This is not official Davos business, but I want to quickly weigh in on the State of the Union. I’ve written before about how it’s tough for the federal government to explicitly set out to create jobs.
Nonetheless, the President’s speech from last night had some decent ideas. Plus one really bad one.
Good idea No. 1: helping small businesses access markets overseas. As I’ve been hearing here at the World Economic Forum, consumer spending is booming in certain parts of the world—the vice premier of China just mentioned that consumer purchases are up 15% year-over-year. While American shoppers are still staying at home, it’s a smart move to try to sell goods elsewhere.
Increasing credit access for small businesses is also a solid idea. Credit instruments that big companies use—like bonds—have largely returned to normal. Not so for the bank financing smaller outfits turn to. Tax breaks for investment in plants and equipment seem inoffensive enough, although any time we collectively pay less tax, I want to know what program isn’t going to get funded anymore.
Giving people tax breaks to better weatherize their homes—the so-called Cash for Caulkers program—again seems fairly inoffensive, although I can’t imagine we’re going to get nearly as much economic bang as we did with Cash for Clunkers. I think a big reason to support this idea is to train Americans on energy conservation.
Then there was the one really bad idea in the President’s speech: giving a tax break to companies that hire people. As I’ve argued before, this tax break is incredibly inefficient since companies are already hiring 4 million people a month. We’d wind up spending a whole lot of money paying people to do something they were going to anyway.
Furthermore, there’s not really any evidence that a tax break to hire would make companies actually want to go out and hire. I thought it was really interesting to see the National Small Business Association come out against the idea. From the trade group’s State of the Union response:
The idea to make hiring easier for small businesses is a good one. Unfortunately, when polling our members, few believe that a hiring tax credit—which would likely be temporary—would be incentive enough to take on new employees, particularly given costly benefits. In many cases people who take advantage of this tax credit would have hired the new employee regardless.
Pay people to hire—it’s a good idea. But only in theory.