By Arthur Laffer
September 12, 2011
Some people actually believe government can create jobs by taxing and borrowing from people with jobs and then giving that money to people without jobs. They call this demand stimulus. To make matters worse, other people think these demand-stimulus ideas warrant a serious response.
Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won’t speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don’t work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape.
I’m beginning to think that Irving Kristol was correct when he wrote, “It takes a Ph.D. in economics not to be able to understand the obvious.” It shouldn’t surprise anyone why the economy isn’t getting better.
If the U.S. wants prosperity, government doesn’t need to do something, it needs to undo much of what it already has done. Here is one area where, in the spirit of the late Congressman Jack Kemp, President Obama and I could agree.
African-Americans are suffering inordinately in the Obama aftermath of the Bush Great Recession. While overall U.S. unemployment stands at 9.1%, black unemployment has jumped to 16.7%. Black teenage unemployment is bordering on 50%, and that figure doesn’t even take into account “discouraged” workers, “involuntary” part-time workers and “underemployed” workers. But even these numbers don’t tell the real story. They represent real people who are suffering deeply and have been suffering for a long, long time.
Behind these numbers are millions of lives discouraged and despondent. People who’ve lost their self-esteem and pride. The young who have given up on America and some of whom have even turned to crime. Scars are being made across a whole ethnic subset of America. Unemployment, underemployment and involuntary part-time employment represent the loss of a precious natural resource that can never be recouped. No one can feel good about himself if he’s living on handouts from Uncle Sam. We as a nation can’t wait until 2013 to address this issue.
Whether President Obama’s base finds supply-side economics appealing or not, he should immediately join with all members of Congress from both parties to develop a full program for enterprise zones. And while enterprise zones are desperately needed in our inner cities, there are lots of areas in the hollows of Kentucky and West Virginia that need enterprise zones as well, not to mention barrios in California and New Mexico.
Enterprise zones should be areas that are geographically defined with exceptionally high concentrations of poverty, underachievement and unemployment. The policies applicable to enterprise zones should include:
A) For all employment within the enterprise zone of people whose principal residence is also the enterprise zone, there should be no payroll tax whatsoever, neither employer nor employee portions. The employer need not be headquartered in the enterprise zone to take advantage of the elimination of the employer’s portion of the payroll tax. The locus of employment does have to be in the enterprise zone.
Don’t for a moment think that this will be a budget buster. Right now there aren’t many jobs in our inner cities anyway and the few dollars of tax revenues lost will be more than offset by reductions in welfare spending because people will have jobs and won’t need welfare. The best form of welfare is still a good job.
B) Federal and state minimum wages must be suspended in the enterprise zone. If not for all employees, then at least for employees under 30. These young people need on-the-job training, and at the present minimum wage many of them aren’t worth hiring. That is why they are unemployed.
A job seeker fills out an application with Coca-Cola at a jobs fair hosted by the Congressional Black Caucus in Miami. Associated Press
Even for teenagers who are in school, a summer job is an enormous benefit for a future productive career. This summer and last summer only 30% of all teens worked—all-time lows. We need to break this vicious cycle right now by getting rid of the youth minimum wage in our enterprise zones.
C) In the enterprise zones the government should do an expedited review of all building codes, regulations, restrictions and requirements to make sure that they don’t unjustifiably impede economic growth. For example, mandated union membership rules should be voided in enterprise zones as should all prevailing wage provisions and the like.
When I lived in Chicago I reviewed a number of rules and regulations and restrictions whose primary impact was to impede our inner cities from ever achieving prosperity. I’ll bet they’re even worse now.
D) Profits generated by companies operating and employing people within the enterprise zone should only be taxed at one-third the regular tax rate. No matter how many fewer regulations a company faces, those companies still quite rightly respond to profits for their shareholders.
Businesses don’t move their plant facilities as a matter of social conscience. They do it to make profits for their shareholders. If you want more jobs in our most depressed areas, make those areas more profitable for companies to relocate there. It’s as simple as that.
I guarantee Mr. Obama that he will receive the support necessary to carry the day in Congress. And once he sees how this plan works for our most depressed areas of America, he can then extend enterprise zones to cover the whole country.
Mr. Laffer, chairman of Laffer Associates, is co-author, with Stephen Moore, of “Return to Prosperity: How America Can Regain Its Economic Superpower Status” (Threshold, 2010).
This editorial appeared in the Wall Street Journal.