Obama Small Business Lending Fund Likely A Bust
President Obama has announced his intention to use $30 billion in TARP funds to create a new small business lending fund. In all likelihood, this is $30 billion the taxpayers will never see returned.
First of all, the problem facing small business, outside of the massive uncertainty being created by Washington, is one of credit availability, not cost. For those who can get credit, its quite cheap, arguably too cheap. So if the president doesn’t intend to lower the cost of credit, the plan must be to lower the quality; using the $30 billion to cover expected credit losses. Of course, we tried throwing lots of taxpayer money at unsustainable homeownership, is there any reason to believe throwing taxpayer money at unsustainable businesses is going to work any better?
Using TARP funds for this program is also somewhat disingenuous. This program adds $30 billion to the deficit regardless of whether it’s funded by TARP or by Congressional appropriations. Taking from the TARP only allows the President to keep treating the TARP as his personal slush fund. Nowhere in the TARP legislation can you find language authorizing the use of funds to cover credit losses on new loans. Being a constitutional scholar, the President should know very well that the spending power rests with Congress, not the President. If we are to have a new small business lending program, it should be designed and funded by Congress, not bureaucrats at the Treasury Department.
Historically the two main sources of small business start-up funding have been home equity and credit cards. Clearly the availability of home equity has declined. Sadly as well, with the passing of credit card “reform” the availability of credit card lending has also declined. If the President truly wants to help small business, then the first thing to do is ask Congress to repeal the credit card bill and then just get out of the way.
State of the Union Fact Check
Cato experts put some of President Obama’s core State of the Union claims to the test. Here’s what they found.
THE STIMULUS
Obama’s claim:
The plan that has made all of this possible, from the tax cuts to the jobs, is the Recovery Act. That’s right — the Recovery Act, also known as the Stimulus Bill. Economists on the left and the right say that this bill has helped saved jobs and avert disaster.
Back in reality: At the outset of the economic downturn, Cato ran an ad in the nation’s largest newspapers in which more than 300 economists (Nobel laureates among them) signed a statement saying a massive government spending package was among the worst available options. Since then, Cato economists have published dozens of op-eds in major news outlets poking holes in big-government solutions to both the financial system crisis and the flagging economy.
CUTTING TAXES
Obama’s claim:
Let me repeat: we cut taxes. We cut taxes for 95 percent of working families. We cut taxes for small businesses. We cut taxes for first-time homebuyers. We cut taxes for parents trying to care for their children. We cut taxes for 8 million Americans paying for college. As a result, millions of Americans had more to spend on gas, and food, and other necessities, all of which helped businesses keep more workers.
Back in reality: Cato Director of Tax Policy Studies Chris Edwards: “When the president says that he has ‘cut taxes’ for 95 percent of Americans, he fails to note that more than 40 percent of Americans pay no federal incomes taxes and the administration has simply increased subsidy checks to this group. Obama’s refundable tax credits are unearned subsidies, not tax cuts.”
Visit Cato’s Tax Policy Page for much more on this.
SPENDING FREEZE
Obama’s claim:
Starting in 2011, we are prepared to freeze government spending for three years.
Back in reality: Edwards: “The president’s proposed spending freeze covers just 13 percent of the total federal budget, and indeed doesn’t limit the fastest growing components such as Medicare.
“A better idea is to cap growth in the entire federal budget including entitlement programs, which was essentially the idea behind the 1980s bipartisan Gramm-Rudman-Hollings law. The freeze also doesn’t cover the massive spending under the stimulus bill, most of which hasn’t occurred yet. Now that the economy is returning to growth, the president should both freeze spending and rescind the remainder of the planned stimulus.”
Plus, here’s why these promised freezes have never worked in the past and a chart illustrating the fallacy of Obama’s spending claims.
JOB CREATION
Obama’s claim:
Because of the steps we took, there are about two million Americans working right now who would otherwise be unemployed. 200,000 work in construction and clean energy. 300,000 are teachers and other education workers. Tens of thousands are cops, firefighters, correctional officers, and first responders. And we are on track to add another one and a half million jobs to this total by the end of the year.
Back in reality: Cato Policy Analyst Tad Dehaven: “Actually, the U.S. economy has lost 2.7 million jobs since the stimulus passed and 3.4 million total since Obama was elected. How he attributes any jobs gains to the stimulus is the fuzziest of fuzzy math. ‘Nuff said.”
Filed under: General; Government and Politics; Tax and Budget Policy
Federal Job Creation
The board game Monopoly first took off during the Great Depression. A different game has become popular during today’s Great Recession. In this game, politicians race against high unemployment to create jobs in order to save their own. The players (politicians) have unlimited tax and borrowing authority, and can call upon friendly economists to help them maneuver. The players even get to keep score, although the media can penalize shoddy scorekeeping. Ultimately, voters will decide which players win and lose in the fall elections.
Okay, I’m being facetious. But as politicians continue to throw trillions of dollars at the economy in a vain effort to create jobs, and the media continues to go along with it by obsessing over meaningless job counts, the entire spectacle has become surreal. If government job creation is a game, the losers have been the taxpayers underwriting it, as well as the employers (and their employees) who are closing shop, laying off workers, or not hiring because of uncertainty over what big government schemes will be next.
Two news articles point to this “regime uncertainty” being generated by Washington.
Tuesday Links
- Whether you’re insured, uninsured, get health insurance on your own or through an employer, own a small business or work for someone else, this is what the health care bill means for you.
- An update on the hidden taxes in the health care bill.
- Why Obama should order the DEA to make more pot available for medical research.
- The U.S. Constitution mentions only three federal crimes (treason, piracy, and counterfeiting). Today, there are more than 4,000.
- Podcast: “Myths of Health Care Reform.”
Today’s White House ‘Jobs Summit’
Today’s Politico Arena asks:
The WH Jobs Summit: “A little less conversation? A little more action? ( please)”
My response:
Credit Card Act Is Affecting the Job Market
Despite the economic stimulus and various financial bailouts, our economy continues to shed jobs. One of the reasons for continued job losses is the decline in new hires, especially the lack of new hiring by small business.
As bank analyst Meredith Whitney discusses in the Wall Street Journal [$], all the major credit programs created by Congress and the Federal Reserve have been targeted at big corporations and Wall Street firms. However, small companies, especially start-ups and partnerships, do not issue bonds in the debt markets, nor do they borrow from Goldman Sachs. So these firms have been left out in the cold, as federal credit inventions have favored corporate America.
Adding insult to injury is that not only has Washington subsidized credit to large firms, it has taken actions that restrict the credit available to small firms and start-ups. The prime example of this is the Credit Card Reform Act signed by President Obama in May.
As Whitney reports, “Credit cards are the most common source of liquidity to small businesses, used by 82 percent as a vital portion of their overall funding.” In restricting the usage of credit cards and reducing the ability to risk-base price, Washington has eliminated the most important source of credit to small business.
Of course, being unable to project their future health care costs, or tax burdens (yes, they are going up, but by how much), many small businesses have either been forced to or chosen to sit on the sidelines of our economy. Washington needs to recognize that Wall Street and corporate American are not the sum of our economy, if we hope to turn the employment situation around.
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