Senate Democrats are backpedaling from the President’s proposed jobs bill, because they rightly realize that its impact will fall primarily on middle class families living in higher-cost-of-living blue states. New York Senator Chuck Schumer noted, “In the eyes of many, it is hard to ask more of households that make $250,000 or $300,000 a year. Many of them are not rich. In large parts of the country, that kind of income does not get you a big home or lots of vacations or anything else that’s associated with wealth.”
Instead, they are now proposing a five percent surtax on incomes of more than $1 million a year to pay for President Obama’s $447 billion “Stimulus Lite” bill.
As far as I am concerned, this class warfare rhetoric will go nowhere in preventing another recession or creating American jobs.
Earlier this week, I came up the following plan, which I think may actually help reverse American job losses and stimulate the U.S. economy.
My seven-point plan is not perfect. After all, it only took me about an hour to create. However, I believe it is better than any other proposal currently on the table.
1. Grant 15-Year Corporate Tax Holiday for Companies that Build New Manufacturing Plants in the United States
To encourage American firms to build more manufacturing facilities in the United States, the government should provide a tax holiday for all products that are derived from those plants. For instance, if GE builds a plant in the United States that generates $1 billion in profits, those profits should be tax-free for 15 years.
2. Accelerated Depreciation for New U.S.-Based Manufacturing Facilities
In conjunction with the corporate tax holiday, firms that build new manufacturing facilities in the United States will be able to fully depreciate these facilities in the year they complete construction.
3. Accelerated Regulatory Review
The United States government will streamline the regulatory process involved in building new manufacturing facilities, ensuring that firms can build these facilities faster and cheaper. Of my seven proposed items, this one is the least realistic given the red tape embedded in the system. That said, it is certainly worth pursuing.
4. Jobs Training Partnerships
Workers receiving unemployment benefits would be eligible to work for corporations for 8 to 12 weeks in exchange for job training. Corporations would benefit from free labor for a short period of time, while workers receive valuable job training and skills for free. Employers who ultimately hire these workers would also be eligible to receive a tax benefit equal to the dollar amount the government saves from paying unemployment insurance for up to one year.
5. Payroll Tax Deduction
Providing all Americans with a payroll tax deduction would provide a short-term stimulus to the economy, and thereby help prevent a double dip recession.
6. Conditional Repatriation Tax Holiday
American companies currently hold roughly one trillion dollars of cash overseas. This capital could provide a ready source of economic stimulus if the United States government offers these companies a repatriation tax holiday. A bipartisan plan is currently under consideration to do exactly just that.
That said, President Bush offered a similar tax holiday in 2004 with mixed results. One U.S. Treasury official noted, “There is no evidence that it created jobs and in fact most of the largest beneficiaries actually cut jobs in 2005-06, despite overall economy-wide job growth in those years.”
As such, any future repatriation tax holiday should require action on jobs. For each net worker an American corporation hires in 2012, that corporation should be able to repatriate the full cost of that employee for one year. Additionally, corporations should also be able to repatriate one dollar of offshore income for each dollar they invest in new U.S.-based manufacturing facilities. Additionally, the plan should allow corporations to repatriate any additional dollars at a 12% tax rate.
7. Anti-Currency Manipulation Enforcement
According to C. Fred Bergsten, director of the Peterson Institute for International Economics, the “United States runs an annual trade deficit of about $600 billion, or 4 percent of our entire economy. Eliminating that imbalance would create three million to four million jobs, according to Commerce Department estimates, at no cost to the budget.” Bergsten believes that the value of China’s currency, the renminbi, is 20 to 30 percent less than what it should be. Consequently, Chinese goods are receiving an implicit subsidy on their goods at America’s expense.
I can understand why China manipulates its currency. It must keep its export industry going so that it can avoid massive civil unrest. Afterall, China must create roughly 25 million jobs a year to stay at full employment. That said, America can no longer ignore this balance, because it now faces the same risk of social unrest.
The prescription is not imposing a tariff on Chinese goods, as many in Congress are demanding. The experience of Smoot-Hawley in 1930 showed how disastrous that the result could be. Instead, the United States should “take China to the World Trade Organization in Geneva for engaging in illegal competitive currency devaluation, and retaliate if China does not cease this protectionist policy.” One can retaliate in other ways that don’t involve raising tariffs. For instance, the United States can simply unleash its government bureaucracy on Chinese products, making it much more painful for the Chinese to move their wares through the United States.
My plan isn’t perfect, and lacks the necessary dialogue between government and business to hash out what will likely work and what won’t. That said, it’s a good start.
If the country aims to rebuild its manufacturing base, and preserve the middle class, this plan has a much better chance of accomplishing these goals than the President’s partisan wealth redistribution scheme.