Freedom Line Blog

Reasonable people agree that the U.S. tax code is too bloated and complex.  We also agree that our businesses and economy cannot withstand the January 1, 2013 tax cliff catastrophe that Barack Obama and his Congressional accomplices are willing to allow in the name of class warfare.

Fortunately, there’s something you can do about it.

The House will vote soon on H.R. 8 and H.R. 6169, the “Job Protection and Recession Prevention Act” and the “Pathway to Job Creation through a Simpler, Fairer Tax Code Act of 2012,” respectively.   In conjunction, stated simply, the two bills would:  block the scheduled January 1 tax increases by extending current income tax rates for one year;  maintain marriage penalty relief;  continue the $1,000 child credit;  continue the critical 15% top rate on dividends and capital gains;  maintain the estate tax at its 2011 and 2012 parameters (indexed for inflation);  provide for higher Section 179 small business expensing limits;  preserve education-related benefits;  provide a two-year AMT patch for 2012 and 2013;  and provide a clear pathway to comprehensive tax reform in 2013 by implementing expedited procedures to enable lawmakers in both the House and Senate to overcome technical hurdles that cause bills to languish during the legislative process.

For this to occur, however, members must hear from you.  Please call your representative immediately and demand their support for this critical legislation (members and contact information accessible via CFIF’s “Take Action” link here).

Byron York explains why President Barack Obama is not campaigning on behalf of Tom Barrett, the Democrat running against Republican Governor Scott Walker in Wisconsin’s recall election on Tuesday:

The latest poll on the recall battle shows why Obama is staying away. It’s not just that he doesn’t want to appear with a loser. Perhaps just as importantly, there is no advantage for Obama to risk his own popularity by making a high-profile visit to oppose policies that are finding increasing favor with voters.

The new poll, from Marquette University Law School, shows Walker leading Barrett 52 percent to 45 percent. Beyond the horse race, the Marquette pollsters also asked about specific elements of Walker’s reforms. It turns out some of the key elements of those policies — reforms Obama strongly opposed — are now winning the day.

Those policies include:

• 75% of voters in favor of “requiring public employees to contribute to their own pensions and pay more for health insurance.”

• 55% of voters in favor of “limiting collective bargaining for most public employees.”

• 54% of voters thinking Wisconsin is better off in the long run because of the changes in state government

With these numbers and 52% of voters preferring him, Scott Walker appears likely to keep his job.  If Wisconsin voters start to apply the same poll questions to Obama’s failed economic policies – forty months of 8% unemployment, doubling the national debt in just one term in office – they’ll come to the opposite conclusion about the President.

No wonder he doesn’t want to be seen in Wisconsin.

Economists projected that the U.S. economy would add 160,000 new jobs last month.  Instead, the Labor Department announced today that we only added 69,000.

Additionally, the unemployment rate increased to 8.2% in May from 8.1% in April.  That makes 40 consecutive months above 8%, a new record.  Keep in mind that the Obama Administration claimed we wouldn’t reach 8% in the first place if his failed “stimulus” spending bill passed back in early 2009.

This announcement also arrives one day after the Commerce Department announced that the American economy grew only 1.9% in the first quarter of 2012, short of its initial 2.2% estimate.

More broadly, the economy must add 200,000 jobs each month just to keep pace with population growth and materially reduce the unemployment rate, and today’s report follows a disappointing 115,000 number in April.  The Obama Administration claims that the last recession was “the worst since the Great Depression,” but that’s false.  The early-1980s recession was substantially worse – higher unemployment, higher inflation and higher interest rates.  President Reagan’s policy of lower taxes and less regulation, however, rapidly reduced unemployment from 10.4% to 6.7% in the three years following the effective date of his tax cuts in January 1983.  In contrast, Obama’s policies of higher spending, higher deficits, higher taxes and more regulation have caused the worst cyclical recovery since the Great Depression.

In an interview with CFIF, Todd Young, Chief Operating Officer for Center for America, discusses the crisis behind the skilled worker shortage, a new campaign to match National Guard and other military veterans with companies looking for workers, and recent unemployment figures.

Listen to the interview here.

In a recent report and video, the Institute for Justice gives an excellent summary of how government licensing requirements to enter occupations like interior design, massage therapy, or shampooing are raising time and cost barriers to people who just want to work.

