Now into year two of the Obama Administration's economic recovery plan, it is clear to the one in five Americans who are either unemployed or underemployed that President Obama doesn't have the firepower to get the job done. Mr. Obama's initial stimulus package of some $787 billion might have been well constructed, but it is obvious that it has been far too slow in creating or saving jobs. In the belief they need to inject billions more into the recovery effort, Congress is reluctant to even describe the jobs creation bill as another "stimulus package," while the President speaks of the $33 billion plan that would include tax incentives and eliminating capital gains taxes.
Invariably, Washington's well intentioned strategies designed to spark a recovery fail to achieve their goals because massive public debt and modest incentives can't alter the mindset of shell shocked consumers. There needs to be a solution other than racking up hundreds of billions of dollars in new debt. There needs to be a strategy that harnesses the enormous underlying strength of the American economy, the power of free enterprise and the trillions of dollars in consumer savings sitting unused if we expect to create the type of economic growth that puts people back to work.
At the heart of a successful strategy is the willingness to make the American citizen a personal partner in the recovery. Far more effective than another government bailout and without the staggering burden of more public debt, Americans investing in our economy once more would prime the pump far faster than anything being considered by Congress. And the investment money is there. At a time of historically high unemployment there is enormous investment capital in private hands sitting in savings banks. It is Washington's challenge to convince taxpayers, on all levels, to invest in new businesses or in expanding business sectors. To do so would require a tax credit program aimed at the typical American who would like nothing better than to get a better rate of return on his or her savings while watching those dollars create jobs and reconstruct our economy.
Convincing people to invest their capital would involve federal legislation that would permit the IRS to offer taxpayers a 20% income tax credit on several conditions:
Taxpayers must certifiably invest a like amount (or more) in a new or expanding business. This tax investment belongs solely to the taxpayer. It is not a loan and is not repayable to the IRS. The revenue shortfall from this incentive program would be a projected $360 billion, or approximately half of the current economic stimulus debt, in the unlikely scenario that as many as half all taxpayers in the nation participate in this effort.
The IRS would recoup this shortfall since each taxpayer (investor) would pay income tax on his/her new investment when it becomes profitable. Each new or expanding business would pay its income tax on profits. Each newly created job would generate income tax on its compensation. Projected total new taxes from this economic growth and job generation would far exceed the $360 billion lost from the IRS 20% tax credit. That intangible ingredient which many economists tout but few can quantify - namely investor confidence - would encourage additional consumer confidence and result in even further job creation. Now, investment tax credits are not new, but harnessing them to a concept designed to act as a firewall against a recession that continues to create an unstable economy would be unprecedented, effective and expedient in creating jobs, especially since they would be revenue neutral.
Standing before Congress during his State of the Union Address the President challenged the joint session that if anyone had a better idea to help create and sustain job growth they should contact him. What he may find is that the better idea isn't to be found on Capitol Hill, but with hundreds of millions of Americans who can be convinced to invest their savings in a nation that wants to balance its books.
President of Eugene M. Grant Company, New York, a Manhattan based real estate company.