Q. What is Get America Working!?
A. Get America Working! is a non-profit national organization whose mission is to create millions of jobs through structural changes in the U.S. economy.
With more good jobs available, many of the country’s most significant social ills will be greatly diminished. We will see less crime and violence, fewer disengaged young people, less drug use, and a healthier population overall. Furthermore, the country will experience sustained, substantial, and faster economic growth; the environment will benefit greatly; and a larger tax base, combined with lessened dependency and social dysfunction, will allow tax rates to fall. Beyod the "officially unemployed" there are tens of millions of Americans -- the "unseen"/uncounted unemployed who are not participating in the labor force -- a wasted resource for our economy.
Q. Who are these "unseen"/uncounted unemployed?
The Bureau of Labor Statistics only counts as unemployed those who have "actively looked for work" in the past 4 weeks. In additon to the more than 7.8 million "official unemployed" there are:
- the millions who would like to work but who don’t believe they can get a suitable job;
- the many millions of persons over the age of 62 who have followed society’s expectations and incentives into retirement, but now, according to surveys, would choose to work if given a realistic opportunity;
- the many millions of people with disabilities who, despite the passage of the Americans with Disabilities Act in 1990, remain excluded from the workforce (unemployment among working-age people with disabilities who are able to work now runs over 70 percent);
- the millions of youth who are not in the labor market because they don’t see any meaningful opportunities for themselves;
- the millions of discouraged African-Americans, Hispanics, recent immigrants and others for whom employment doors have not opened readily—despite civil rights laws and affirmative action programs;
- discouraged and logistically challenged workers and those living in geographic pockets of the country where shrinking industry has resulted in a labor surplus;
- those who would like part-time jobs but cannot get them (such as parents of young children); and
- seasonal and part-time workers who want full-time jobs.
These are all people who would be more independent and prosperous—and generally far happier and healthier—if they were working.
We know that for a multiplicity of reasons not all of the 94.6 million people who are not in the official labor force want to work. Not all of them can work. We know that many work at jobs that are not paid (e.g., they are taking care of children, sick spouses, elders, or other family members, or they are full-time students or full-time homemakers, or do volunteer work they enjoy). We also know that some of the bulleted categories above overlap. Furthermore, in some cases precise numbers are very difficult to obtain. Despite the difficulty in obtaining precise data for each of these sub-groups, we believe that a reasonable estimate of the total number of those Americans who probably could and ultimately would like paid work but are not working at all or are not fully working lies between 50 and 70 million (calculated as full time equivalents), or about one-quarter of the Civilian Non-Institutionalized Population.
Q. If all these people are not working, why don't we hear more about them?
A. First, they aren’t counted in the official numbers. Second, people who do not believe they have a chance of getting a job typically accept their situation as inevitable, become resigned, and stop looking for gainful employment. Because people without jobs are dependent and without power—and keenly aware of that circumstance—they are unlikely to speak up for their own interests. Third, society has told the "non-employed" not to expect to work and has reinforced this message with institutionalized subsidies such as welfare and food stamps. And finally, the media typically uncritically accepts the prevailing framework and repeats the common statistics and supporting definitions in story after story, thereby reinforcing the "inevitability" of the situation in which so many people are not considered to be potential workers.
Get America Working!’s goal is to help Americans see that the only way the country can grow strongly is not only to restore the "officially unemployed" to work, but also to allow the large portion of the population that has consistently been shut out of the job market to enter it. In short, the country needs to adopt a new approach to thinking about the population’s employability. We must devise a plan that will enable us to reach our national potential.
Q. How do you propose to create millions of new jobs?
A. There are many effective, market-friendly, and widely acceptable tools available to accomplish this task. Using market forces, we will create jobs by removing key economic and social barriers to employment.
One key social barrier is the country’s current tax structure. Over recent decades, more and more Federal revenues have come from taxing labor. Removing that economic barrier will, quite simply, encourage job creation. If we simultaneously change social expectations so that the people who are not in the paid workforce today are welcomed into it, many millions of would-be workers will step forward to fill those newly created jobs.
The American economy will produce far more goods and services if these workers are contributing. We will save the tremendous costs that both government and private families now pay for this large dependent population. America’s GDP will grow faster, while at the same time our overall tax bill will drop. Moreover, no new bureaucracies will be created.
