Days before the president reveals his plan, the GOP frontrunner provides his vision. How does Romnemployment stack up?
As a management consultant, Republican presidential candidate Mitt Romney made a living by telling firms to cut jobs. But he wants Americans to know that he can create jobs too. The former Massachusetts governor released his plan for job creation this week, which will coincide nicely with President Obama's Thursday speech on the topic. How are his ideas? As you might expect, some are good, some are bad, some are okay, and some are irrelevant.
Romney's plan obviously leans to the right, but he's further to the center than most other potential GOP nominees, like Rep. Michelle Bachman, Gov. Rick Perry, or Rep. Ron Paul. That provides an interesting spectrum of ideas from his plan. Below I'll evaluate some highlights that stand out from his "Believe in America." The analysis is focused on how these ideas would help to solve the unemployment problem in the near-term. That's the clear challenge for the U.S. economy at this time.
Increasing Energy Production
Romney provides a lengthy explanation of ways in which he would increase domestic energy production, particularly for carbon-based resources. These ideas aren't likely to excite green energy advocates, but they are practical. Not only would additional production create jobs, but additional supply would help to keep oil prices down. The summer's slowdown in hiring was due in large part to rising energy prices dampening consumer confidence and spending.
Personal Retraining Accounts
This is one of the more novel ideas contained within Romney's plan. He advocates a system of "Personal Reemployment Accounts" for unemployed Americans. Participants who need retraining to find work would have access to additional funding. Since this recession has at least a partial structural component, considering all of the job losses in housing-related sectors like construction and financial services, many Americans would benefit from switching industries. During retraining they would also exit the workforce in a meaningful way and return with better skills to fill a job opening.
Raise Visa Caps for Highly Skilled Workers
Sending foreign-born highly skilled workers away from the U.S. is a truly strange strategy. These are individuals who aren't easily replaced by U.S.-born workers, so you can't legitimately blame slower job growth on their presence. But more importantly, they help U.S. firms to be more competitive. As entrepreneurs they will also directly create jobs.
Lower the Corporate Tax Rate
U.S. companies have a disadvantage when competing with firms based in other countries with lower corporate tax rates. So Romney is correct that the playing field needs to be leveled so that the U.S. can better compete. Yet any decline in the corporate tax rate must include corporate tax reform. The goal here shouldn't be to merely push down the effective tax rates of giant corporations who already manage to pay little in taxes, but to cut taxes across the board so smaller and midsize corporations can compete better with the big guys and create more jobs.
Dodd-Frank, Obamacare, and Other Regulation
Romney provides a lengthy discussion of how regulation impedes job creation. He's right, and he also appears to understand that we don't want to throw the turnips out with the weeds here. But we'll have to see the details on what he would repeal and hold on to before judging this flank. Some regulation has a place in securing a safer, fairer economy. But a huge portion of the regulation created over the past three years is doing more to stifle job growth than to allow it to flourish.
More Free Trade Agreements
As Romney points out, for nations that we have free trade agreements with, the U.S. generally has a trade surplus. So while some jobs may go overseas, more are created within our borders. More free trade agreements would help, but the job creation they would provide isn't likely to be instantaneous. They would probably provide more medium-term hiring.
Further Reduce Taxes on Savings and Investment
For the U.S. to continue to maximize its long-term economic growth, it should strive to make investment as attractive as possible. But right now, firms aren't failing to hire because they're strapped for cash. Instead, they have lots of cash but still aren't hiring. In a strange way, encouraging saving and investment right now might actually make the jobs recovery harder: lackluster demand is leading firms to delay hiring. If Americans are saving and investing more money, then they'll be spending less and hiring will remain weak. Any job gains through additional startup investment that lower tax rates could provide may be neutralized or even overshadowed in the short-term by slower spending growth.
It seems like everybody in Washington is for tax reform. In particular, Romney says he wants to simplify the code. This is certainly a good idea, but spending a little less time or money each year doing your taxes isn't going to create many jobs. Indeed, it would more likely eliminate jobs at places like H&R Block. That might be worth the cost in the long-run, but it means fewer jobs in the short-run, not more.
To be sure, China needs to be chastised. It manipulates its currency and looks the other way when its firms infringe on U.S. patents. While such actions shouldn't be tolerated, now isn't the greatest time to get tough with China. The truth is that there are few export industries in which its actions are costing the U.S. many jobs. But if our imports from China ultimately decline because of a confrontation, then U.S. consumers will pay more for goods and services produced domestically or abroad. That will result in less demand and weaker hiring.
Eliminate the Death Tax
At a time when the U.S. government is facing austerity to fix its vast overspending over the past few decades, the last thing we should be doing is cutting taxes for dead rich people. The argument that wealthy Americans create their jobs by investing is true, but it's only true when they're alive. Their friends or relatives may or may not use the money as effectively to produce jobs as those who earned it in the first place. An exception to the estate tax, however, should be made in cases where a family business is passed down to a younger generation.
Cut and Cap the Budget
Speaking of austerity, it is necessary -- but not right now. Romney calls for immediate cuts and aggressive spending controls. While I applaud his spirit of restraining government spending, with unemployment above 9% and U.S. debt trading at historically low yields, now is not the time to cut spending. Doing so will eliminate both public and private sector jobs. This money will merely be withdrawn from the economy, not put in the hands of the private sector through new tax cuts.
Reduce the Federal Workforce
As odd as it may seem, Romney appears to believe that one way to create jobs is to eliminate them. He devotes an entire sub-section of his plan to reducing the federal workforce. Again, over time the size of the federal government should shrink, but eliminating these workers when the nation already has 14 million unemployed people just doesn't make sense. Cutting the federal workforce could be a good idea when unemployment is back near its natural rate. Right now, it's a terrible idea.
Overall, many of these ideas are good, but some are better than others. Few, however, are truly new. In general, Romney's plan traces the GOP platform's formula for job creation by reducing regulation and cutting taxes. But now that we've got his plan, we can compare it to what the president has to say on Thursday.
Image Credit:REUTERS/CHRIS KEANE