I wish the President’s Jobs Act could turn around our economy and put people back to work. Like most Americans, we want the President to be successful. But wishful thinking won’t make it so.
Let’s take an honest, dispassionate look at the President’s plan as he laid it out to Congress last week.
His proposal can be broken into two parts – tax breaks of about $250 billion per year, and government expenditures or stimulus of $197 billion for a total package of $447 billion. The President emphasized that the $197 billion will be paid for through deficit reduction.
And thus the catch 22 with the President’s plan. The core of our problem -- the reason we can’t grow our way out of our debt problems is the crippling federal deficit. And it’s not just a U.S. problem.
The entire world is spending on borrowed money, and cheap money at that. Most sovereign debt in the western world is borrowed at a rate of about 1.25%. But we’re about to hit a debt wall and run out of cheap money.
Those countries running big deficits -- which is just about every country save China and a few awash in oil -- will be forced to pay more for the money they’re borrowing. When we hit the debt wall; interest rates will go up, the economy will take another turn for the worse, businesses will go under and jobs will be lost.
Even if the $197 billion in expenditures in Obama’s plan are offset by deficit cuts of the same amount, in the next fiscal year, the government will realize $250 billion less revenue in tax from the other part of the plan.
Even worse, assuming the President’s plan increases GDP by 2% -- which there’s no reason to assume other than the aforementioned wishful thinking -- it won’t be enough to overcome the current problem that the government is sucking up 28% of our nation’s GDP. Most economists agree the maximum amount the government can take out of the economy and still hope for some economic growth is only 18%.
There’s really only one solution. We have to cut spending and we have to do it now. We can’t grow our way out, borrow our way out or print our way out of the world’s deficit problems.
With this plan, the President has effectively charged the Congressional Select Super Committee that is already mandated to find $1.5 trillion in spending cuts to find another $447 billion to fund his jobs plan. This is a Super Committee that was established because Congress and the White House could not agree on a debt ceiling plan. In fact, they haven’t even been able to agree on a federal budget plan in more than 2 years. Is it reasonable to expect a committee of 12 to do what a gang of 6 and a crowd of 435 could not?
The Super Committee does not make its first recommendation until November 23rd. Assuming Congress will accept their recommendations, they are not enacted until December. In the meantime, we’re gaining speed in a game of chicken with a debt wall that won’t be moved by Presidential speeches or congressional stalling.
Rather than create jobs, the President’s plan does exactly the reverse. It accelerates the time of impact with a debt wall that could destroy our economy and kill our chance for more jobs.