12 December 2013

How to Fix America

We’ve got a moment of possible momentum here.  The unemployment rate is about to head back down into the 6%’s for the first time in five years; non-farm payrolls heading into the +200-thousand’s per month.  Housing - the thing that caused all this mess - has for about a year been in a real recovery now.  A bipartisan budget deal is on the table and the Speaker for the first time in a long time seems done with the more radical fringes of his party that have so paralyzed Washington, in my view.

The iron is hot.  I have been developing some ideas about how to set the course for our nation’s present and future.  I know I am but one voice.  But for those who would listen, this is what I propose we do.

There are way too many underemployed in this nation.  Although the trend has only briefly possibly begun to change, most hires in the past few years post-crisis have been into low-wage, low-skilled jobs.  Many of those hires however have skill-sets much more developed than their new job requires.  We have structural employment problems tied in no small part to business' reluctance to truly expand given sociopolitical uncertainty.

So I propose that we offer tax credits to small businesses (say under 50 or 100 employees) for hires above a certain pay-grade.  Why small business?  They are where most entrepreneurial activity occurs. Small is by nature poised to grow faster than large.  They are small enough to offer for their employees the fastest upward promotion mobility.  They are more invested in their employees, as each is that much larger a piece of their business. (Plus the business owner actually bumps into them weekly, if not daily, so it’s more of an emotional investment in each employee.  How often does that happen at IBM?)  They are the best place to cross-train and thus more broadly develop new skill sets.  They have a disadvantage to accessing capital markets versus large firms, so helping that lower common denominator improves the situation for all.  They are a large portion of business anyway – 50% of those employed in the US are at firms with under 500 employees each (35% under 100).

How do we pay for it?  It pays for itself.  We can nail down the numbers later, but for instance, say you hire a mid-level person for $45,000, versus a lower-level person for $28,000.  Or just promote her.  For individuals with no dependents using the standard deduction, $45,000 will pay about $9,100 in federal income and payroll taxes for 2013.  A $28,000 income would pay about $5,000.  So the $45,000 income pays $4,100 more taxes to the federal government.

If we offered a $4,100 tax credit to companies that hire people for $45,000 or more, it’s revenue neutral because we’ve moved someone out of a $28,000 taxpayer position into a $45,000 one (if not created a new one entirely out of thin air, which would be a revenue add, and an expenditure cut from no more unemployment insurance or food stamps or home heating assistance, health care credits, etc.).  And we can scale the credit up, for the higher the income (up to a point).  We can put safeguards in to protect the duration of their employment as well.

Yes, the employer is paying $18,100 more for that higher wage employee ($45,000 - $28,000 = $17,000, plus $1,100 more for the employer’s share of higher Social Security payroll taxes).  But the end result is, we are incentivizing business to expand; to use that pent up cash and invest in the projects they’ve been wanting to for a few years now.  That ultimately requires higher wage workers.  So we are offering them the incentive to take that shot and hire up where they previously would not , and receive an almost 10% reduction in the cost of higher-wage labor (the increased $18,100 labor cost is a tax shield anyway, because it's an operating expense deductible from pretax profit).

Second, I propose offering tax credits for those businesses that hire our Veterans.  We owe them far more than an ovation at the State of the Union or a pat on the back in the bar (or making them wait a year or more for their benefits).  These people already have the discipline and adaptiveness that, if hired, would raise the bar and set the standard for your other employees (making your employees a little nervous about performing to the best of their abilities is something I know every employer would appreciate).  Our Veterans don’t want a hand out.  They just want to work at the highest wage their skills can attract.

How do we pay for it?  Even during the so-called “sequester” (forced budget cuts due to failure of Washington to come up with budgets), we’re still spending ~$600-700 billion in defense and security.  We can’t find anything in there to offset this?

And to anyone pro-Defense that balks at cutting Defense budgets, I would humbly submit that we fought decade-plus long multiple engagements with no draft, forcing much higher numbers of redeployments than otherwise.  Our Veterans and those still actively serving, as well their families, are the ones who subsidized that for us with their above and beyond commitment to serve.  So I think the Defense Dept. – indeed all of us – should put some sober thought into finding how we can truly give back to them.

We can further incentivize businesses to add higher-wage employees and/or Veterans by offering them the ability to secure lower-interest loans, with implicit government sponsorship if they do so.  That gives them better access to capital markets to expand business.  I heard someone propose that the Federal government pick up the school loans for those that give two years of public service.  I like that idea as I think our younger people should have more skin in the game of our society, but I would submit we marry that idea to offering credits or loan support to businesses that hire them.

And finally, yes, let’s raise the minimum wage to ~$8-9 per hour.  But only after the unemployment rate drops below 6%.  This will incentivize those more liberal elected officials to pursue pro-business reforms.  And businesses should be healthy enough at that point to absorb the higher labor costs.

If we can get unemployment to or below 6%, with higher wage jobs, employ our Veterans, put more cash in the pockets of those who really need it, get the next generation more civically involved; and during a period of real, significant, sustainable job growth, then we have a whole lot to look forward to.

At that time, we can explore whether we need to raise taxes to reduce debts and pay for the rising social subsidies we’ve promised everyone.  And/or right-size those subsidies for future generations to a level we can afford.  Reform and simplify the tax code.  Close loopholes.  Lower Corporate tax rates.  Incentive our K-12 and secondary educational systems to promote math and science.  Explore public-private partnerships to nurture new technologies that will spawn the higher wage industries of America’s future.  And rebuild our infrastructure along the way.

All we need to do is get along, and it’s as good as done.


  1. Like Neil Degrasse Tyson says, the entire 50 year running budget of NASA is less than 2 years of military spending... and this during peacetime. I think cutting defense spending is a no brainer. Take that cash and invest it directly in educational programs. As far as the incentives for small businesses, I agree, but only from the standpoint that it sounds like a good idea to someone who knows almost nothing about macroeconomics!

  2. Tyson is by far the coolest physicist I have ever known. Except for that he killed Pluto, rendering that entire segment of my K-12 education useless. But I will bare that cost for the sake of progress. And by cutting defense spending, that should not mean forcing those that serve to pay more into their pensions. Like what is apparently in this latest deal to form a budget for the first time since April 2009.