Policies to put Americans back to work aren’t working.
Since the Obama stimulus spending program began in February 2009 and continued through May 2010, we have added 400,000 government jobs, while the nation has lost 2.7 million private-sector jobs.
The Labor Department reported recently that workers are getting laid off again as the recovery shows signs of slackening or even backsliding. The government reported that for the first time, in 2010 the private sector may show a net loss of jobs.
So, what do we do instead? Strapped consumers will not spend us out of this recession. The key to economic recovery is to provide incentives to get the private sector moving again and encourage job creation here in the United States. Our current business-tax system is a major impediment to doing just that. The United States has a corporate income-tax rate of 35 percent, high payroll taxes and other burdensome taxes and regulations.
The existing tax structure rewards private-equity moguls for loading U.S. companies up with high levels of debt, while penalizing prudent business owners who would like to run their companies in a conservative fashion. That is because corporate debt is deductible under our current tax system, while employment, savings and capital investment are heavily taxed. No wonder the U.S. manufacturing base has lost one-third of its jobs over the past decade. That’s 5.5 million good American jobs that have been shipped overseas, outsourced or simply disappeared.
In addition to high tax rates, American businesses that have most of their plants and employees in the U.S. do not operate on a level playing field with our trading competitors. Every major trading country in the world - except for the United States - provides a tax advantage for domestic manufacturers. As countries have removed tariffs over the past four decades, they have replaced them with a value-added tax (VAT) which provides companies located in their countries with a significant economic advantage over foreign businesses. That averages out to an 18 percent disadvantage for U.S.-based manufacturers trying to compete overseas.
To make matters worse, foreign goods shipped into the United States enjoy an 18 percent VAT tax abatement - yet are subject to none of the taxes imposed on U.S. manufacturers.
The solution to this dilemma is less complicated than one might think. Simply replace our existing corporate-tax system with a revenue-neutral, 8 percent business consumption tax. This border-adjusted VAT would not apply to U.S. exports, but would be applied to all imports.
This business consumption tax would allow for the expensing of fixed investment, eliminating the double taxation of investments. These changes in the way we tax business would result in an accelerated growth of savings and investment, while creating private-sector jobs. In the long run, the business consumption tax would bring in a lot more revenue than the taxes it would replace because the national economy would grow much faster. We would have a tax system that would encourage companies to create jobs in the United States and keep them here.
This is a real economic-stimulus plan to put Americans back to work.
- Tom Pauken, a former Reagan administration official, is the chairman of the Texas Workforce Commission.
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