Q. Exactly what changes do you propose?
A. There are many practical options that would help expand the demand for labor, but the most powerful single step would be to eliminate the highly regressive and economically destructive payroll taxes. These include taxes collected for unemployment, health, and Social Security. We would replace the FICA tax on jobs with taxes on our natural-resource wealth: materials, land, and energy. If we do this, the economy will respond with much more rapid and sustainable growth for many decades to come.
Q. How will this altered tax structure work?
A. Basically we would reduce or eliminate taxes on "good" things and increase them on "bad" things. We want thriving businesses to generate more jobs, not to discourage them from doing so by making labor more expensive. If we indeed want more jobs, then why on earth should we tax jobs, thereby discouraging employment? And yet, without anyone thinking through the consequences, the process of incremental decision-making over recent decades has increased the share of Federal revenue coming from the payroll taxes from 1 percent to 38percent!
On the other hand, waste, pollution, and aggressive natural resource consumption are bad things that we should actively discourage rather than subsidize. Probably the most effective way of doing so is to tax these activities, thereby making them more expensive. Not only is a tax on pollution and resource consumption an enormously powerful price signal, but it does not require an extensive body of regulations and the constant case-by-case litigation that the environment movement finds so hard to sustain.
These two actions would create a large price shift in the relative cost of labor versus natural resources. Payroll taxes amount to over 15 percent of the cost of labor in America. If we dropped this tax on people and instead created a series of equivalent taxes on things (materials, energy and land), the result would be a relative price shift of about 30 percent! That is a very large and powerful price signal.
Both parts of this change will increase the number of jobs in the economy. Lower labor costs clearly encourage job formation. But increasing the cost of materials and energy will also create jobs.
Materials and energy are the only inputs into the economy that compete with labor; if labor is less expensive, businesses will find ways to substitute labor for materials and energy wherever possible, thereby creating new jobs.
This "tax shift" would send a powerful 30 percent price signal rippling through the economy. The changed price signal would create tens of millions of jobs, help the environment, and in all likelihood lead to a net tax reduction.
These elements taken together would create significant benefits domestically and in our international competitive situation as well.
Q. How would this tax shift lead to an overall net tax reduction?
A. As already noted, such a tax shift will dramatically lower the cost of labor in relation to natural resources. The changed relative price of these basic components of the economy will lead employers to hire many millions of people who would otherwise remain outside the paid labor force. The economic activity of the newly employed would generate increased tax revenues drawn from income and consumption. Since many of these new workers would have been previously been dependent on welfare or disability payments, their entrance into the workforce would reduce government spending for such transfer payments. In addition, the tax shift would also lower the costs of treating many of the social dysfunctions that we know are rooted in joblessness—such as higher rates of depression, ill health, and the whole complex of problems connected with crime/drugs/violence.
It is this combination of increased revenue from other taxes and lower spending on dependency and dysfunction that would allow a net tax reduction.
Q. That’s a big change. Would it happen all at once?
A. No. Companies and individuals need time to adjust to any major change in prices. We propose phasing in the tax shift over a seven-to-ten-year period. This time period is roughly equal to the capital cycles for most companies, which means they would have an opportunity to make new equipment purchases with full knowledge of the prospective prices shifts in labor and natural resources.
Q. Why does Get America Working! think that giving tens of millions of Americans the choice to work will have such a big impact on economic growth?
A. It’s a "four-for-one" proposal.
First, by drawing into the economy America’s great unused resource — the tens of millions of its people who would choose paid work if given a realistic opportunity - the country’s output of goods and services would increase dramatically. GDP would grow robustly.
Second, for every person who chooses to work, there is one less dependent person for government, business, and families to support.
Third, as the opportunities for individuals and for companies expand along with the growth rate, many of the social dysfunction costs that currently drag our society down could be reversed. For example, the U.S. now has nearly two million people in jail. With these new policies in place, the incarcerated would have a greater opportunity to get a job upon release from prison; this would reduce the extraordinarily high rates of recidivism we see now. Such an effect has already been demonstrated in several cities with tight job markets and large supplies of ex-convicts.
Creating more jobs would go a long way towards curing another major social dysfunction—the depression and illness and associated high health care costs that are so closely associated with the state of not being engaged in society. Those who are marginalized in America find that their situation is not a healthy place to be.
