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Job Creation Tax Options

A Summary of a Working Paper From Get America Working!

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America is at an historic moment. The need to get more 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 have appeal accross the political spectra. These are described in our 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, following the Great Recession we still need to create jobs. Even though the official unemployment rate is hovering just below 5 percent, beyond that official count are roughly 60 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. (Clearly some are happily retired and/or economically secure, but subtracing these still leaves millions.)

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 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 2015 FICA brought in $1.07 trillion, almost 34% 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 moderate 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)

 

Category/Tax

Low 

($bil) 

Medium 

($bil) 

High 

($bil) 

Broad-based job creating taxes 

 

 

 

    Non-labor value-added tax

263.2

526.5

789.8

Job-creating taxes on materials 

 

  

  

    Virgin materials

6.2

12.4

18.6

    Container recycling incentive

12

24

36

    Tobacco

41.8

43.5

46.9

    Alcohol

14.2

16.6

19.0

Job-creating taxes on energy 

  

  

  

    Energy inefficiency – vehicles  

6.0

14.6

17.1

    Energy inefficiency – commercial buildings

31.2

75.8

89.2

    Energy inefficiency – appliances, motor craft

3.5

7.2

10.25

    Energy inefficiency – power plants

6.48

15.72

18.52

    Carbon tax

137.5

275.0

412.5

    Equal energy charge for nuclear plants

17.3

34.6

51.8

    Petroleum and motor fuels    

27.6

55.1

82.7

Job-creating taxes on waste and pollution  

  

  

  

    Air pollution

    

  

  

        Volatile organics

22.1

44.2

55.3

        Nitrogen oxides

11.5

23.0

28.7

        Sulfur dioxides

1.6

3.3

6.6

        Particulates

1.3

3.1

3.9

    Auction of air permits

50.0

75.0

100.0

    Water pollution

1.7

2.2

2.7

    Fertilizer Tax

1.65

2.45

3.3

    Hazardous emissions charge

2.3

4.5

11.4

Job-creating physical asset taxes 

  

  

  

    Property transfer tax

45.45

90.9

136.3

    Restriction on property-related deductions

43.4

90.6

181.5

    General assets tax

60.7

121.4

242.9

Job creation through user fees for public resources   

7.2

11.1.

16.7

Job creation by eliminating
   government subsidies
 

54.4

54.4

54.4

                                                                                  TOTAL (billions - rounded) 

$870

$1,627

$2,436 

Note: This Table, from GAW’s 2011 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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See Get America Working's issue Brief on a Non-Labor Value Added Tax [http://getamericaworking.org/sites/getamericaworking.ashoka.org/files/GAW_Issue_Brief_NonLabor_VAT.PDF ]

 

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