Tax Cuts and Military Spending Are Bad Job Creation Choices

President Barack Obama’s job creation strategy is now heavily focused on a payroll tax cut. He originally wanted a 3.1 percent payroll tax cut for employees but then later extended the same cut to employers. The employers’ share of the cut was later dropped due to difficulty in reaching agreement in replacement funding. Now the focus is on extending the current two percent cut for employees for two months. Later it is hoped by the Obama White House to either get the two percent cut extended for 12 months or, better yet, get a 3.1 percent cut for 12 months.

The general consensus of economists is that the unemployment rate at the end of 2012 will not have changed significantly from what it is today. Furthermore, the quarterly GDP will not have experienced a robust increase in the next 12 months. Given that Obama and the Democratic legislative leadership is vociferously arguing that this is the wrong time to increase the tax burden of 160 million Americans, the end of 2012 will likely be a bad time to do so. Therefore, when it comes time to make tax extension decisions near the end of 2012, Obama and his supporters will find it difficult to argue against a further extension of the payroll tax cut; also, it will take an act of political jujitsu to extend the Bush tax cuts for those earning under $250,000 and not extend them for the high earners.

The National Priorities Project has charted the impact of $1 billion in spending on potential job creation on select sectors. In direct, indirect and induced categories, $1 billion in military spending creates 11,600 jobs; $1 billion in tax cuts creates 14,800 jobs; spending $1 billion creates 17,100 jobs in clean energy, 19,800 in healthcare and 29,100 in education.

In his 12-year plan, President Obama projects only a $400 billion reduction in military spending — about a five percent cut — and his Secretary of Defense is predicting gloom and doom if there is any further decrease in military spending. Thus, Obama proposes to spend heavily in the least effective job creation category of the federal budget. Much of whose product, by the way, is destroyed in one explosive moment.

The National Priorities Project has prepared both long- and short-term federal budgetary allocations, which show how comparatively little we spend in the discretionary domestic category.

Total Cost Since 9/11 in Congress-Approved Discretionary Funds (FY 2012 dollars)           Combined budgets of Agriculture, Commerce, Interior, Labor, Transportation and the EPA – $80.3 billion.

Combined spending in: Nuclear Weapons – $230.3 billion; Homeland Security – $472.1 billion; Iraq and Afghanistan – $1.36 trillion; and Pentagon Base Budget – $5.6 trillion. The combined total is $7.66 trillion.

The combined spending total for six domestic departments was about one and a half percent of the combined spending total in what gets labeled as national security. I like to call it “fear” spending.

The National Priorities Project breaks down FY 2011 discretionary spending as follows Environment, Energy and Science – 6 percent; Transportation – 3 percent; Income Security and Labor -2 percent; International Affairs – 4 percent; Health – 5 percent; Housing and Community – 6 percent; Government – 6 – percent; Food – 1 percent; Education – 4 percent; Veterans’ Benefits – 5 percent; and Military – 58 percent.

President Obama’s job creation strategy is based on an unproductive combination of heavy military spending, tax cuts and a freeze on domestic spending.

 

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