Fourth, a more robust and faster-growing economy with fewer drags and less social conflict would encourage entrepreneurship, which in turn would generate a faster rate of change and further drive the demand for labor. Fast growth and social optimum feed the entrepreneurs soul.
In sum, giving everyone a real choice to work in the paid economy and encouraging rather than discouraging them to do so by changing our social expectations has a number of solid benefits: It will increase output and growth very substantially, and, at the same time, sharply reduce dependency costs, dysfunction drags, and the dispiritedness and division that accompany unemployment and slow growth.
Furthermore, we are not proposing to generate relatively unproductive government jobs for the unemployed. Instead, our approach gives employers themselves plenty of incentive to create those jobs that make the most economic sense. The resulting economic growth would be substantial, and it would be environmentally and economically sustainable.
Q. What other steps can be taken to move society in the direction Get America Working! proposes?
A. There are many opportunities that would encourage employment in more specialized ways. Encouraging many more older people to mentor and tutor young people is one example.
In America (and across the world) adults are spending less and less time with younger people. With the rapid increase in one-parent and two-parent-working families, this circumstance is common even within the nuclear family. Even as young people need to learn more and more complex skills, they have lost many of the supports that are critical to growing up and becoming socially well adjusted.
On the other hand, older people have been pushed out of the labor market, and many are suffering as a result. (Whereas two-thirds of American men aged 65 and older worked two generations ago, now only one-eighth does.)
Connecting young people’s need for adult mentors with the need that many older people feel to re-engage and contribute offers a giant opportunity. Get America Working! suggests that the best way to seize this opportunity is by:
(1) removing a number of disincentives (e.g., taxes on income earned by mentoring and on the materials purchased to support such work),
(2) reducing regulatory barriers, and
(3) actively encouraging schools, nonprofit organizations, and religious institutions, as well as older people, to see this opportunity and to step up to it.
Q. Why haven’t ideas that seem so simple but powerful been proposed before?
A. Aspects of our ideas have been put forward by various groups at various times, but the package as a whole is new. In many ways, this alternative, longer-range framework is Get America Working!’s chief contribution. Once the country recognizes that it’s one great opportunity is to engage its unused human resources, that there are effective and broadly acceptable tools at hand to accomplish this, and that doing so is not only politically feasible but a giant political "win", there can be little doubt about what the country will do. Unfortunately the country not only is stuck with a 1930s framework but the failure of that framework has left America increasingly divided into narrow constituencies with narrow, defensive perspectives.
Our program calls for changes that would cut across the whole of society and unite many of different groups that recognize the need for more jobs. Moreover, the tools that will bring about this change are practical, broadly acceptable, and available.
Most of America’s most powerful constituencies will eventually join our national movement because it powerfully benefits their core interests. This is why our program is in fact a great political win.
Social groups, or constituencies, whose core interests would benefit from our proposals include:
- Hispanics and other minorities;
- people with disabilities (and their families);
- young people (and those who care about them);
- most businesses;
- labor; and
- those concerned about the nation’s environment.
One of Get America Working!’s most important roles is to help bring these constituencies together in a powerful, united movement that will enable the country to see and seize its one economic, environmental, and social opportunity.
Q. If Get America Working!’s proposals succeed in increasing the demand for labor, how do you know that more people will want to go to work?
A. Opinion research data show that many of those not working, who have "accepted" the disengaged role that society deems normal for their group, do, in fact, want to work. For example, in separate surveys, Lou Harris found that two-thirds of retirees aged 75 and younger wished they had not left the workforce and that three-quarters of working-age people with disabilities without jobs wanted to work.
Get America Working! recognizes, however, that some effort will be required to get those who have accepted society’s presumption that they should not work to see things differently. We believe a national marketing campaign will be needed to keep the labor market in balance as our policies increase demand. This campaign must be carefully designed to help each of the groups of the hidden unemployed noted above recognize that new opportunities are open to them. Such a marketing effort should:
- emphasize the opportunity for people from all walks of life to contribute - which would also be a way for them to rebuild pride and escape dependency;
- focus at the outset on highly respected thought leaders and people in positions of influence; once they change their perspectives and behavior, others will follow (people emulate up, not down); and
- provide Americans with a new way to think about the nation’s economic and social realities—a framework that makes clear that unemployment is both a massive economic drain and a giant opportunity for growth.
