A Novel Proposal for Job Creation: Tax It Less
Do Republicans and Democrats really want to create jobs — or just pretend to do so and blame the other side for high unemployment?
If they did want to spur job growth, they’d do what always works to secure more of something — reduce taxes on it. And keep them low.
That is, instead of fighting over the terms of one-year payroll tax holidays, they’d adopt a proposal being floated by one of my favorite centrist policy activists, Rick Swartz, and cut payroll taxes for five or 10 years.
And cut them deeply — in half (from 6.2 percent to 3.1 percent) and for employees and employers.
It’s an expensive idea — perhaps almost $1.5 trillion if the plan went for five years — but Swartz argues it can be paid for and could appeal to conservatives and liberals.
“For conservatives, it’s the supply-side principle — lower tax rates and broaden the tax base,” he said.
“Also, Republicans don’t think that [President Barack] Obama’s one-year holidays have encouraged employers to hire people, and they are probably right.
“For liberals, this is going to create jobs, and I’d partly pay for it by raising the limit on incomes subject to the payroll tax, making it progressive.
“This is win-win. You’re going to put money into the hands of consumers who’ll spend it. And you will give employers greater certainty for a number of years and better incentives to hire people.”
Swartz, president of Strategic Solutions Washington, has a record of trying to form “strange bedfellows” coalitions around such issues as immigration reform, agriculture and hunger policy and economics.
To “broaden the base,” he proposes to apply the new 3.1 percent payroll tax rate to workers making as much as $220,000 a year and their employers.
Normally, workers and employers pay a 6.2 percent payroll tax on workers’ wages up to $107,000.
The rate’s been cut to 4.2 percent for employees under a law that will expire at the end of this year unless Congress acts.
Republicans and Democrats are at war over whether and how much to extend the current holiday and, especially, over how to pay for it.
Hoping to seize the political high ground, Obama originally called for part of Swartz’s plan — cuts to 3.1 percent for employers and employees — but only for one year.
In the process, Obama argued that he’s in favor of tax cuts to stimulate employment — normally a GOP idea.
But Republicans were dead set against the cost — $265 billion — and Obama’s proposal to pay for it with a surtax on the highest earners.
So, as he did in his Kansas speech Tuesday, Obama and other Democrats are painting the GOP as willing to raise taxes on workers while protecting the rich.
In an era of deepening economic inequality, polls show that more than 60 percent of voters favor increasing taxes on those in the highest income brackets.
This week, Senate Democrats have scaled back Obama’s proposal, offering a one-year cut to 3.1 percent for workers only, which is paid for with a smaller millionaire surtax.
Congressional Republicans are still opposed, claiming that high-end taxpayers are America’s “job creators.”
One Republican Senator, though — Susan Collins of Maine — has proposed exempting small-business owners from the tax hike and has Missouri Democratic Sen. Claire McCaskill on board with her.
GOP leaders and at least two presidential candidates, hoping to escape blame for letting the current tax holiday expire and socking workers with an average $900 tax hike next year, have tried to concoct their own plans.
But they are having trouble bringing along their rank and file, which opposes the move for its expense and because it says the holiday has failed to stimulate hiring.
Swartz thinks Republicans have a point in saying that one-year payroll tax reductions don’t encourage employers to hire because they need longer-term incentives — hence, his five- or 10-year proposal.
To pay for the plan, Swartz proposes a variety of steps, beginning with lifting the cap on incomes subject to payroll taxes above its present $107,000.
“Workers making up to $220,000 and their employers between $107,000 and $220,000 would pay less than they do normally because their first $107,00 would be taxed at 3.1 instead of 6.2,” he said.
Above that, they’d pay more — but how much more would depend on what other offsets were adopted.
“You could include short-term capital gains, dividends or hedge-fund operators’ carried interest in the payroll tax base,” he said.
“You could limit farm subsidies and close tax loopholes You could also cut spending along the lines considered by the Congressional super committee,” he said.
Cutting payroll taxes on a revenue-neutral basis would not solve the long-term problem of Social Security solvency, Swartz admits, but he argues that part of his plan is “lockboxing” all payroll revenues to protect them from being raided to pay for other programs.
“This doesn’t solve every problem,” he told me. “But it does address our biggest problem as a country — getting job growth going. And if we did that, a lot of other problems would get solved, too.”