Sunday, 14 Oct 2012 02:34 PM

By Forrest Jones and John Bachman

The U.S. economy will remain stuck in idle and very few jobs will be created if President Barack Obama is re-elected in November, said Tim Kane, chief economist at the Hudson Institute and founder of the social-networking firm StoryPoint.

Regulations outlined under the Dodd-Frank financial reform law and the president’s healthcare overhaul law have entrepreneurs worrying about compliance and putting off plans to expand and hire.

Higher taxes championed by the president, namely those targeting the wealthy, will eat away at money otherwise going to expand start-up businesses and take on new workers.

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“I think what we will see is that with another four years of an Obama presidency, we are going to continue to see very meek growth and almost no job creation,” Kane told Newsmax TV in an exclusive interview.

“If you layer up full-time employment with a lot of regulations and mandatory benefits, it’s the natural impulse for employers to shift to contractors and to part-time work.”

The U.S. unemployment rate fell to 7.8 percent in September from 8.1 percent in August, as employers added a net 114,000 jobs, while households reported that total employment rose by 873,000 in September, mainly due to a surge in demand for part-time workers.

Meanwhile, the creation of new businesses continues to fall, especially in the more recent past.

“I think the discouraging thing is that we have seen the entrepreneurship rate decline, and it has been declining for 20 years, but at a really gradual level. Suddenly in the last three years, it has just collapsed, it’s dropped by a third and the really scary thing is that it has gotten worse each year,” Kane said.

“The officials tell us that we have been in a recovery for two years. The entrepreneurship rate is actually lower this year than last.”

And not all start-ups are tech companies like Google or Facebook. Many are mom-and-pop operations such as restaurants or kiosks in shopping malls that, when not bogged down by taxes, regulations and uncertainty, would otherwise hire and expand, which is crucial for economic health.

Many are mom-and-pop operations such as restaurants or kiosks in shopping malls that can hire and expand, which is crucial for economic health.

“There are tons of start-ups every year and data show there are 3 million jobs created on average over the last three decades at these new companies. And new doesn’t mean small. They can be medium-sized and they can be large companies,” he noted.

“In contrast, existing firms, whether they are two years old or 200, lump them all together and they lose about 1 million jobs.”

Many wealthy Americans pay employees out of their own pocket, and if they get hit with higher taxes, they will cut back on hiring.

“It’s not just rich people you hit when you have a higher tax rate, it’s entrepreneurs.”

Other cases show owners of start-ups who forgo collecting salaries to get their businesses going get hit with high taxes later, especially if they sell, because in the government’s eyes, they are rich and should pay more.

“It’s really punitive to success to have a tax rate that is this deeply progressive, and I think moving to a flatter tax code and lesser deductions would be much fairer and boost economic growth, and that’s the important thing,” Kane said.

In the meantime, the elections are approaching and at the end of the year, tax breaks expire at the same time cuts to government spending kick in, a combination known as a fiscal cliff that could send the country into a recession next year.

Expect fewer start-ups opening their doors and posting Help Wanted signs.

“It makes me gnash my teeth,” he stated.

“We have been saying for a long time that uncertainty matters.”

Editor's Note: Economist Warns: 50% Unemployment, 100% Inflation Possible

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