In this video IJ research director Dick Carpenter shares the results of a study of 102 low to middle income jobs (i.e. not doctors and lawyers) that impose on average require would-be workers to: (1) pay $209 in fees, (2) pass an exam, and (3) endure 275 days of training, or the equivalent of about 9 months.  All this before earning a paycheck!

IJ also notes that burdensome licensing requirements have not been shown to protect public health and safety.  Rather, they increase costs to consumers and keep would-be competitors out of legally protected (i.e. licensed) industries.

As the IJ video and study show, not every regulatory problem is a federal creation.  State lawmakers have an easy method for spurring job growth and entrepreneurial activity – reduce or eliminate licensing requirements so that citizens can get working.

Jonathan V. Last at The Weekly Standard shares an eye-popping chart on the Bureau of Labor Statistics employment-population ratio; i.e. the percentage of employed Americans relative to the number of Americans able to work.

Below are the worst 30 months of the employment-population ratio from the last 25 years.  Notice a trend?

1. (tie) July 2011, 58.2 percent, President Barack Obama
1. (tie) June 2011, 58.2 percent, Obama
1. (tie) November 2010, 58.2 percent, Obama
1. (tie) December 2009, 58.2 percent, Obama
5. (tie) August 2011, 58.3 percent, Obama
5. (tie) December 2010, 58.3 percent, Obama
5. (tie) October 2010, 58.3 percent, Obama
8. (tie) April 2012, 58.4 percent, Obama
8. (tie) October 2011, 58.4 percent, Obama
8. (tie) September 2011, 58.4 percent, Obama
8. (tie) May 2011, 58.4 percent, Obama
8. (tie) April 2011, 58.4 percent, Obama
8. (tie) February 2011, 58.4 percent, Obama
8. (tie) January 2011, 58.4 percent, Obama
15. (tie) March 2012, 58.5 percent, Obama
15. (tie) January 2012, 58.5 percent, Obama
15. (tie) December 2011, 58.5 percent, Obama
15. (tie) November 2011, 58.5 percent, Obama
15. (tie) March 2011, 58.5 percent, Obama
15. (tie) September 2010, 58.5 percent, Obama
15. (tie) August 2010, 58.5 percent, Obama
15. (tie) July 2010, 58.5 percent, Obama
15. (tie) June 2010, 58.5 percent, Obama
15. (tie) March 2010, 58.5 percent, Obama
15. (tie) February 2010, 58.5 percent, Obama
15. (tie) January 2010, 58.5 percent, Obama
15. (tie) November 2009, 58.5 percent, Obama
15. (tie) October 2009, 58.5 percent, Obama
29. February 2012, 58.6 percent, Obama
30. (tie) May 2010, 58.7 percent, Obama
30. (tie) April 2010, 58.7 percent, Obama
30. (tie) September 2009, 58.7 percent, Obama

According to Last, “the 30 (or 32, including ties) worst months for employment in the past 25 year have all come after the most recent recession ended, in June 2009.  In other words, they’ve all come during the Obama ‘recovery.’”

Remember this the next time President Obama repeats his mantra that the American economy is “moving in the right direction.”

Tech billionaire and owner of the reigning NBA Champion Dallas Mavericks Mark Cuban correctly identifies the disconnect between the way policymakers talk about higher education spending and its true value to college students:

The President has introduced programs that try to reward schools that don’t raise tuition and costs. They won’t work.  Right now there is a never ending supply of buyers. Students who can’t get jobs or who think that by going to college they enhance their chances to get a job. Its the collegiate equivalent of flipping houses. You borrow as much money as you can for the best school you can get into and afford and then you “flip” that education for the great job you are going to get when you graduate.

Except those great jobs aren’t always there. I don’t think any college kid took on tens of thousands of dollars in debt with the expectation they would get a job working for minimum wage against tips.

At some point potential students will realize that they can’t flip their student loans for a job in 4 years. In fact they will realize that college may be the option for fun and entertainment, but not for education.

One of the hardest hit employment segments in the Obama Economy are college grads with too much education, too much education debt, and not enough work experience.  In a contracting economy, jobs go to those with years of on-the-job training and the financial flexibility to work multiple opportunities.

If Mitt Romney wants to put Barack Obama’s most blindly loyal constituency in play this election, he should pull no punches tying Obama’s spending and business regulations to the dearth of job opportunities available to college students and recent grads.