Labor supply is not a restraint on growth if those who have been "defined out" are encouraged in. America’s experience in the 1940s provided ample evidence of this. When the demand for labor suddenly expanded in World War II, women, older people, minorities, and people with disabilities joined the labor force in droves. Over just two years the size of the labor force grew by 35 percent, and the average number of hours worked each week grew by 20 percent. A major marketing campaign, from whence we still remember Rosie the Riveter, played an important role in persuading millions to change the fundamental patterns of their lives. (It also upset the definition of what is "feminine" forever.) Government also recognized the need for—and provided—supportive childcare.
Granted, conditions early in the 21st century differ widely from those of the 1940s, but they share at least one thing in common: an abundant unused labor supply was present then, and one is present now. In the 1940s, millions of people outside the workforce changed gears and went to work almost immediately, when given the appropriate encouragement. Today, America has the tools we need to do this same job: we have the imagination and the know-how needed to increase demand for labor without going to war, and we know how to organize a marketing effort to encourage supply.
Q. But aren’t many of those who are not working quite satisfied with their situation?
A. Most of the "hidden unemployed" have come to believe that no work is open to them and that society does not expect them to work. Although many people seem reconciled to joblessness and are not actively seeking work, this does not mean that they are satisfied with their situation or that they wouldn’t value the chance to take a job in the paid economy.
There is ample evidence that people who work are better off than those who are jobless and dependent. When people move from unemployment to work, their self-image improves; they build their knowledge and social skills and contacts; their risk of depression and illness declines; and their financial and psychological independence grows stronger.
When individuals get work, their families and the broader society benefit importantly as well. For example, when older people have the opportunity to work, some of the pressure that currently falls heavily on the middle-aged "sandwich generation"—those supporting their own children as well as their often unnecessarily dependent parents—lifts.
Q. What about the ever-growing number of seniors? Aren’t they happily retired? Do they really want to go back to work?
A. We know that "retirement" is being redefined every day by a healthier and better-educated generation of seniors than this country hasever seen. Today older people have 50 percent more education than they did in 1974, and they are physically healthier; yet they retire an average of three years sooner than they did in 1950. Of course, many workers retire or are retired well before age 62..
With the average age of retirement being 62 and the average life expectancy of Americans about 78 years, the average retirement period is 16 years. That is a long time. Based on polls and research, we know that the majority of older people would like to spend those years being useful, contributing to society, and working according to their own abilities. More recently, the economic downturn and the loss of value for many seniors pensions make it necessary for some retirees to return to work.
It is important to emphasize that Get America Working! believes that no older or retired person should have to take a job—paid or otherwise—if he or she does not want to. At the same time, however, Get America Working! believes that the opportunity to choose to work is a fundamental freedom of life that everyone in our society should enjoy.
Q. What evidence is there that older people who keep working stay healthier and that those who stop working are at increased risk for illness and even death?
A. There is considerable empirical evidence that older people who continue working beyond "retirement age" live longer and are far healthier than those who stop working. Senior citizens—in fact, all citizens—are happiest when they feel they are socially connected and being productive and making a contribution.
The implications of these findings for both the happiness of older people and our national health care costs are significant. A study done in North Carolina showed that a one percent decline in labor force participation among people over 65 translated into a 7.29 percent increase in the rate of hospitalization. The author of the study, David Weaver, Ph.D., a researcher at the Social Security Administration, concluded, "policies encouraging labor force participation [among the elderly] will dampen the demand for hospital care."
A study published in the British Medical Journal found that men aged 40-59 "who became unemployed or retired for reasons other than illness had a significantly raised risk of dying compared with continuously employed men, which suggests that non-employment even in apparently healthy men was associated with increased mortality."
Surveys that get at deeper measures of happiness and self-image (as opposed to those that merely ask, "Are you happy with retirement?") are similarly compelling. As noted above, pollster Lou Harris found that 68 percent of those 75 and younger who had retired considered it a mistake. Because a large number of retirees stop working because their employers and the rest of society "expects" them to, and given that most people avoid being unhappy about things they feel are beyond their control, it seems reasonable to assume that this 68 percent is an understatement.
