This article originally appeared in the Opinion section of the Boston Globe on October 30, 2013.
In the depths of the 2008–2009 financial crash, then White House Chief of Staff Rahm Emanuel famously said, “You never want a serious crisis to go to waste.” What he meant was that policymakers should try to harness the energy of an emergency to spur positive change. Seen through that lens, our recent made-in-Washington government shutdown and default “crisis” could yet offer Congress a chance to redeem itself.
Time to jumpstart job creation
Suppose there was a single, bipartisan policy proposal that could spur hiring, lift wages, speed economic growth, raise productivity, and help put the nearly $2 trillion in cash that American corporations now hold (much of it abroad) to work here at home. Imagine such legislation could fit with either the existing tax code or a reformed one. And let’s suppose one more thing. You could explain it on a bumper sticker: JOBS = TAX BREAKS.
In the modest spirit of typical Congressional nomenclature, I call this idea “The American Jobs and Wage Increase Act of 2014.” Here it is: Let’s give a generous, refundable tax credit to any private company or organization that can show that it has grown its payroll (measured by the Social Security taxes it pays) from one year to the next.
Businesses need to grow payrolls to get credit
To claim the tax credit, companies have to grow their payroll in one of two ways:
- Companies have to hire more American workers
- Or, companies could raise the pay of their American employees.
Companies could not earn the credit by:
- Hiring foreign workers (who do not pay the Social Security tax)
- Boosting the compensation of executives who earn more than $115,500 (next year’s projected FICA tax “cap”)
Thus, this credit would “lean” against both inequality and offshoring. Companies that can show they have increased their Social Security tax payments should be able to claim a credit worth, say, 25% of that increase — or bring home a like amount of their overseas cash at very low or even zero tax rates (versus the 35% rate the IRS charges for doing that today).
A company’s Social Security payroll offers an ideal yardstick for granting a pro-growth tax break. Because it would piggy-back on already required tax reporting, it would be easy for companies to administer and near-impossible to “game” — short of fraud.
Take the bite out of sequestration
We should size this credit generously — enough to offset up to half of the $85 billion a year in sequester cuts.
To make sure it doesn’t overheat the economy, it would apply only during years when the unemployment rate averages 5% or more.
To make sure it would benefit early-stage companies, many of which owe no taxes, the credit should be refundable. That would be a big help to young, but not-yet profitable firms that actually create most new American jobs. Since these entrepreneurs also drive most of America’s productivity gains, we could score another bonus for the whole economy. And it would be market forces — not the government — that determine who wins the credit.
The positive impact of increasing payrolls
There would be topline budgetary costs up front, but the net costs of the jobs credit would be significantly offset by positive changes in economic behavior. As businesses hire more workers or offer more generous pay, federal tax revenues would rise and social costs like food stamps and unemployment insurance would fall even before companies claimed the credit. Growth would surge.
A study by the Economic Policy Institute suggests that added revenues from more jobs, higher wages, and increased GDP growth — plus savings on social outlays — would reduce the ultimate fiscal costs to the government by roughly 80%. It is tough to imagine a more cost-effective way to speed up our still-sluggish recovery.
Beyond the immediate economic gains, such legislation might also boost national morale as Congress — finally — addresses real Americans’ well-documented priorities: jobs, wage gains, and economic growth. And growth itself offers the best, most American solution to our country’s long-term deficit problems. So let’s not let our recent, self-inflicted crisis go to waste. Let’s turn the energy of this crisis into something positive for our country.