At this moment in Dallas, Texas, the Trans-Pacific Partnership (TPP) trade negotiations have resumed, with important implications for intellectual property (IP).

According to the U.S. Commerce Department, 75 domestic industries it identifies as “IP-intensive” account for 40 million jobs, approximately 28% of our total employment.  Industries reliant upon IP also account for $5 trillion – some 35% – of total American gross domestic product (GDP), 61% of U.S. merchandise exports and pay wages 42% higher than non-IP employers.

It is therefore critical that TPP negotiators establish a solid foundation for IP protection as they move toward finalization.

The TPP currently consists of eight Pacific trading partners in addition to the U.S. – Australia, New Zealand, Singapore, Malaysia, Vietnam, Brunei, Chile and Peru.  In 2010 alone, America exported $89 billion in goods to those nations, making the TPP one of our largest collective export markets.  The express goal of the TPP charter is “to establish a comprehensive, next-generation regional agreement that liberalizes trade and investment and addresses new and traditional trade issues and 21st-century challenges.”  And with other Pacific region nations Japan, Canada and Mexico expressing interest in joining the TPP, the agreement currently under negotiation can set the foundation for future trade practices across the Pacific realm.

To its credit, the U.S. stands as a worldwide leader in demanding strong IP standards in agreements such as this, as reflected by domestic laws and international accords such as the one completed just last year with Korea.  Similarly, with pressure on to finalize TPP negotiations, we must ensure strong IP protections in the final agreement.  Doing so will prove beneficial in terms of protecting American jobs against theft and counterfeit, protecting American consumers against potentially dangerous products, reducing the threat to American creativity and innovation posed by copyright infringement, promoting future innovation, protecting American competitiveness against those who seek to steal our ideas and creations and setting clear rules for worldwide commerce.

If successful, we can set a sound foundation of IP protection, which will prove critical for American innovation, jobs, exports and continued prosperity in an increasingly Pacific-dominated 21^st century.

For a record 39th consecutive month, unemployment has exceeded the 8% level that the Obama Administration said we’d never reach in the first place under his government spending “stimulus.”

Compounding that misery, the nation added only 115,000 jobs last month according to this morning’s monthly Labor Department report.  That’s far fewer than the consensus prediction of 163,000 new jobs, which itself is far below the 200,000 needed each month to keep pace with population growth and substantively reduce the unemployment rate.  The Obama Administration claims that the last recession was “the worst since the Great Depression,” but that’s false.  The early-1980s recession conquered by Ronald Reagan’s economic policies was substantially worse – higher unemployment, higher inflation and higher interest rates.  Under Reagan, however, unemployment plummeted from 10.4% to 6.7% in the three years following the effective date of his tax cuts in January 1983.  Obama, in contrast, didn’t face “the worst recession since the Great Depression,” but his agenda of massive spending, regulation and deficits has given us the worst recovery since the Great Depression.

The Wall Street Journal reports on the reasons French tire company Michelin is expanding its operations in South Carolina while reducing its employment footprint in the Midwest:

Pete Selleck, Michelin’s North America president, said the state has strong technical education resources and ready infrastructure. “South Carolina has a long history with technical colleges dating back to the 1960s,” he said. The state “is also one of the least unionized states in the country, which gives us the flexibility to focus on the customer.”

“There is no significant difference between nonunion and unionized plants other than a rule book in our unionized plants that tell us what we can and can’t do,” Mr. Selleck added.

The emphasis is mine, and it tells you all you need to know about where the growth opportunities are for companies, customers, and employees.

In another part of the article Michelin is credited with paying a starting wage of $20 per hour, about a third more than the $15 per hour required under the average union contract.

Better pay and no union dues?  Maybe the iconic bumper sticker saying “Work Union, Live Better” should be changed to read, “Work Union, Earn Less.”

Ironically, the Obama Administration projected when he entered office that unemployment wouldn’t exceed 8% after his massive spending “stimulus.”  Instead, the rate has exceeded 8% for 38 consecutive months, the most since the federal government began keeping records.  Over three long years.  Of course, Obama can at least claim something on which he has proved reliable.

Today, the Labor Department announced that only 120,000 new jobs were created last month, well below expectations of over 200,000.  That number is insufficient to reduce unemployment by even a single percentage point over a year, and the only reason the rate fell from 8.3% in February to a still-miserable 8.2% in March was that more people gave up and abandoned the workforce altogether.  Under Obama, we have witnessed record spending, record deficits, record regulation and record hostility toward private employers.  So what does he have to show for that?  As detailed this week by The Wall Street Journal, the worst economic recovery in history.  Those straightforward facts speak for themselves.