Fortunately, there is a great deal of ongoing research in this area as countries around the world are seeing an explosion in the numbers of their senior citizens. The managers of economies of aging societies such as Japan are beginning to recognize that they must ask older people to work.
Q. You say the payroll tax is unfair. How so?
A. The payroll tax is composed of two elements, the Social Security part (which covers old age, survivor, and disability benefits) and the Medicare part (hospital insurance). The first part is paid on wages up to a maximum covered wage base for the year ($113,700 in 2013 and $117,100 for 2014) at a rate of 12.4 percent (the employer pays half, 6.2 percent; the employee pays the other half). The Medicare part of the FICA tax is 2.9 percent (l.45 percent each for employer and employee), which is paid on all wages without limit (i.e., payments continue beyond earnings of $117,100).
We consider this tax unfair for the following reasons:
- As noted, much of it (Social Security) only taxes earned income up to a $118,500 limit (for 2016). Thus an executive earning $250,000 pays a Social Security payroll tax of only $6,324 (an amount matched by his employer), but a husband and wife, who each earn $60,000, together pay $7,440 (matched by their employers). Even though their combined earnings are less than half those of the executive, they pay more payroll tax.
- It excludes investment income. An investor who has made $1 million in the stock market pays no FICA tax on those earnings.
- It increases income inequality. Study after study shows that businesses shift their share of the tax onto the lowest paid workers by holding down wages. In contrast, the most highly paid workers, those with more bargaining power, in the end effectively pay little or none of the tax because they have the leverage to force their employers to compensate them for what they have to pay. In real-world economics, the poorest workers pay both the employer’s and the employee’s shares of the tax, while the richest workers escape the tax.
- It is also our dumbest tax. Slow-growth sectors of the economy are able to shift the taxto their workers; while employers in today’s fast-growth sectors (such as technology and information) end up paying both their own and their employees’ shares. The payroll tax thus subsidizes slow-growth or declining industries by providing them with a hidden tax exemption (which has the effect of keeping resources locked up in the past), while it stunts precisely those sectors of the economy growing at double-digit rates. Any sensible tax policy would encourage the fast-growth sectors, because they are the ones that are building America’s competitive advantage and at the same time providing valuable jobs that cannot be exported. It would be impossible to design a tax that was more unfair or more economically destructive than the payroll tax.
Moreover, the payroll tax has grown and grown and grown. Almost by accident it has grown from 1 percent up to more than a third of all federal revenues. (In 2015 it accounted for 34% of federal revenues.) Nearly 90 percent of all workers now pay more in payroll deductions (combined employee and employer contributions) than they do in income tax!
Of course, we need to pay for Social Security and the other programs that the payroll tax presently finances, but there are much fairer and, indeed, less costly ways to do so.
Q. How will we pay for Social Security if we take away the FICA tax?
A. Get American Working! would not propose these policies if it felt that there was any risk to Social Security or Medicare. We believe our policies will, in fact, strengthen these programs:
- We propose shifting from taxing jobs, which we want to encourage, to natural resources, which we need to conserve. The country’s natural resources—everything from land and materials to energy—are more than an adequate alternative tax base. (Get America Working!’s Working Paper "Job Creation Tax Options," explores 26 different alternative taxes in considerable detail and computes the significant revenues that each would yield; combined, they would generate more than twice the revenues of today’s payroll taxes.)
- Today there are between three and four working people support one Social Security beneficiary. By the year 2030 the ratio will shift to two working people supporting one beneficiary. While the ratio of workers to beneficiaries continues to worsen, the value of the country’s natural resource base will increase with the population and our level of economic activity. Shifting to a natural resource tax base now will provide a growing, not a narrowing, revenue base.
- The new natural resource tax base will draw political support from environmentalists, labor, older people, and the many other powerful constituencies whose core interests are served by this new job-and-growth-creating and environment-protecting policy.
Q. Why do you think that eliminating the payroll tax is good for the economy as a whole?
A. First, as we have seen, payroll taxes are extraordinarily regressive. As the payroll tax has grown —from 2 percent to 15.3 percent—it has contributed significantly to the deterioration of income distribution patterns in the U.S.
