Carrots and sticks
by David Atkins
I can’t help but sigh when reading stories like this:
In a bid to retake the initiative on small-business policy, President Obama Wednesday is expected to propose a 10 percent tax credit tied to new hiring. But the policy appears designed as much to draw a political distinction as to generate new jobs. In describing the proposal, which Mr. Obama will flesh out in a visit to a Washington-area small business, the administration drew a sharp contrast with a Republican small-business tax cut that passed the House last month, which the White House contends is too tilted toward the wealthy.
Under the White House proposal, which the president previewed in a video address over the weekend, a company would get credit against income taxes worth up to 10 percent of the increase in total wages in 2012, which could come either in the form of salaries for new hires or raises. A company that increased its payroll by $4 million would see a $400,000 income tax credit.
It’s true that policymakers have limited tools for controlling policy, including the carrot of tax credits or the stick of law and regulation. One of the advantages of the carrot approach is that it involves soft power and a curb on hostility. But the disadvantage, of course, is that every tax credit given out exacerbates the nation’s budget problem. Also, at a time when American corporations are making record profits, it’s not clear just how much of an impact the offer of greater riches via tax credits is going to provide.
At a certain point, policy makers are going to have to use more sticks than carrots when dealing with big business–not just because of the budget, but also because the usefulness of the carrot keeps decreasing. And if policy makers are too afraid of big business’ considerable campaign war chests to use the sticks that are necessary, then they might want to using some sticks to change that part of the equation.
One of the dirty secrets about politics is that being a legislator is a fairly miserable experience. About half of any given day is spent raising money, whether it be dialing for dollars, lunching with insufferable donors, or attending rubber chicken fundraisers while taking pictures with random people in exchange for checks.
It’s awful. It drives a lot of good people away from running for office, and it means that only certain types of people with a high tolerance for that sort of lifestyle can survive staying elected to office (to say nothing of getting elected in the first place.)
The judicious use of a few sticks to bat big business away from the campaign table and curb them in the policy arena wouldn’t just help the country. It would also make legislators’ lives easier and more rewarding, too.
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