The Kauffman Foundation for Entrepreneurship’s newest report on business creation rates across the United States offers some intriguing insights for policymakers.

According to Robert Litan, the foundation’s vice president of research and policy, “The Great Recession has pushed many individuals into business ownership due to high unemployment rates.”  “However, economic uncertainty likely has made them more cautious, and they prefer to start sole proprietorships rather than more costly employer firms.  This ‘jobless entrepreneurship’ trend negatively effects job creation and the larger economic recovery.”

No doubt, regulatory barriers and confiscatory rates of taxation are causing start-ups to make the same kind of cost-saving hiring decisions as larger, more established firms.  Across nearly every industry these days companies are hiring people to independent contracts rather than salaries, converting many ‘company men’ into standalone consultants.

While becoming an accidental entrepreneur may not be the first career choice of many people – and according to the Kauffman study the college educated cohort saw the steepest decline in their willingness to start their own business – the movement of millions of people into the ranks of the self-employed could have huge consequences for policymakers.

For starters, this army of new business owners is much more likely to demand rollbacks of costly regulations and profit-killing tax rates on corporations.  Your perspective changes when you go from receiving a paycheck to making a payroll.

Remember, the people that lose a job and start a business are the people whom the government should want to help the most.  They aren’t looking for a hand-out or even a hand-up, just space to make a contribution that others in the free market will reward.

This constituency is a natural growth area for the conservative movement.

The best part about the Kauffman report is that entrepreneurial activity can be found in important electoral pockets.  Consider:

• Entrepreneurial growth was highest among 45- to 54-year-olds, rising from 0.35 percent in 2010 to 0.37 in 2011
• The top five highest entrepreneurial rates among the fifty states were:

(1) Arizona with 520 per 100,000 adults creating businesses each month during 2011;

(2) Texas with 440 per 100,000 adults;

(3) California with 440 per 100,000 adults;

(4) Colorado with 420 per 100,000 adults; and

(5) Alaska with 410 businesses started per 100,000 adults

The key to our economic recovery rests on policymakers understanding that Americans want to work.  I submit that any politician willing to make the necessary changes to tax and regulatory rules so that start-up owners can become employers as well as entrepreneurs will find a loyal constituency, and one well worth fighting for.

Former California Assemblyman and 2010 Republican U.S. Senate candidate Chuck DeVore explains why he gave up on the Golden State and moved to Texas in an article for National Review.

Here’s just one example of the differences between the states:

In his State-of-the-State address this January, California governor Jerry Brown said, “Contrary to those declinists who sing of Texas and bemoan our woes, California is still the land of dreams. . . . It’s the place where Apple . . . and countless other creative companies all began.”

Fast forward to March: Apple announced it was building a $304 million campus in Austin with plans to hire 3,600 people to staff it, more than doubling its Texas workforce.

California may be dreaming, but Texas is working.

President Barack Obama may never tire of blaming his predecessor for every current economic problem, but a new study by the Heritage Foundation shows that when it comes to the cost of federal regulation, Obama is king.

The numbers don’t lie, Mr. President.  Job growth is anemic, the employment rate is stagnant, but your regulatory agenda continues to add billions of dollars in costs to the only real job creators – employers.  After three years of your policies imposing five times the costs of compliance than under the Bush regime it’s time for something radically different.

Upon taking office in 2009, the Obama Administration projected that its unprecedented government spending “stimulus” would prevent unemployment from exceeding 8%, which would occur all the way back in October 2009 and be down to approximately 6% today.

Instead, with today’s announcement from the Labor Department, unemployment held steady at 8.3% last month.  That makes 37 consecutive months above the 8% mark the Obama Administration said we wouldn’t exceed at all, the most since the federal government began keeping records.  Moreover, the number of new jobs added is barely enough to tread water, despite Obama Administration celebrations to the contrary.  Whereas unemployment quickly plummeted from 10.8% to 6.7% following implementation of Reagan’s tax cuts, it has increased under Obama from 7.8% to over 10% and three straight years over 8%.

