Bribing capital to create jobs

Posted: 12 July 2011 in Uncategorized
Tags: , , ,

The jobs crisis is so bad that the best mainstream economists can come up with is to bribe capital to create more jobs.

Not all mainstream economists, of course. Only those who recognize that the current level of unemployment is obscene.

And, of course, mainstream economists don’t agree on how to go about bribing capital to create more jobs. Those on the Right want to lower wages and decrease jobless benefits, thereby encouraging capital to hire and workers to agree to be hired at lower wages.

Liberal mainstream economists, like Alan Blinder, imagine a different set of bribes: tax breaks and tax holidays.

What are some realistic options? For several years many economists have promoted a tax credit for new jobs. (I advocated the idea on this page in November 2009.) While the details matter, the basic idea is to offer firms that boost their payrolls a tax break. As one concrete example, companies might be offered a tax credit equal to 10% of the increase in their wage bills (over 2011 levels, say). No increase, no reward.

You might think Republicans would embrace an idea like that. After all, it’s a business tax cut and all the new jobs would be in the private sector. But you’d be wrong. Frankly, I’m not sure why. Maybe it’s seen as “left-wing social engineering.”

A variant may hold more promise in the current political environment. Major corporations are clamoring for a tax holiday that would let them repatriate profits held abroad at a bargain-basement tax rate. They claim that all kinds of wonderful things would happen if this money came home. Trouble is, we’ve seen this play before, in 2004, and nothing wonderful happened—unless you were a shareholder or executive of one of the beneficiary corporations.

However, the tax holiday idea can be married to the new jobs tax credit. Suppose we allow firms to repatriate profits at some super-low tax rate, but only to the extent that they increase their wage payments subject to Social Security. For example, if XYZ Corporation paid wages covered by Social Security of $1.5 billion in 2011, and then boosted that amount to $1.6 billion in 2012, it would be allowed to repatriate $100 million at a tax rate of 5% or 10% instead of the usual 35% rate. The tax savings to the company would thus be $25 million-$30 million for raising its payroll by $100 million. That’s a powerful incentive.

In order to encourage capital to create more jobs, conservative mainstream economists want to make workers more miserable, while liberal mainstream economists want us to pay more taxes for capital to imagine the possibility of—maybe, at some point, thinking about, how they might benefit by—hiring more workers.

What mainstream economists don’t want to contemplate are two other possibilities: having the state capture some of the surplus to create a public works program and allowing the workers who produce the surplus to appropriate it and use it to create more jobs. Such solutions have the advantage of not making workers even worse off than they are now (as conservative mainstream economists want to do) or engaging in even more corporate welfare with only a dim prospect of creating enough new jobs (as liberal mainstream economists suggest).

Bribing capital is not the solution to the jobs crisis. It only signifies how desperate mainstream economists are to make sure the responsibility for creating jobs remains in capital’s hands.

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Comments
  1. Siusaidh Caimbuel says:

    Really like this and many of your illustrations, David – only wish you’d put notes on their sources for those who want to follow them up. Best wishes.

  2. David Ruccio says:

    I’m glad you like them. This one is by Banksy. The problem is, I often collect illustrations and then use them for particular posts—but I don’t generally know that when I find them. I’ll try to be better about it in the future. . .

  3. Siusaidh Caimbuel says:

    Ah yes, I should have recognized the redoubtable B.

    And I begin to realize the difficulties.

    Thanks!

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