Job Creation Tax Options

A Summary of a New Working Paper From Get America Working!

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America is at an historic moment. The need to get Americans working and the need for fundamental tax reform have never been clearer. And policy makers and the public increasingly understand the fact that these two issues are interlinked. This actually creates a giant economic opportunity. The tools to seize that opportunity are readily at hand and the politics supporting change are favorable. These are described in our forthcoming Tax Options working paper.

The goal of Get America Working! is to find structural ways to increase job creation many fold. Creating more jobs would give currently unemployed persons the choice to work and, by boosting economic growth, diminish many social ills associated with underemployment, and reduce dependency costs born by all levels of government.

Simply stated, in a jobless recovery we need to create jobs. Even though the official unemployment rate is hovering just over 9 percent, beyond that official count are roughly 80 million healthy adults who could work, but who are not counted as unemployed because they were not actively looking for work in the past month.

These tens of millions of people who are not working represent an enormous economic loss and an enormous opportunity. We need a free-market approach that encourages business owners to create tens of millions of attractive new jobs. A number of broadly accepted and effective tools are readily available for beginning the shift to a truly "full-employment" economy. Switching from payroll taxes (that charge companies for job creation) to taxes on materials, energy, and land (that discourage waste and encourage job growth) is an especially powerful example of many options. Through shifting what is taxed, the effect would create a relative price change and thereby greatly stimulate the demand for workers by lowering labor costs.

We derive sizeable revenues from taxing labor. Wages are taxed 15.3% under the Federal Insurance Contributions Act, or FICA tax. (In some states additional payroll taxes drive this figure up to as much as 17%.) In 2010 FICA brought in $865 billion, almost 40% of total federal revenues, up from 2% in 1950. But that revenue comes at the cost of massive job loss. Since the payroll tax effectively raises the price of labor relative to other factors of production, companies substitute energy, raw materials and other resources for labor, thus reducing the number of jobs created. By sharply cutting and eventually eliminating the payroll tax, Get America Working! believes we can create millions of new jobs, stimulate growth substantially, and very significantly lower social costs, crime, depression, and de-motivated students.

Businesses will invest to modify their production and distribution systems. The bigger and more sure the tax shift from payrolls to resources/waste the faster business will shift to this new capital structuring the faster will be the shift to using more people and less energy and resources. Employers will quickly seek out and train new workers. Potential workers will need time to prepare to rejoin the workforce.  A portion of the alternative taxes collected to reduce harmful payroll taxes would be set aside to support any increased energy or other costs for the needy on government assistance programs.

Get America Working’s “Job Creation Tax Options” report, provides an analytical basis for our alternative vision and the pros and cons of different ways of offsetting the cuts in payroll taxes. It answers one key question about the important tax swap tool we propose: Are alternative revenues available that are significantly large, technically sound, and politically viable from taxing materials, energy, and land, at modest  levels to diminish or replace current payroll taxes? The answer, as shown on the accompanying Table of Tax Options, is yes.  The alternative revenue sources reviewed here could produce more than twice the revenues from all payroll taxes — leaving wide choices for policy makers.

Get America Working! does not advocate any particular tax or combination of taxes from the Table. We believe that the political process will do a better job of selecting the least painful and most politically feasible set of alternatives once our elected leaders understand the benefits of this approach and are influenced by a public that also understands the potential.

Summary of Job-creating Tax Options ($bil)

Note: This Table, from GAW’s Job Creation Tax Options report, relies principally on government data, some of which is reported annually, some every two to four years. The purpose is to show a range of what is possible, not  exact estimates. We continue to seek new data. Several targets of the options overlap, so one would not do all of them; rather policymakers can pick the easiest to implement, the longest lasting, or use some other metric.

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For further information contact:
June Taylor at 301-802-3223 or Steve Kent at 845-758-0097