By Congressman Joe Pitts

The American economy is hurting.  That means Americans are hurting.  Real people are out of work and facing hardship.  Last week the federal government estimated that unemployment has jumped to 7.2 percent—higher than it has been in a very long time. Congress needs to act responsibly to address it.  I am afraid that may not happen.

The first thing that Congress needs to do is admit that the government simply cannot create prosperity.  It may be a difficult thing for Congress to admit, but it is true.  Only the American people and the businesses they work for can do it, through hard work, smart investing, and creative entrepreneurship.  However, as we have recently seen, the government can be very good at hampering economic growth through bad policy and ham-fisted regulation.  The policies that led to the recent credit crisis were just as misguided as the recent “bailout” they led to. 

Another thing we have to do is recognize is that all government spending takes money out of the economy.  Any claim that government spending, no matter how creative, is helping the economy needs to be viewed with skepticism.  The government cannot spend money without first taxing or borrowing. Taxing takes money directly away from families and employers.  Government borrowing does more than add to our huge federal debt.  It also diverts money to the federal treasury that might otherwise be invested in growing companies.   Over 90 percent of new jobs in this country are created by new and growing small businesses.  Diverting investment capital from them to the government is bad for the economy.

It is true that the stimulus plan proposed by President-Elect Barack Obama would create some temporary jobs by funding Franklin Roosevelt-style public works projects.  Those jobs, however, will promptly disappear as soon as the stimulus dollars are exhausted. Furthermore, most or much of these dollars will be spent unwisely on pet projects.  Big city mayors are already lobbying for millions of dollars to be spent on waterslides, duck ponds, tobacco tourism, and even a “mob museum” in Las Vegas. The money is also certain to be spent inefficiently according to the demands of labor unions and other special interest groups.  Congress is not a business, and it does not operate like one.

What will create economic growth?  The only thing that can create real growth is an American public confidently engaged in spending, investing, and entrepreneurship.  Congress can help to create that confidence by leaving more money in the economy than it now plans to remove through taxes.  It can do that by encouraging entrepreneurship and investment—once again through lower taxes.  It can do that by helping open new markets abroad for American exports.  It can do that through wise regulation that does not impede innovation and entrepreneurship but does stop the excesses of greed and foolishness.

President-Elect Obama has suggested some temporary tax relief to help the economy.  I agree we need tax cuts, but making them temporary is counterproductive.  Businesses that might be able to create jobs will only do so if they are confident that they can predict their costs well into the future.  “Temporary” tax cuts do not create confidence.  They create uncertainly. 

We should instead make the 2001 tax cut package permanent.  In 2001, every American taxpayer got a tax cut.  Congress plans to let those cuts “expire” next year, creating economic uncertainty and threatening to take more money away from Americans who have already lost much in terms of investments and jobs.  This is no small matter.  In dollar terms, this would be the biggest tax increase in American history.

We should also reduce the cost of investing.  For individuals, this means a lower capital gains tax. This would remove a disincentive for regular people to invest in American companies working to invent the next iPod or hybrid car.  For employers, it means reducing America’s corporate tax rates, which are presently the second-highest in the developed world.  High corporate taxes hurt job creation, research and development, and the competitiveness of our economy.

President-Elect Obama told an audience last week, “Only government can provide the short-term boost necessary to lift us from a recession this deep and severe.”  I disagree.  This recession was largely created by a federal government that thought it could defy the laws of economics in order to do good.  In my mind, an expensive big-government stimulus will do more harm than good—perhaps even in the short term.  Mr. Obama should instead learn from his predecessor Ronald Reagan who knew that tax cuts and common sense would invigorate the economy like nothing else.  That policy created one of the most powerful and durable bull markets in American history.

Some simple math demonstrates the problem with what President-elect Obama and his supporters in Congress are proposing.  They say they want to spend $775 billion stimulating the economy.  All told, many believe stimulus spending will reach $1 trillion.  All of it borrowed.  Mr. Obama says he wants to create 3 million new jobs with this money.  If the government simply divided $1 trillion evenly among 3 million people, Mr. Obama could simply send each of them a check for a third of a million dollars.  Instead they propose to create complicated government programs to create temporary jobs that will pay a fraction of that.

A project as critically important as stimulating the economy deserves to be done carefully and thoughtfully.  I and my Republican colleagues will spend the next several weeks urging the Democrats who now control Washington to try a better approach to stimulus.  I hope they will listen to us.

Congressman Joe Pitts represents the 16^th Congressional District of Pennsylvania.

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