Second, we have already noted those companies that are growing rapidly and creating new, highly skilled jobs commonly end up paying their employees’ share as well as their half—whereas the slow-growth companies with easily replaced staff shift their share to their usually low income employees. This bargaining-power-based shifting of the tax burden makes it doubly regressive. And it hurts exactly those firms that should be helping if we want to build the country’s economic future. Encouraging these fast-growth firms would help the economy enormously. They would be able to grow and learn faster, thereby increasing their global competitive advantage, thus accelerating their growth and learning even more. Moreover, resources would shift from slow-growth sectors to these engines of the country’s future economy, thereby increasing America’s overall growth rate. And, of course, encouraging these cutting-edge, fast-growth firms will also generate many additional jobs.
To the degree that the fast-growth businesses benefit through a reduction in their costs, they will take one of the following actions, each of which will ultimately lead to greater employment. They may expand production and market aggressively, lowering costs and increasing efficiency through economies of scale and innovation. In order to do so they will hire more workers. Or, alternatively, they may hold prices steady and try to benefit from greater profitability. Their profitability will attract new firms into the sector, thereby increasing employment.
Investing in these fast-growth engines of our future, rather than providing a hidden subsidy to declining industries, is smart policy. That means getting rid of the payroll tax, which is invisibly but powerfully sapping our economic future.
Q. Is Social Security in "crisis"? Will Get America Working!’s approach provide reliable revenue for Social Security?
A. The number of elderly citizens relying on Social Security and Medicare for their support has been growing more or less steadily since the 1930s. This inexorable trend, coupled with the skyrocketing costs of health care, underlies the public concern for Medicare’s long run economic stability. The Social Security Trustees have estimated that there will be ample funds to provide all benefits through 2035—that is, if current assumptions about the economy and the number of people in the labor force hold true. After that, however, there are unresolved long-term financing questions.
A more subtle issue here has to do with the feelings people have about the Social Security program. When the program was introduced by Franklin D. Roosevelt in 1935, the American people were told that the federal government was helping them lay the "foundation stones" for their future security—that this new fund would guarantee them "some measure of protection … against the loss of a job and against poverty-
ridden old age." Outlays to this new fund (in the form of wage deductions and employer contributions) were considered analogous to insurance premium payments. Understandably, many people today are fearful of having that insurance contract broken.
Get America Working! appreciates this concern but at the same time believes that a similarly compelling argument can be made for committing the country’s natural resources as a tax base that will ensure every citizen a decent standard of living. In much of the world natural resources are considered a "patrimony" that should be held in trust for public purposes. In Alaska, for example, revenue from the Alaskan Oil Pipeline flows back to the citizens of that state, giving them an enhanced social safety net. We would like to see something similar happen with our other natural resources on a nationwide basis.
It should be emphasized that the insurance principle FDR built into the Social Security system would not be abandoned under Get America Working!’s policies. Our plan would leave intact the connection between a worker’s contributions and service over a lifetime (as reflected by his or her earnings record) and the amount of benefits he or she draws. In fact, we believe that the "patrimony" benefit we are introducing would enhance the sense of "entitlement" to a secure old age that each of our citizens rightly feels.
Q. Won’t it be difficult to figure out which natural resources to tax? And won’t there be strong political objections no matter which ones are chosen?
A. Compared to the payroll tax, taxes on natural resources offer a wide range of possible approaches. This is a whole new tool kit, where each tool fits a variety of political needs and circumstances. There are many possibilities for alternative taxes. Here are a few:
- a non-labor, value-added consumption tax—i.e., taxing the value added at each step of the production process (except the costs of labor)
- an annual auction of tradable pollution emissions allowances;
- an energy-inefficiency tax on the 25 percent least efficient commercial buildings, motor vehicles, appliances, and other energy-using equipment
- a tax on raw materials taken from the land, such as ores, oil, and trees;
- a tax on carbon dioxide and other greenhouse gas emissions; and
- gasoline taxes.
The wide array of such practical taxes would allow choice and flexibility. Ultimately, the political and legislative processes will decide which options are the most attractive and least painful. (See "Job Creation Tax Options," a Get America Working! Working Paper published in October, 2000, for an analysis of 20 natural resource-based taxes that would produce more than twice the revenues of today’s payroll taxes.)
Q. What about the education and training necessary for all the new workers? Will there be enough suitably skilled workers to fill jobs in the high-tech areas?
