President Obama is doing a great job in moving swiftly to fix the weak economy. He deserves a pat on the back for getting his economic stimulus package passed in the House of Representatives.  With some minor changes it will pass in the Senate.  We should have an economic stimulus plan in place by mid February. This gives the President a huge win within his first few weeks on the job.

Unfortunately, I have a tough time believing the most wasteful group in America, the government, is suddenly going to become frugal and efficient with its money.  This is not a critique of President Obama. The US government has never in our history created more value than the market place.  If it did, we would be the wealthiest nation on Earth. But instead we are the greatest debtor nation on Earth.

The President’s plan has good intent.  FDR brought us out of a depression with big government spending. Obama’s plan is to do the same thing spending on public projects like energy efficient government buildings, laying electric lines and infrastructure. This will create jobs.  The problem with this approach is the plan creates jobs geared towards lower skilled workers and machines.  This worked in the 1930’s because we had an abundance of people qualified to assume the newly created jobs and technology was limited by today’s standards.

Companies today are cutting knowledge workers like bankers, computer programmers, financial analysts, and engineers.  If the President’s plan creates the 4 million jobs proposed over the next two years, which it will, we must ask ourselves will we want these jobs.  The plan creates the need for skilled workers like brick layers, construction workers and pipe fitters. Critics say many people will deem themselves not a good fit for these newly created jobs.

We need an economic stimulus plan that creates jobs, but they must be the right kind of jobs.  More importantly, the people who are good at creating jobs should be creating the jobs not the government. We need knowledge based jobs created by entrepreneurs.

Let’s put job creation in the hands of entrepreneurs.   This is what they do best. Entrepreneurs create new jobs when their businesses grow. So the goal should be business growth fueled with retained earnings instead of debt.

So how can the government stimulate small business growth using retained earnings?

Here’s my plan.

1.       Repeal the Regan tax cuts for higher income individuals. Wealthy people know that we pay taxes on income, not wealth. So smart business owners will keep their realized incomes as low as possible leaving more money in their business.

2.       Allow a 1% tax credit for businesses. We will base the tax credit on gross revenue.  In the case of a $1M business, $10,000 new dollars would drop to the bottom line in retained earnings. However, they can only take this credit if they use it for investment. This could be in the form of re-investment back into the business or investment into a new venture.

3.       Suspend “No Child Left Behind” (because they are all behind already) and divert those resources into science, technology, financial literacy, and entrepreneurship education at the grade school level. India made the decision in the 70’s to raise a generation of technology savvy engineers. America should raise a generation of money smart entrepreneurs.

Sadly, I don’t think a plan like this would get much support as it would require a fundamental shift in thinking. It would assume that the people are smarter than the politicians and the market is more efficient than the government.

President Obama’s plan is well intentioned and has a historic precedent. But the road to hell is paved with good intentions.

The road to help is paved with correct intentions.

Just my 20 cents.