First, welcome to my weekly commentary on the various financial issues that we are all facing during this very difficult economic environment. My goal is to explain in plain English, without any political bias, what is actually going on in the financial world.
George H. W. Bush knew the biggest issue in 1992 was the economy, but he didn’t react quickly enough to change his economic policies, thus lost his re-election bid to Bill Clinton. The same could be true for Barack Obama, who understands that it is about creating new jobs, but if he isn’t able to reduce the unemployment rate, soon, he will have the same fate as George H. W. Bush.
As bad as the stock market has gotten recently, to the point where people aren’t even opening their monthly statements so they won’t get sick to their stomachs, the thought of one losing their job is still the scariest to all of us. For most of us, at least one time during our working life we have all walked into work and had that sick feeling - is this my last day?
Unfortunately, for approximately 5.1 million Americans since the recession began in 2007, they recently have had that day. As we all know, the more people that have that day, the harder it becomes for the unemployed to become re-employed; and that, my friends, in its simplest form is the problem with our economy today….jobs!
Not to pour salt on a wound, but if GM files for bankruptcy, the government is estimating that it will be allowed to shed approximately 1 million jobs, and this alone could push the unemployment rate from 8.5 to 11 percent. If that happens, it would be the first time since 1982 that the unemployment rate reached double digits.
While Washington has focused its attention on fixing the credit crisis, it must start to focus on creating jobs…immediately, or President Obama’s ability to convince the American people that things are getting better will evaporate as quickly as Senator Chris Dodd’s approval ratings.
The administration’s only solution to creating jobs so far is to give money to build the infrastructure of our country and get states to pull-forward all road and highway construction jobs. This sounds like a great idea, however has anyone ever had to deal with state-run projects? They take several months, if not years until they are approved and start to hire workers. Is this the best solution to solving our unemployment problem in the short-term? No. I agree that this will create millions of jobs, but most will not be created until 2010, and our economy needs jobs…NOW!
In just a matter of months, millions of workers will begin to exhaust their unemployment benefits; benefits that already have been extended up to 59 weeks in some states.
Who is going to hire these people? Large corporations? They are laying off workers as we speak. The same corporations who are beholden to shareholders and their main concern is to increase the share price. Do you really think that they will hire back employees and risk hurting their earning?
Washington almost got it right when they gave a $400/$800 tax credit to certain wage earners, to help with reducing what some pay in payroll taxes. This program is set to start April 1st. But how is this supposed to create jobs? It’s not, and that is the problem with most of the $787 billion stimulus package.
The answer, I believe, is the same one that helped create the greatest economic boom after World War II: Target small businesses. These organizations are not only the backbone of our country, but they are nimble, flexible and change on a dime. They don’t need a 40-page procurement report in order to hire someone. If they have the need (which a lot of them have) and the money, they will hire.
Here are some ideas:
For the next 12 months, reduce payroll taxes by 25 percent, 12.5 percent to the employee and 12.5 percent to the employer. A small business whose payroll is $2 million (100 employees with an average salary of $20,000/yr.) would save $18,750 per year, not a lot, but enough to save 1 job per business.
Give tax credits along with more guarantees on Small Business Administration loans to any small business that hires workers in 2009.
How to pay for this? President Obama wants to raise the tax rate on anyone who makes more than $250,000 per year back to the old rate of 39.6 percent. Why not use this money to pay for the two above programs.
This way, the administration would send a message loud and clear to small business owners who are really the target of the tax increase; hire people and you will be able to stay at the old rate, don’t hire people and you will pay more in taxes. It’s that simple!
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Brian P. Beck is a partner at Wealth Management Group of North America, LLC (WMGNA), a state Registered Investment Advisory firm – Farmington, CT and is not employed by NBCConnecticut.com. He is registered with Securities America, Inc (SAI) member FINRA/SIPC – Omaha, NE. WMGNA and SAI are not affiliated. For more information please visit his website www.myrestylement.com.
