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Monday, September 12, 2011

The President's Speech and Private Investment

In his September 8 speech on the economy, President Barack Obama made the following bold claim about his plan: "It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and if they hire, there will be customers for their products and services."

If only that were the case.

Instead, the agenda laid out by the President not only provides little to enhance the incentives and ability to accelerate entrepreneurship and investment, but actually includes measures that work against such critical risk taking.

It is important to grasp that what our economy has been long experiencing is a dearth of economic growth. In turn, growth comes from private sector risk taking, in particular, from starting up, building and investing in businesses. Quite simply, entrepreneurs and investors need the incentives, resources and certainty to undertake the ventures that will spur the economy forward.

The only positive for business investment in the President's plan is extending the ability to expense capital expenditures into 2012. However, the effectiveness of this measure is limited due to its temporary nature. At best, such temporary measures shift the timing of investment, but do not enhance overall investment.

But in this case, the temporary ability to expense investment has been further limited in its effectiveness due to a wide array of other policy initiatives that overwhelmingly work against private risk taking. Those measures include increased regulation of financial firms; a combination of more regulation, higher taxes and increased government spending via ObamaCare; and the threat of ever-increasing taxes due to the historic explosion of federal spending and debt in recent years.

And then there are the tax increases that President Obama actually called for, again, in his speech on the economy. Mr. Obama declared: "Should we keep tax breaks for millionaires and billionaires? Or should we put teachers back to work so our kids can graduate ready for college and good jobs?" That's a glaring example of shameless and ignorant class warfare politics, as opposed to sound economics. The president actually has called for increased personal income, capital gains, and dividends taxes on those earning more than $250,000 annually.

But while President Obama gives lip service to small business owners, and to the need for more investment and job creation, at the same time, he calls for increased taxes on the entrepreneurs and investors with the ability and resources to make more investment and jobs a reality.

The President claimed in his speech, "This isn't political grandstanding. This isn't class warfare." In reality, of course, that's exactly what this is. Unfortunately, class warfare always makes for bad economics.

There's no secret about what's needed to get entrepreneurship, investment and the economy re-ignited, and along with them, boosting job creation. Deep, substantive tax relief, deregulation, free trade, smaller government, and sound monetary policy focused on price stability work together to get incentives right, to allow the private sector to spend and invest resources, and to provide a degree of certainty that public policy is pointed in the right direction. This is what, to quote Mr. Obama, will "provide a jolt to an economy that has stalled, and give companies confidence that if they invest and if they hire, there will be customers for their products and services."

President Obama keeps claiming that he wants to help small businesses, investment, and job creation, yet he keeps pushing policies that do the exact opposite.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

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