He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under the first President Bush. He is a graduate of Harvard College and Harvard Law School. He is author of The Obamacare Disaster, from the Heartland Institute, and President Obama's Tax Piracy, and his latest book: America's Ticking Bankruptcy Bomb: How the Looming Debt Crisis Threatens the American Dream-and How We Can Turn the Tide Before It's Too Late.
Latest posts by Peter Ferrara (see all)
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You would not have gotten the real story about the June unemployment report on the front page of any newspaper. If you can find a reporter who can think for himself or herself, he or she is a treasure who should be promoted to run the entire paper.
But since you are already here, the real story is available if you read on. There were no net full time jobs created last month. The number of full time jobs actually declined by at least 162,000 on net last month.
All of the net new jobs created last month were part time jobs. The Labor Department reported, “The number of persons employed part time for economic reasons…increased by 322,000 to 8.2 million in June. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.” (emphasis added).
That is why the Labor Department also reported that the U-6 unemployment rate, which includes these involuntary part-time workers, soared from 13.8% in May to 14.3% in June. That soaring unemployment suggests not recovery but renewed recession.
These part-time jobs replacing full time jobs helps to explain why middle class incomes have continued to decline throughout Obama’s Presidency. The middle class has lost the equivalent of one month’s income a year under President Obama, and with these employment trends, those declining living standards will continue.
Moreover, even counting this explosion of part-time jobs, Obama’s supposed recovery is sorely lagging. As we pointed out last week, in the 11 previous recessions since the Great Depression, the economy gained back all of the jobs lost during the recession in an average of 25 months from when the recession started. But today, we are 67 months after the recession started, and 49 months after it officially ended, and under what passes for economic policy under the smartest President ever, we still have not gained back all of the jobs lost during the recession. And, again, that is counting the explosion of part time jobs replacing full time jobs.
President Obama told us in his State of the Union Address this year, “A growing economy that creates good, middle class jobs – this must be the North Star that guides our efforts.” But, once again, the President’s words have not matched his deeds.
Most troubling, unemployment has remained harshest for the President’s staunchest supporters. Black unemployment for June remained stuck at 13.7%. It has been as bad or worse for four years or more.
Hispanic unemployment was still 9.1%, a slight improvement over the double digit unemployment this group has suffered for more than four years under President Obama.
Moreover, teenage unemployment for June was a Depression level 24%. Hispanic teenage unemployment was 30%. Black teenage unemployment was a genocidal 43.6%.
Yet, these are the same groups most staunchly telling pollsters they approve of the President’s performance. Is this generation of Americans, at least as of today, really capable of self-government?
Economic Re-Education Camp
What these facts teach us is that economic re-education camp is long overdue, for the President’s senior economic advisors, all the way to his base of most ardent supporters. We need to return to first principles regarding how jobs are created in a free market economy, and how wages and incomes grow. Then we can evaluate what economic policies would best promote those results.
Capital investment is the foundation of job creation. Such capital investment is what finances the creation of new businesses, and the expansion of existing ones, which require increased employment. That capital investment means increased demand for labor, which also means increased wages to go with the new jobs.
But capital investment also provides the tools to make workers more productive, which is what finances the increased wages for workers resulting from the increased demand. Workers digging a canal can dig with their bare hands. But they are more productive digging with shovels, which results from capital investment to finance the shovels. They are more productive still working with computer operated steam shovels, which requires even more capital investment to finance their acquisition.
This is the virtuous circle of capitalism. Labor and capital are complements, not adversaries. They operate together to produce the increased prosperity of working people. This is how the standard of living of working families increased by 7 times during the 20th century in America. It is the foundation and the source of the American Dream.
A Stable Currency
The most important factor in fostering and maintaining a steady stream of capital investment is actually a stable currency. Investors are not going to want to invest if they think they will be paid back the return on their investment in depreciated currency. Or if the monetary policy for the currency is promoting inflated bubbles that will mean boom and bust cycles that might crash their investment altogether.
The best way to maintain a stable value for the dollar is to tie its value to the market value of real world commodities that will hold their real value over the long run, such as gold, silver, copper, oil and others. That would avoid artificial bubbles, and boom and bust cycles, which arise precisely when the value of the currency is not stable.
