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What Should the Government Do to Create Jobs?

Last week, the Senate passed yet another stimulus bill that was loaded with government spending, and held a summit to discuss health care proposals that will add trillions of new government spending to the federal budget. Like the $862 billion stimulus bill passed last year, neither will create jobs because government spending only shifts spending in the economy: It neither increases overall demand nor gives private businesses a reason to invest in new projects.

Congress should instead promote entrepreneurship and investment with policies that would create jobs without adding to the deficit. Congress can do this through a combination of explicit actions and by eliminating specific, Washington-based threats to the economy:

  • Freezing all proposed tax hikes and costly regulations at least until unemployment falls below 7 percent, including health care and energy taxes;
  • Freezing spending and rescinding unspent stimulus funds;
  • Reforming regulations to reduce unnecessary business costs, such as repealing Section 404 of the Sarbanes-Oxley Act;
  • Reforming the tort system to lower costs and uncertainty facing businesses;
  • Removing federal law and regulations that restrict domestic energy production;
  • Suspending the job-killing Davis-Bacon Act (DBA) that requires federal construction contractors to pay prevailing wage rates that average 22 percent above market rates;
  • Passing pending free-trade agreements with South Korea, Colombia, and Panama, which nearly all economists agree will help the economy; and
  • Reducing taxes on companies’ foreign earnings so they will transfer that money back into Americas economy.

Congress must recognize that a strong recovery and new hiring depends on the confidence businesses have in the future. Uncertainty is a fact of life for all businesses, but when Washington adds materially to that uncertainty, businesses invest less and hire less. This is especially true following a deep recession, with so many producers still struggling with excess capacity. The most powerful, no-cost strategy Congress can adopt is to stop threatening those in a position to hire–no more taxes, no cap-and-trade legislation, no government takeover of private health care, and no more massive increases in the public debt.

When it comes to job creation, Washington is currently part of the problem, not the solution. Businesses in a position to hire and expand recognize the threats to their own future and to the overall economy from higher taxes, higher deficits and debt, cap and trade, the hostile takeover of private health care, and growing protectionist sentiments. In light of those threats, the reasonable reaction from businesses more often than not is to stand pat and wait–not expand and hire new employees. Congress could most effectively stimulate the economy by simply vowing to do no harm. To learn more, check out Heritages full paper discussing a no-cost stimulus.

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