Stop the Insanity

Albert Einstein supposedly once defined insanity as doing the same thing over and over and expecting a different result. Immune to Einstein's logic, Washington politicians are considering a second stimulus package within a year, when only 25% of the currently authorized $787 billion of stimulus funds have been spent. President Obama held a "Jobs Summit" in Washington, D.C. in early December. Yet the purpose of the summit, according to presidential advisor Valerie Jarrett, was "short-term job creation"--in other words, more government jobs with few or no incentives for private-sector job growth.

With an election year ahead, these quick fixes are nothing more than an attempt by Washington politicians to save the only jobs they care about: their own. Consider the government's short-term stimulus approach to job creation over the last two years:

  • In February 2008 Washington passed a $170 billion stimulus in the form of the Economic Stimulus Act.
  • In July 2008 Washington passed a $345 billion stimulus in the form of the Housing & Economic Recovery Act.
  • In February 2009 Washington passed a $787 billion stimulus in the form of the American Recovery & Reinvestment Act.
  • In March 2009 Washington passed a $410 billion omnibus bill, which included $12 billion in pork barrel stimulus spending for 9,000 earmarked projects.
The government's short-term stimulus approach to job creation isn't the answer, and enacting another stimulus would be insane.

Since the first authorization of these four stimulus packages, the national debt has increased by $2.9 trillion while the unemployment rate rose to a 26-year high before backing off slightly to 10%. Since the passage of the February 2009 stimulus 4 million jobs have been lost (net of job creation). The government's short-term stimulus approach to job creation isn't the answer, and enacting another stimulus would be insane. It would not have a different result; it would lead to even higher budget deficits.

It's time to try a real plan for real job creation, starting with the goal of a balanced budget. From 1995 to 1998 federal spending rose by an average of 2.9% per year, the lowest increase since the 1920s. We can apply the same principles that worked at that time to create jobs and balanced budgets. The principles are smaller government, lower spending, lower interest rates and less debt.

The first step we should take is to allow workers and employers to keep more of their hard-earned money through an immediate, two-year 50% reduction of the payroll tax. This step would immediately boost the take-home pay of every worker and dramatically free up cash for every employer to hire and invest. This tax relief could be paid for by redirecting unspent stimulus funds.

Second, we should allow small businesses to deduct 100% of new-equipment expenses to help them invest in more-productive technologies, which would in turn boost economic activity where it is needed most.

Third, in a globalizing economy we must find ways for America to be the best place for anyone to invest in and start a business. That begins with reducing the tax burden on businesses. Ireland's business tax rate is 12.5%, while ours is almost three times that and is the second highest in the world. Since adopting this 12.5% rate 15 years ago, Ireland has taken its per capita income from the second lowest in the European Union to the second highest.

Fourth, to encourage investment, we should match the Chinese rate of tax on capital gains. That rate is zero.

Fifth, we should abolish the death tax. This tax punishes Americans for working, saving and creating wealth--exactly the opposite of what we need to encourage economic growth. Repealing the death tax would create hundreds of thousands of new jobs.

Finally, we need to develop more of America's vast domestic energy resources, which can generate millions of new jobs and billions in new tax revenues here at home largely without having to spend any federal dollars.

The choice couldn't be clearer: We can either continue down the same path of big government stimulus and hope for a different result, or we can get back to balancing the budget and reducing taxes on small businesses and entrepreneurs to reward job creation, work, savings and investment. Politicians can afford to be insane; taxpayers cannot.

Newt Gingrich is a senior fellow at AEI. Dan Varroney is chief operating officer of American Solutions.

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

image Dad and the diploma: The difference fathers make for college graduation
image A better way to finance that college degree
image Fracking for bigger budgets
image Earth Day: Hail fossil fuels, energy of the future
AEI on Facebook
Events Calendar
  • 21
    MON
  • 22
    TUE
  • 23
    WED
  • 24
    THU
  • 25
    FRI
Wednesday, April 23, 2014 | 12:00 p.m. – 1:30 p.m.
Graduation day: How dads’ involvement impacts higher education success

Join a diverse group of panelists — including sociologists, education experts, and students — for a discussion of how public policy and culture can help families lay a firmer foundation for their children’s educational success, and of how the effects of paternal involvement vary by socioeconomic background.

Thursday, April 24, 2014 | 12:00 p.m. – 1:30 p.m.
Getting it right: A better strategy to defeat al Qaeda

This event will coincide with the release of a new report by AEI’s Mary Habeck, which analyzes why current national security policy is failing to stop the advancement of al Qaeda and its affiliates and what the US can do to develop a successful strategy to defeat this enemy.

Friday, April 25, 2014 | 9:15 a.m. – 1:15 p.m.
Obamacare’s rocky start and uncertain future

During this event, experts with many different views on the ACA will offer their predictions for the future.   

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.