3 Ways Obama Could Boost Hiring

These moves might do more than the Democrats’ latest “jobs bill.”

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Nearly three years after the recession began, President Obama wants to pass a jobs bill. It's not his first jobs bill, but the others—including the big $800 stimulus plan from 2009—haven't quite done the trick. So Obama is pushing for new tax breaks and cheap, government-backed loans for small businesses, with the hope that easier credit and a bit more take-home pay will spur them to hire more workers.

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Don't expect much. Some businesses would benefit from the new moves, but government policies aren't the reason that hiring is so weak. Companies are refusing to hire mainly because business is down and they don't need additional workers. They'll start hiring again when business picks up and they need more people to help meet demand for whatever product or service they sell. For that to happen, consumers need to spend more money, employment needs to be stronger, and people need to feel more confident about their job security, incomes, and future prospects. Washington's solution for all this is tax breaks and guaranteed loans, because those are the tools that Washington has to work with. But it's like trying to hammer a nail with the handle of a pliers.

The economy will mend in time, as Americans pay down excessive debt, save more money, and rebuild lost wealth. But the midterm elections are coming soon, and desperate Democrats need to show that they're working hard to get Americans back to work (and retain control of Congress). Here are three things President Obama could do that might be more effective than the same old tax credits and loan guarantees:

Act like a business owner, not a technocrat. There are a few companies that have been run like the U.S. government, with weak spending controls, unsustainable debt loads, and no credible plan for getting out of trouble. Some examples: General Motors (bankrupt in 2009); Lehman Brothers (bankrupt in 2008); and AIG (taken over by the government in 2008 to forestall bankruptcy). Companies hoping to stay in business, by contrast, only borrow money they can pay back, and when they take on debt they issue detailed reports to shareholders about how they plan to invest the money and earn a return on the investment. If shareholders don't trust company leaders, they sell the stock and the company's value declines.

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Obama has acknowledged the problem with the national debt and set up a commission to make recommendations, but he's also expanded the government's reach and pumped up the debt—with no corresponding cuts in government or a plan of his own to balance the books. The problem isn't the debt itself; it's the total lack of discipline in Washington and the failure to put a solution on the table. That has created the impression that Washington can't solve tough problems and that the government is indeed a basket case like GM or AIG. "If they gave us confidence that their own house was in order and they're not completely out of control, then we would have more confidence in our businesses," says Gene Marks, who runs a 10-person technology consulting firm outside of Philadelphia. "When deficits go up somebody has to pay, and that's going to be us."

Obama can't literally run the country like a business, since his "board of directors" includes 535 politicians, many of them hostile to his plans. But he could lead like a competent CEO. That means proposing his own solution to the debt problem, no matter how unpopular, and giving his shareholders—taxpayers—a credible turnaround plan. Hopefully Obama has learned that "trust me" won't work. Telling the truth about what it will take to pay down the debt might.

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Stop the 'reforms.' Obama has vision and the guts to pursue big things. But he's gotten too far ahead of the people he's trying to help. Healthcare reform was historic, like it or hate it, then came financial reform, less historic but still significant. And Obama still wants energy reform, immigration reform, and lesser reforms bound to raise somebody's cost of doing business. Obama likes to say that government can do more than one thing at once, but many businesses—especially small businesses—can't. It will still take months and perhaps years before most companies know how the new healthcare and financial laws will affect them. To somebody running a business that's barely profitable, more paperwork and a few added regulatory expenses can mean the difference between staying in business or going belly up.

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Obama should acknowledge that and say he's going to wait until the impact of all the new rules are completely spelled out before considering any additional rules that would impact business. That's probably going to happen anyway, since the expected Republican surge in the November elections would freeze action on Obama's remaining priorities. But Obama could call his own moratorium on small business regulations first, perhaps earning a little goodwill from business owners in the process. Better yet, how about a small-business task force with the mission to cut red tape by 30 or 40 percent in one year or less? Obama could do that without Congressional approval, and finally put some action behind all the rhetoric about how important small businesses are. It might not even cost anything.

Show some guts about the Bush tax cuts. It's hard to overstate the incompetence of a government that can't even tell its citizens what their tax rate will be over the coming year. Yet in the midst of a grueling economic downturn, most Americans have to guess what their tax rate will be in the future, since the 2001 and 2003 Bush tax cuts are set to expire at the end of 2010 and there's no agreement about what to do next. For this dysfunctional situation we can mostly thank President Bush, who gave voters the benefits of a tax cut during his eight years, without cutting spending or making any provision whatsoever to account for the lost government revenue. Now Obama has to come up with a solution, and judging by his infrequent and tepid remarks on the issue, it's not that big of a deal to him.

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But it is to businesses, which need to estimate their future costs so they can set pricing, manage inventory, and otherwise plan for the future. And for many small-business owners, their personal income and business income are the same, so they're directly affected by the direction of income taxes. Obama wants to keep the tax cuts in place for most people, while letting them expire for higher earners, effectively raising upper-income taxes. Another option is to simply extend the cuts for another year or two, and deal with them when the economy is in better shape.

But resolving the matter soon is becoming more important than the actual direction of taxes, and Obama should use the bully pulpit of the White House to insist that Congress act on the tax cuts before anything else. The best outcome might be a short, temporary extension that leaves current tax rates in place, accompanied by a detailed plan that explains what Washington will do next. But that would take the kind of political courage not typically found in Washington these days. So prepare for obscure tax credits that few companies will claim, government loans for businesses that don't want more debt, and perplexed politicians who continue to wonder why businesses aren't hiring.