers, but now they are in alliance with environmentalists pushing private sector and economy-crippling cap-and-trade legislation.

It’s worth noting that the BLS did not count the United Auto Workers working for General Motors and Chrysler as unionized government employees. But perhaps they should have. Our country will share their fate unless something is done about unionized government power.

Heritage Foundation’s Morning Bell: $787 Billion in Stimulus, Zero Jobs “Created or Saved”

On February 11th, President Barack Obama stood on a windy hilltop in front of a dusty construction site in Fairfax County, Virginia, and promised the American people: “Here in Virginia, my plan will create or save almost 100,000 jobs, doing work at sites just like this one.” Standing alongside current Democratic National Committee Chairman and former-Gov. Tim Kaine, the President continued: “Where we’re standing, that could mean hundreds of construction jobs. And the benefits of jobs we create directly will multiply across the economy.” Eleven months later, none of those promised jobs have been “created or saved.” In fact, the Obama administration quietly announced last week that they were dropping the fraudulent “saved or created” terminology altogether.

The failure of Obama’s $787 billion stimulus is particularly acute in Virginia where, as Heritage fellow Ron Utt has documented, despite $695 million in allocated infrastructure funding, only 16% of designated projects had begun. House Transportation and Infrastructure Committee Chairman James Oberstar (D-MN) even publicly complained about Virginia’s slow transportation spending, writing to Gov. Kaine: “your state ranks last among all states [51 out of 51, including the District of Columbia], based on an analysis of the percentage of Recovery Act highway formula funds put out to bid, under contract and under way.”

But even where infrastructure spending has been spent, the hard evidence shows that there has not been any positive effect on unemployment. According to an Associated Press analysis reviewed by independent economists at five universities, the $20 billion spent nationwide on infrastructure so far “has had no effect on local unemployment rates.” And this was just the most recent embarrassing headline for the White House’s signature economic policy. Since the first reporting deadline in October, newspapers and other media outlets across the country have identified 94,341 fake jobs reported by the Obama administration as jobs “created or saved” by the stimulus. After the Government Accountability Office issued a report finding “significant reporting and processing problems that need to be addressed,” Obama administration spokesman Ed Pound offered this defense of the Obama administration’s jobs numbers: “Who knows, man, who really knows.”

Now Office of Management and Budget Director Peter Orszag issued a little-noticed memo last month ending the “saved or created” metric and instead directing agencies to count only jobs “funded” by stimulus dollars. But as Harvard University labor economist Lawrence Katz tells ProPublica, this is not really an improvement: “I just think it’s a silly exercise.” Instead Katz says a more accurate way to account for the effect of the stimulus is to look at the unemployment numbers put out by the Bureau of Labor Statistics.

That is a great idea. The latest BLS report issued last Friday found that the U.S. economy dropped 85,000 jobs in December, bringing the jobs lost total to 2.7 million since the stimulus was passed and 3.4 million since Obama became President. In contrast, the President’s White House Council of Economic Advisers had promised total employment of at least 138.6 million by 2010. Actual employment as of December was reported to be 130.9 million, leaving the Obama jobs deficit at 7.7 million.

The problem with infrastructure spending as stimulus, and really government spending as stimulus, is that Congress does not have a vault of money waiting to be distributed. Every dollar Congress injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. It is merely redistributed from one group of people to another. Businesses are telling pollsters that among the biggest reasons they are not creating jobs is the prospect of new tax and regulatory burdens. A better solution to reduce unemployment is to simplify and reduce the barriers to business success.

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The Democratic Party was shaken to its core on Tuesday when Sen. Chris Dodd (D-CT), Sen. Byron Dorgan (D-ND) and Gov. Bill Ritter (D-CO) announced they would not run for re-election in 2010, all on the same day. The source of these Democrats’ fears in facing the American people at the polls is no secret: the American people believe the state of the economy is poor and getting worse. Responding to this dismal environment, Sen. Ben Nelson (D-NE) told the Fremont Tribune on Tuesday: “I think it was a mistake to take health care on as opposed to continuing to spend the time on the economy.” While we agree with Nelson that President Barack Obama’s health care priorities have been grossly misplaced, we shudder to think what more “time on the economy” would have meant from this White House.

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