A. Once a tighter labor market gives employers the incentive to hire new people, they will do what is necessary to train or re-train workers. Moreover, without the payroll tax, employers will have more money available for recruitment and training. We also believe that the wide variety of institutions that specialize in training people for specific occupations will respond quickly to an environment of increased demand. Workers will also respond and seek the training and acquire the skills that will help them get ahead. This sort of adaptability on the part of all players has always given America a quintessential competitive advantage.
It is important to remember that these tax changes and other necessary policy shifts would be phased in over seven to ten years. That is more than enough time for all of the players to respond and change.
Q. Wouldn’t we see significant inflation in response to this stimulus?
A. Our proposal should not lead to inflation.
First, it is budget neutral. Increased taxes on natural resources will replace payroll tax revenues to whatever degree is needed to leave the budget’s balance unchanged. (As already noted, however, a larger tax base and fewer expenditures on dependency and a wide array of social ills would allow a net tax cut, which would then further encourage growth.)
Second, increasing the supply of goods and services lessens inflation.
Third, and most importantly, the huge supply of unused workers overhanging the economy can reduce overly tight labor markets quickly, especially when given a little encouragement. One of the key reasons we did not see inflation take off in the late 1990s was that employers did reach out and hire previously overlooked workers. The government could speed this process significantly with a supporting marketing effort, as it did in the 1940s with the Rosie the Riveter and allied campaigns.
The vast surplus of labor in the global economy is yet another restraint on inflation.
Q. Do Get America Working!’s ideas have relevance internationally?
A. Absolutely! Unemployment is high almost everywhere else in the world. On the European continent payroll taxes tend to run 30 to 40 percent. In Brazil they run in excess of 50 percent. The result in Brazil has been that large numbers of businesses have moved into an "informal" sector—a gray economy that operates largely outside the law. This situation invites corruption, uncertainty, and inefficiency—at the same time it discourages employment.
Underutilization of human talent is a global curse: A worldwide policy shift to encourage job creation is long overdue. It would reinforce the efforts in individual countries like the United States. On the other hand, success in the U.S. would set a precedent that should go a long way toward bringing about a global change in perspectives on employment and economic growth.
It is worth noting that a number of European nations, including Sweden, Belgium, and the Netherlands, have or are seeking tax-system changes that would increase employment by reducing or eliminating the tax on labor and help protect the environment by taxing the use of natural resources and the generation of harmful emissions.
Q. How will the tax shift help me if I am already retired? Won’t this just increase my living expenses? As I see it, an energy tax and other consumption taxes will make my day-to-day necessities more expensive. And right now I don’t pay any payroll taxes at all.
A. There should be no increase in the cost of goods and services in the economy overall. Some product prices may increase slightly; some may decrease slightly. However, because there would be a lower overall tax burden, the cost of goods in general would decrease.
The biggest and most threatening expense facing most older people today is the cost of health care. Our proposed tax shift should result in a reduction in the cost of labor-intensive health care for those who need it. But, as noted above, older people who work are healthier than those who do not. Thus, the health care costs of older people who choose to work would likely diminish and the resource available to support the needs of all beneficiaries increase.
Our tax-shift policies would further make it possible to expand and fully guarantee the country’s social safety net benefits. With an increased tax base and a reduced draw on public revenues, the government will have the opportunity both to reduce taxes and to boost social expenditures—not least to those most devastated by decades of poverty and marginalization who need intensive intervention.
Q. I am retired but only want to work a few hours a week. I like to volunteer. How will this plan affect me?
A. You can continue doing the work you enjoy on the schedule that suits you. It is worth knowing, however, that the increased demand for labor will make your services and skills even more valuable; therefore, there may be newly created paid jobs that might suit you and that you might find attractive. Under our proposal, you would be able to work as many hours as you like, and with the new federal law now amended, you will not have your Social Security benefits cut. The changes we propose would specifically encourage and reward your desire to contribute.
As we mentioned earlier, too many young people today—even toddlers—are deprived of meaningful relationships with caring adults. We see a pressing need for older people like you to connect with children—as mentors, friends, and role models. Think of all the experiences you have had in your 60-plus years and the wisdom you could impart to a receptive youngster, not to mention the pleasure you would have in doing so. In fact, we can’t think of a more socially redeeming activity.