The Multiple Taxation of Capital
The multiple taxation of capital, that the President so ardently supports, works directly contrary to the virtuous circle of capitalism and the American Dream as discussed above. The income stream to capital investment is taxed not once, not twice, but actually four times, all of which the President is increasing, or maintaining at the highest levels in recent history.
First, the income stream to capital investment is taxed once by the corporate income tax, which under President Obama now imposes the highest marginal tax rate in the world, except for the Socialist one party state of Cameroon. That includes the federal rate of 35%, plus state rates that raise the total rate to close to 40%. It is the marginal tax rate, or the rate of tax imposed on the next dollar earned, not the average effective tax rate, that determines whether the investor will commit the next dollar of capital investment in a project, because that marginal tax rate is what determines the return on the marginal, next dollar of investment.
American businesses are uncompetitive in the global economy with this marginal, corporate, tax rate. Even Communist China imposes a marginal corporate tax rate of 25%. In the European Union, marginal corporate tax rates are even lower than that on average. In Canada, the federal marginal corporate tax rate is now 15%, with Germany now not too far behind.
But under President Obama, there is no relief from this world leading, corporate tax rate in sight. He occasionally lip synches support for corporate tax reform to lower rates. But there is no Presidential leadership on the issue. Congressional Democrats and Republicans may get together on their own on this issue, but there is no telling right now whether President Obama would really support reform that lowers U.S. marginal corporate tax rates.
After the corporate rate is paid, then investors have to pay the personal income tax on the remaining return they receive. That is the second layer of taxation on capital investment. But President Obama and the Democrats just increased the top, marginal, income tax rate from 35% to over 40%, counting the phaseout of deductions at higher income levels.
So with the corporate income tax taking 40 cents out of the next dollar of return on capital investment, and the personal income tax taking 40% of the remaining 60 cents, that just leaves 36 cents out of the next dollar of returns for the investor.
Then the capital gains tax is the third layer of taxation on capital. President Obama and the Democrats just raised the cap gains tax rate by nearly 60%, from 15% to 23.8%, on the nation’s job creators, investors, and successful small businesses, with the expiration of the Bush tax cuts, and the tax increases of Obamacare. A gain in the value of capital means an increase in the expected future income stream to that capital, which will be taxed by the above taxes when earned. To tax the increase in the present value of that income stream by the capital gains tax as well is now taxing that income stream a third time.
It is like an apple orchard where the income tax takes a certain percentage of the apples. The capital gains tax taxes an expected increase in the orchard’s future production of apples by taxing away some of the trees today as well.
Then the fourth layer of taxes is the death tax imposed on the remaining value of a lifetime of savings and investment at death. That effectively taxes away still more of the orchard’s trees at death. President Bush and Congressional Republicans wanted to take away this fourth layer of taxation of capital altogether. President Obama and Congressional Democrats insisted on bringing it back.
Each income stream should be taxed at the same flat rate one time. By imposing four layers of taxation on the return to capital, and raising the rates on all of them, President Obama and the Democrats are just taxing away the incentive for capital investment that provides the foundation for increased jobs and wages.
Regulatory Barriers to Jobs and Rising Wages
Another factor in Obamanomics eliminating jobs and wage increases is regulatory barriers preventing capital investment and the increased demand for labor and productivity that would result. For example, the employer mandate of Obamacare requires employers to purchase the costly health insurance for each worker that the government specifies, for firms of 50 or more full time workers. That has already had a powerful effect in forcing the substitution of part time jobs for full time jobs discussed above, as employers try to avoid those added costs.
Similarly, regulations eliminating low cost, reliable supplies of energy, by shutting down the coal industry, or prohibiting the construction of the Keystone Pipeline, effectively impose another tax increase on the economy through higher energy costs, and the corporate welfare necessary to prop up the less competitive, higher cost, alternatives. Jobs are lost directly as well as the coal industry powers down, and the construction of Keystone is blocked.
Such regulatory barriers to jobs and wage increases should themselves be blocked.
There is another historic boom inside this economy just straining the Obama bonds to break out, and restore traditional American economic growth and prosperity. There is nothing more important than restoring that growth, which promises to raise the standard of living of the middle class and working people by another 7 times over the next century, or more given the possibilities and wonders of rapidly advancing technology. All that is necessary is to restore the policies of job creation and wage growth as described above, and liberate Prometheus Unbound.
[First Published by Forbes.com]