In an interview with CFIF, John Berlau, director of the Center for Investors and Entrepreneurs at the Competitive Enterprise Institute, discusses his recent testimony at a hearing entitled “Where the Jobs Are” before the House Subcommittee on Commerce, Manufacturing and Trade, and how Congress can eliminate barriers to job growth by reducing regulations that harm young firms.

Listen to the interview here.

My column this week explains how WWII wage ceilings and a compliant Congress teamed up to create employer-based health insurance, a market distorting phenomenon the reduces take-home pay while increasing both health care spending and widespread dissatisfaction with the results.  (When was the last time you heard anybody happy about the cost or care in an HMO?)

Of course, one of the reasons this problem is allowed to persist is the lack of a motivated constituency to change the status quo.  That may be changing thanks to the Great Recession.

According to Economic Modeling Specialists, Inc., between 2007 to 2011 there has been a steady rise in the numbers of independent contractors in industries like real estate, financial services and natural resource extraction.

More recently EMSI showed how self-employed money management consultants are adapting very well to the new economic landscape. “The surprising thing to note is the huge growth that took place in the three money management occupations – personal financial advisors, securities/commodities/financial services sales agents, and financial analysts.”  Many of these jobs are classified as non-covered, i.e. independent contractors who service clients rather than employees who work for employers (and thus get benefits).

The rise of the independent contractor makes perfect financial sense for a business looking to shred costs while maintaining quality in services and products.  The legal profession is being transformed by a switch to contract-based work for attorneys while other white collar jobs like money management are following the same route.

It is very likely that this type of vendor-client relationship will come to redefine the work life of many Americans who in a previous era may have counted on a brick-and-mortar institution to cover everything from an expense account to health care benefits.  But if millions of American workers are to be recast as intellectual entrepreneurs, the federal tax incentive to exempt employer-based health insurance but not insurance purchased by individuals or families has to change.

As I explain in my column, the Heritage Foundation has an easy fix to this problem.  From my column:

In Saving the American Dream, a team of Heritage experts propose transforming the existing exemption into a “uniform, nonrefundable federal tax credit” to assist individuals and families purchase health insurance.  The annual net value of the tax credit would be $2,000 for an individual and $3,500 for a couple or family.  The credit could be used “either to offset the cost of coverage offered through the workplace or to buy insurance outside the workplace.  For most middle-income working families, the value of the credit is similar to the tax relief that they receive for health insurance today.”

Law always lags behind reality, but if a presidential candidate wants to make an easy reform that will remove a huge disincentive to become an intellectual entrepreneur, adopting the Heritage Foundation’s health insurance tax credit would be a huge step in the right direction.

An editorial by Investor’s Business Daily highlights why the Obama campaign’s crowing about a nascent economic recovery is hiding the real pain American workers are feeling:

Even worse for an administration straining to make the case that it deserves to be around for another four years is the real unemployment rate. It’s not 8.3%, but closer to 15%, a figure that reflects those who “would like to work but have not searched for a job in the past four weeks as well as those who are working part time but would prefer full-time work,” says the CBO.

Another White House problem comes from this in the CBO report: “The share of unemployed people looking for work for more than six months — referred to as the long-term unemployed — topped 40% in December 2009 for the first time since 1948, when such data began to be collected; it has remained above that level ever since.”

Voters aren’t stupid.  If the eventual Republican nominee can make a compelling argument linking Obama’s policies to the decline in jobs, he’ll win.  If not, we’ll have nearly an entire decade of lost opportunities.

My nominee for quote of the day goes to Texas Governor Rick Perry, writing in today’s Wall Street Journal on the absurdity of the Obama Administration’s “insufficient time” rationalization for rejecting the Keystone XL pipeline and the thousands of domestic jobs it would create:

Hoping to appease environmental radicals, President Obama said no, claiming that he didn’t have time to adequately consider the pipeline.  This despite the fact that the original request was made in September 2008, and Keystone was the subject of dozens of meetings on multiple levels of his own administration, as well as exhaustive environmental impact reviews.  Certainly, three-and-a-half years is more than enough time to make his decision.  His reasoning becomes even more laughable when you put it up against his massive, ill-conceived stimulus bill, which he muscled through Congress and signed within the first month of his presidency.”

In this week’s Freedom Minute, CFIF’s Renee Giachino discusses the dire need for meaningful tax reform – including lowering and simplifying the corporate tax rate – to make the U.S. more competitive in the global economy and put Americans back to work.