Q. How will those who advocate consumption taxes as a way of encouraging savings and investment view the tax shift that Get America Working! is suggesting?
A. For the most part, favorably. The "non-labor value-added tax" cited above would be a powerful consumption tax, but one that does not discourage employment. There are many other natural resource-based taxes that would, in effect, be consumption taxes—ranging from the energy-inefficiency tax to the annual auction of pollution emission rights.
Arguments in favor of increasing the country’s taxation on consumption include its ability to encourage savings and its applicability to the broadest possible range of people (even those who currently avoid income taxes). On the other hand, consumption taxes are generally regarded as regressive. However, consumption taxes are far less regressive than the payroll tax, and their imposition, along with doing away with the payroll tax, would certainly result in a tax system that is reliably far more progressive than the one we have today.
Q. How is business likely to react?
A. Business would benefit from a number of key aspects of the policies we propose, including the tax shift. First, our proposed tax shift will result in a net tax reduction. As the tax shift corrects the price distortion that has built up over the last five decades (a distortion that has encouraged overuse of natural resources and discouraged employment), the economy will grow more rapidly. The overall output of goods and services will increase; the public and private costs of supporting dependent people will decrease; and the social dysfunction costs associated with mass unemployment will also decrease. A bigger tax base coupled with smaller government expenditure will permit a net tax cut.
Second, the tax shift favors companies that rely more heavily upon labor than natural resources. Fast-growing companies in the high-tech and information industries, for example, tend to have these characteristics. Such firms will benefit from
(1) larger margins,
(2) a fewer social dysfunction and dependency costs
(3) faster material economic growth,
(4) lower overall taxation, and
(5) their own market-capturing rapid growth.
Third, business will further benefit from lowered private costs for dependency and social dysfunction. Unemployment payments will be lower, for example. It is also highly likely that in a sustained strong-growth economy, with more people employed, business will see fewer discouraged employees, fewer alcohol and drug problems, and declining absenteeism. Moreover, private security costs for businesses should decline when the overall crime rate drops as more people go to work.
Depending on the nature of the natural resource taxes, certain industries will be net losers, at least in the short run. However, even some natural resource intensive industries may ultimately benefit. Electrical utilities are one example. As the economy expands and industries grow, so will the need for electricity. Greater and faster growing demand should more than offset the cost of any tax on the natural resources they use may impose.
Q. How will organized labor react to this idea?
A. Organized labor cannot successfully increase wages in a market with a massive overhang of labor supply. That is the heart of labor’s strategic problem today. This oversupply of labor also largely explains why organized labor has declined as a force in America since the 1940s—the last period in which the job market was relatively tight.
Historically, organized labor’s strategy has been to tighten the labor market by supporting programs that reduce the supply of labor (Social Security, education, and welfare are all prime examples). Several thoughtful leaders in the labor field have recognized that this strategy is now failing. In response to a slow-growth economy, society has cut back these programs of labor-supply reduction, not expanded them. Welfare-to-work programs are shrinking the welfare rolls and turning former welfare recipients into labor force participants. Pressure on Social Security has led Congress to raise the full-benefit retirement age to 67 for people born after 1967; this will keep many older people in the labor force who otherwise might have retired.
Given these historical and current forces, the best way that organized labor can regain strength is through the adoption of policies that will increase the demand for labor. Organized labor, a highly decentralized movement, is likely to find it difficult to make such a fundamental strategic shift quickly. Moreover, many labor leaders are nervous about suggesting fundamental changes in the tax system—particularly in a political climate that has left labor feeling weak and under attack.
Q. What have economists said about these proposals?
A. Over the past 20 years, Get America Working! and its predecessor organizations have worked with many leading economists to develop these proposals. We have received strong endorsements from many American economists and social leaders.
"The Get America Working! approach would work, in effect, by correcting a major price distortion. The current U.S. Internal Revenue Code taxes employment far more heavily than it does the use of natural resources. This distortion has grown progressively worse as payroll taxes have grown. Revising this distortion would increase employment, equity and overall economic vigor importantly. And it would do so by responding to market price signals, not through clumsy and expensive government interventions."
Frank P. Ramsey Professor of
John F. Kennedy School of Government, Harvard University