Small businesses, which have created 70% of new jobs in America over the last 10 years, have been particularly devastated by this historic recession.
The latest jobs numbers dealt another blow to struggling small businesses: The unemployment rate increased to 9.8%, the highest level in 26 years. This number includes 15.4% of African Americans and 12.7% of Hispanics out of work. If you factor in workers who gave up looking or settled for a part-time job, the unemployment rate is an astounding 17%.
With 21 straight months of job loss and more than 15 million people out of work, there is clearly a desperate need for policies that create jobs.
The $787 billion stimulus bill that was rammed through Congress without being read turned out to be a pork-filled, big-spending bill that had more to do with welfare than job creation. In addition, the unemployment rate is 25% higher than the ceiling the American people were promised if the stimulus passed. The stimulus has been so spectacularly unsuccessful that the administration has resorted to the indefensible claim that it has "saved or created" jobs--even though 3 million jobs have been lost since the stimulus became law.
From Washington's perspective, the stimulus was a success because it gave politicians more taxpayer money to pay off supporters through bigger bureaucracies. But small businesses are the real engine of growth in our economy, and they are the ones being squeezed by Washington's irresponsible tax-and-spend policies.
To get the economy growing again, the country would be wise to learn from President Reagan.
Reagan entered office in the middle of a deep recession. He spent the first months of his presidency focused on building bipartisan support for his economic recovery plan. Despite a Democratic majority in Congress, Reagan signed into law his signature tax cuts by August of his first year.
Reagan's historic 25% rate cuts were the first tax relief Americans experienced in 20 years. They kicked off an unprecedented period of economic expansion and job growth. Reagan understood that providing incentives for investment and job creation were his first priorities.
In February, a CBS News poll reported that, by a 59-22 margin, the American people favored business tax cuts over more government spending.
We need real job growth, and the following five very bold tax changes focused on small businesses and manufacturing companies should be at the top of President Obama's list.
A Two-Year, 50% Cut in Payroll Taxes. This means a substantial take-home pay raise for every employed person and more money for employers to hire new workers and invest in new technology. Paid for by redirecting unspent stimulus funds, it would bolster small businesses and lead to an explosion of new jobs.
Abolish the Capital Gains Tax. To compete with China for new jobs and investment, we need to match their capital gains tax: It's zero. Abolishing the capital gains tax would produce the investment required for new factories, new companies and new technologies to create long-lasting, high-paying jobs in America.
Reduce the Corporate Tax Rate. American corporations pay the highest taxes in the world. Simply by matching the Irish corporate tax rate of 12.5%, America could become the most desirable economy in the world to open a factory, create a new job or develop new production capacity.
Permanently Eliminate the Death Tax. If we want to be a pro-work, pro-savings and pro-family nation, it's past time we stop punishing Americans who work, save and provide for their families.
Incentives for Small Business Investment. Allow small businesses to expense 100% of new equipment purchases each year to help them invest in new, more productive technologies.
This five-step plan for creating jobs would have an immediate effect by putting spendable income in the hands of American workers and helping small businesses and manufacturers compete in the world market.
By any objective measure, the first stimulus failed to help small businesses create jobs. A second big government stimulus package should be soundly rejected.
What the economy really needs is a jobs plan for small business and manufacturing.
Newt Gingrich is a senior fellow at AEI. Dan Varroney is chief operating officer of American Solutions.