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.
Senate democrats are back pedaling for fear of political fallout. Shumers statement is made in relative terms, and meaningless. I’d bet the lions share of quarter-million-dollar-a-year households can afford a hit. A line must be drawn somewhere, and it will be unpopular wherever.
That being said, you are spot on that tax incentives and subsidies should be performance based, or as you call them, “conditional”. That would be, however, diametrically opposite from the current “give us a break or we won’t create jobs” system of blackmail that has cost us so much.
The PTB won’t like such talk. Be careful.
I think it depends on the tax increases. In Texas, you can live like king on $250k. In Manhattan, you’d be lucky to be able to afford a two-bedroom apartment.
However, I agree that lobbyists on both sides have twisted the system to support their interests. It is time that tax payers get a quid pro quo for any benefits government provides for corporations.
All good points. I’ve asked a few accountants I know what they think should be done and they’ve chimed in with similar comments to yours. Getting more into the details, I’d add a couple other things like interest deferral on student loans (although this goes against many of my own beliefs), and prevention by the big banks to be able to switch lending agreements for small business from lines of credit to term P+I loans. I’d also like to see a “fast track” instituted so that small businesses actually get real access to SBA funds available. The current process is a joke.
Lastly, thank you for not calling it a “7-7-7 Plan” and repeating it so many times as Cain has annoying done with his! (even though I understand the reasons for doing so…) 🙂
I actually think deferring interest for student loans is a good idea in the short term, since many graduates cannot find jobs through no-fault of their own.
The President’s plan is not a plan. It is a campaign slogan. The President gave up governing months ago. His full time job right now is running for reelection. This is only about revving up his occupy Wall Street base with class warfare.
I completely agree.
One question I had that you may be able to help with: do you know how many government-backed loans into “Green Technology” went towards storage of green energy rather than simply the collection of it?
Not off the top of my head, but you should be able to find the answer on the DOE website at http://lpo.energy.gov.
It’s hard to punish China for currency manipulation when we’re begging it to keep buying treasuries and not to sell them off (which would increase the interest we’d have to pay on future debt by driving down bond prices). But I’m going to be the one now skeptical that the government can do much of anything to increase jobs right now. Until both the public and private sector deleverage large amounts of debt, the economy will be soft. I think your ideas could help, but I also think stronger regulation of the financial markets would help too — investments became less real investment in productive innovations during the last 20 years and more short term bubble chasing thanks to opaque financial products and arrangements so complex that only the insiders had an inkling of what was happening (and many of them got confused too!)
I agree on currency manipulation. It really is a tough nut to crack. I disagree on financial regulation. The Durbin amendment is a classic case of how more government regulation (and hamfisted, stupid regulation to boot), just end up increasing costs for consumers (e.g., BoA’s $5 debit fee, Citi’s $20 checking fee). Basically, one amendment destroyed $6.6 billion of revenue with the stroke of a pen. Now the banks are making up for the hole by passing fees onto consumers, and via massive layoffs (BoA alone is laying off 30-40k).
No, BoA is laying off 30K workers because after dreaming of empire it bought a lot of banks and now finds itself in deep doodoo and needs to cut costs to keep itself alive. Mark my words: the $5 debit fee will be a PR nightmare and end up hurting the bank. Do you know anyone who like Bank of America???
“No, BoA is laying off 30K workers because after dreaming of empire it bought a lot of banks and now finds itself in deep doodoo and needs to cut costs to keep itself alive.”
BoA is laying off 30-40k workers for a host of reasons, one of which includes filling a multi-billion dollar revenue shortfall that was entirely due to government regulation.
“Do you know anyone who like Bank of America???”
No argument here. I cancelled my account immediately after the Bank started charging me a $5 fee just to hold my money in their bank.
I do my banking with BOA and with a local credit union. BOA’s on line banking is top notch, and the people I work with when I stop by the branch office are very good. So I at least don’t have any dislike for BOA. The thing about the $5 debit fee is interesting. I use my debit card only as an ATM card, so the fee won’t affect me (I don’t believe in using debit cards for purchases because the protections are less than for credit cards — better to use a credit card and pay it back at the end of the month with no interest). But before the cost was passed on to consumers via a fee that presumably got translated into higher prices. In essence, this doesn’t hurt consumers, and arguably charges those who actually cause the higher costs, rather than sharing the cost with everyone (even someone using only cash pays part of the bank fees if they are passed on).
A fair point. I never thought of it as a way to levy higher fees on higher risk customers, but that actually seems like a reasonable thing to do.
While I cancelled my BoA checking nearly 15 years ago, I had my credit card with them for a bit longer. However, I cancelled that after the bank deployed one jackass of an attorney against one of my soldiers for allegedly running up his credit card. It turns out his brother stole it and was using it, so I tried to help the soldier resolve the problem with the bank. Yet every number I called that the bank gave me brought me back to this pompous ass. The soldier got so frustrated that he told the guy to go “F” himself. I tried to calm the attorney down, but this only spurred him on. By that point, I simply asked for his full name, and then told him in the most authoritative voice that it was against federal regulations for a business to solicit federal employees at work, and that if he called again, I would report him. That ended the calls. My next call was to BoA to cancel my credit card, with a full description of what transpired.
