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Sunday, October 16, 2011
Kalapa: The Trouble with Borrowing is Repaying the Loan
By Lowell L Kalapa @ 1:42 AM :: 6203 Views :: Energy, Environment, National News, Ethics, World News, Family

by Lowell L. Kalapa, Tax Foundation of Hawaii

As we reported last week, the administration’s proposal to create millions of new jobs to close the unemployment gap is laden with land mines galore. From the reduction in the employee’s share of the Social Security contribution to higher taxes on middle and high-income individuals as well as borrowing more money to fund some of these proposed programs, more spending of federal dollars is at the core of these strategies.

And it is that strategy that concerns so many not only within the Washington Beltway but across the nation and around the world. As we learned earlier this summer, our nation is so deeply in debt that it has been and should be a cause for increasing alarm. When the nation started borrowing to bail out the economy during the Great Depression of the 1930’s, the funds borrowed were reinvested into national infrastructure, building public buildings, roads, bridges and other types of public infrastructure, creating jobs for the unemployed and a system of infrastructure that would improve the commerce of the country. While some of the money borrowed came from banks around the world, the bulk came from hard-working Americans who put a little money aside in government bonds or debt. After all, the federal government was the employer for many of the formerly out-of-work Americans, why not put the money in a safe place with your employer.

And just as America was about to emerge from the Great Depression, World War II engulfed the nation, taking the employment picture from one of desperation to one of not enough labor as men were drafted to go to war while women who remained behind were conscripted into the military/industrial complex to build the machines of war. This time the money that the government needed came from those in the nation’s workforce as War Bond drives and payroll deduction plans reached a fevered pitch in the drive to “Win the War.”

And that is the difference with the situation the nation faces today. The bulk of the $14 trillion debt the nation has borrowed is from other nations. While the current Jobs Act proposal intends to spend much of the borrowing and higher taxes on public infrastructure, most of the borrowed money will probably still come from overseas investors.

So the question is, do we want to owe even more to those foreign investors who can then call the shots because they own America’s debt or does America want to determine its own destiny? Will the jobs to be created by the proposed Jobs Bill actually be permanent jobs or, like the stimulus program, merely create jobs for the here and now and be gone tomorrow?

Although the rebuilding of public infrastructure is critical to our economic well-being, it is also important to understand that the creation of jobs in the private sector will be much more productive and long lasting. The perfect example is the bailout of the Big Three automakers in Detroit. Two of three took the government’s bailout funds while the third decided that it could turn itself around if it could just retool its line of automobiles so that it met the demands of consumers.

And turn themselves around they did, they downsized the number of models, retooled their engines, making their lines of cars more fuel efficient and redesigning the vehicles to be more competitive with their foreign counterparts. Investors like what they saw and placed their bets on the stock in a matter of months.

This success story is what lawmakers on the Potomac should try to emulate in putting together a measure that will stimulate the private sector to once more reinvent goods and services that consumers will want to buy. The jobs that our nation’s unemployed so desperately need will have to be created by the private sector and not the public sector. Instead of spending billions of tax dollars - dollars borrowed from our global neighbors - government must encourage private industry to invest and to create the jobs workers need.

And how does that happen? First of all readers need to understand that private industry is basically sitting on their hands and their cash because of all of the uncertainty created by government inaction. Elected officials must deal with the debt crisis, clarify the regulatory cloud, and adopt a tax structure that dumps many of the special interest tax provisions. Just borrowing and spending more tax dollars will not dig the nation out of this economic mess.

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