Washington Needs to Get Out of the Business of Picking Winners and Losers
When President Obama assumed office, he inherited an economy in crisis. Unfortunately, eight years later, the U.S. economy - while showing recent signs of life - continues at a slow pace. The President's approach should serve as a cautionary lesson for the next Commander in Chief: more government doesn't grow the economy.
The Obama administration has issued no fewer than 600 major regulations costing $100 million or more, or about one every three days, according to an analysis by the American Action Forum. And then there were huge tax hikes imposed via ObamaCare, and at the start of 2013.
The heavy hand of government, via both more regulation and higher taxes, has taken a significant toll on the economy. In a recent analysis of GDP growth for the Small Business & Entrepreneurship Council, I reported that compared to the average growth rates prevailing over the past six decades, the U.S. has experienced a historic GDP gap or shortfall during this current recovery/expansion period. Real GDP growth has averaged 2.1 percent during this recovery/expansion. That's far short of the 1956-2016 average of 3.1 percent, and less than half of the 4.3 percent real rate prevailing during periods of recovery and expansion. As a result, we have a yawning GDP shortfall in 2016 of $2.7 trillion (in real 2009 dollars).
Congress - at least in the House of Representatives in recent years - has worked to hold off the imposition of even more growth-killing tax and regulatory burdens. In response, the administration has worked to force through regulation via executive fiat-a privilege the President once strongly criticized.
But if President Obama once disavowed executive powers, his attitudes have changed during his tenure in office. Perhaps more than any of his predecessors, he has sought to single out industries and businesses that don't closely align with his political priorities. Those efforts threaten some of the country's strongest growth sectors.
For example, President Obama has targeted traditional energy producers with increased tax and regulatory burdens. Each of the administration's budget plans has sought to raise taxes on oil and natural gas developers. Like clockwork, the President and his advisors have spun such selective taxation as a means of ensuring "big oil" atones for its profits. But that sales pitch ignores the fact oil and gas producers pay some of the highest tax rates in the country (an average rate of 37 percent versus 25.8 percent for S&P companies between 2011 and 2015). It ignores that energy producers are among the nation's biggest job creators (supporting 9.8 million jobs and eight percent of U.S. GDP).
And it ignores that "big oil" is actually pretty small, with 90.7 percent of employer firms among oil and gas extraction businesses, 78.1 percent of drilling oil and gas wells businesses, 81.5 percent of firms among support activities for oil and gas operations businesses, 60.5 percent of oil and gas pipeline and related structures construction businesses, and 54.7 percent of firms among oil and gas field machinery and equipment manufacturing businesses having less than 20 workers.
Nevertheless, the mistaken notion that oil and gas producers enjoy special tax breaks has seeped into the public dialogue. Apparently, politics has clouded the difference between legitimate deductions for the cost of doing business, and subsidies whereby businesses get handouts from the government courtesy of other taxpayers. Of course, at the same time, the Obama administration enthusiastically endorses actual handouts for politically favored groups, such as wind and solar energy.
It's time Washington get out of the business of using policy as an instrument to pick winners and losers in the private markets. Good policy should establish a level playing field for all industries, and allow free-market competition, and ultimately consumers, to determine who succeeds. Lawmakers would be wise to start with comprehensive tax reform that dramatically lowers tax rates across the board and simplifies the tax code.
The Obama administration already has one foot out the door, but perhaps whoever takes office next will learn from the past eight years.