As such, I am no fan of BoA. Even when buying my house, they had one of the cheapest mortgage rates. However, given my experience with hidden fees from the bank and customer harassment, I didn’t even consider doing business with them.
Sorry to disagree with your 7 ideas, but I don’t think any of them will add jobs. Briefly, idea # 1: corporations don’t make basic business decisions (build plants, hire people, invest in R&D, etc.) because of their taxes. They do it to generate more revenue and profits, i.e. they’re responding to customer demand and/or pursuing new opportunities. Ideas 2, 5 & 6: again, taxes don’t drive most business decisions, and past experience shows that re-patriation of profits does nothing to generate jobs and is just a windfall for corporate executives and (perhaps) a few shareholders. #3 sounds good but wouldn’t mean much. I actually like #7 but it won’t work simply because China holds nearly $2 trillion in US treasuries and the mere threat of retaliation (e.g. dumping Treasuries or refusing to buy new issues) would tank both the stock market and the economy.
Here’s a few ideas you didn’t consider. Re-allocate $500 billion over the next 10 years from the Department of Defense (by closing unnecessary bases around the world, getting out of Iraq and Afghanistan, killing useless programs, etc) and providing loans through community banks and the SBA to small businesses that today can’t get credit but are totally credit-worthy; Small businesses are actually hiring while big businesses continue to shed jobs; but, small business’ # 1 complaint is lack of access to credit. Another idea is to use the TARP re-payment money to set up a fund to guarantee mortgage loans for Americans who can demonstrate an ability to pay their mortgage at current market values and rates and to require banks to immediately write off all loans on their books that to not qualify. We need to clear the inventory of foreclosures and under-water mortgages and get the housing market back on its feet. This will help both the construction industry as well as homeowners aka consumers. Finally, reduce the corporate tax rate (yeah, I do think taxes have some effect over the long term) to 10% and restore the top bracket rate to 45% with NO DEDUCTIONS OTHER THAN MORTGAGE/STATE & RE TAXES AND CHARITABLE DONATIONS PERIOD for people making over $500K per year. Please don;t tell me this is a disincentive to making big money,. That’s a joke. No one making really big salary/compensation will walk away from it because of the taxes they’ll pay and if they do I say “Have a good time in Hong Kong!”
“Briefly, idea # 1: corporations don’t make basic business decisions (build plants, hire people, invest in R&D, etc.) because of their taxes.”
I disagree. While lower taxes would not likely stimulate a business to decide to build a plant, it certainly influences where it will build one once a decision has been made. One of the primary reasons First Solar built a plant in Malaysia is that it received a tax holiday from the Malaysian government. Tax incentives were also major reasons why Evergreen Solar built a plant in Massachusetts, and Solyndra built a facility in California (note these incentives trumped the otherwise high rates of taxation in these states).
“Ideas 2, 5 & 6: again, taxes don’t drive most business decisions, and past experience shows that re-patriation of profits does nothing to generate jobs and is just a windfall for corporate executives and (perhaps) a few shareholders.”
Idea #2 actually came from a Fortune 500 CFO in the technology sector in a meeting with investors, so somebody making business investment decisions think it will work. On repatriation, I was very careful to make your point that previous tax holidays did not do much to create jobs, which is why my proposal is conditional.
“I actually like #7 but it won’t work simply because China holds nearly $2 trillion in US treasuries and the mere threat of retaliation (e.g. dumping Treasuries or refusing to buy new issues) would tank both the stock market and the economy.”
And there’s the rub. #7 is actually the hardest one to deal with. I left no detail in the approach, other than there are other ways to get at China besides threatening a trade war. Threatening to sell more arms to Taiwan could be an option if China continues to manipulate its currency at our expense. Inspecting Chinese-bound fuel tankers in the Strait of Malacca could be another approach — it would be painful and would make our point. I don’t necessarily recommend either. My only point is that the United States has more leverage than one would think.
“Re-allocate $500 billion over the next 10 years from the Department of Defense (by closing unnecessary bases around the world, getting out of Iraq and Afghanistan, killing useless programs, etc) and providing loans through community banks and the SBA to small businesses that today can’t get credit but are totally credit-worthy;”
The problem with this idea is that it would likely destroy more jobs than it would create. I am all for reducing bloated defense budgets, but the Pentagon is already cutting $500 billion over the next 10 years, and Secretary Pannetta has testified that further cuts would jeopardize the nation’s national security. Since he is getting his data from a man a know very well, I take Pannetta very seriously on this. Plus, closing a base has a ripple effect on the community. Imagine what would happen, for instance, to towns like Barstow that exist only because there is a nearby military installation.
“Another idea is to use the TARP re-payment money to set up a fund to guarantee mortgage loans for Americans who can demonstrate an ability to pay their mortgage at current market values and rates and to require banks to immediately write off all loans on their books that to not qualify. ”
I like this idea, and agree with its purpose.
“Finally, reduce the corporate tax rate (yeah, I do think taxes have some effect over the long term) to 10% and restore the top bracket rate to 45% with NO DEDUCTIONS OTHER THAN MORTGAGE/STATE & RE TAXES AND CHARITABLE DONATIONS PERIOD for people making over $500K per year.”
I agree on reducing the corporate tax rate, but I’m not sure how restoring the top bracket rate to 45% will help create jobs.
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