Paul on August 12th, 2014

Half Moon Bay ParadeMain Street is still the heart and soul of America. It is a place where democracy is in full bloom; where people can disagree but still honor the essence of a free nation; where we vote to resolve local issues and win or lose we still close ranks and move on as neighbors and friends. It is America at its very best. Main Street is a practical place where solutions trump politics; where new, untested ideas are openly discussed and responded to on their merits, not through a “permission slip” in the form of dollars from a lobbyist or upon command from some third party in the state capitol or Washington, DC. It is a genuine and cherished part of this country and maybe every now and then we should listen to what it has to say since Main Street America is still the largest stakeholder in the fate of this increasingly fragile democracy.

Sometimes we get so caught up in family matters, we lose our ability to grasp solutions to problems that affect the ones we love the most.  The current never-ending struggle to stimulate our economy is one such example on a grand scale even if the national family is a tad dysfunctional.  But because we are so irrationally angry with each other thanks in part to very high-salaried people across the political spectrum who are paid big bucks to create divisiveness and gridlock, we rarely engage in substantive civil discourse. Hatred, we have learned, is a growth industry!  Those around the globe who wish us ill, admire and applaud these home-grown purveyors of national discord.  We have become so intent on winning an argument that we fail to listen to the substance of the “discussion” and the possibility that there may be something of value in the approach of our fellow citizens.  We constantly deal in absolutes replete with easy slogans and an underlying sense that if we believe in something it is by definition the right approach, an absolute, non-negotiable certainty. For instance, some of us believe that market solutions are the keys to economic recovery and that big government is bad and gets in the way particularly the one in Washington DC.  Others think that aggressive government action is the center-stage player to uplifting both the economy and the less fortunate.  Both outlooks may be right and both may be wrong.  Stalemate is the only outcome of such a dilemma unless we find a way to detach political labels long enough to look objectively into both the problem and the array of solutions.  Maybe it is time for all of us to turn down the volume and emulate Main Street America where people still talk to each other in a common search for answers.

In sports like Aikido and Judo we learn that the road to victory against a possibly superior opponent is to harness some of his momentum and convert it to our own advantage.  The two seemingly immovable and incompatible approaches in the current economic recovery struggle are free-market forces on one hand and an activist government on the other.  But if we stop talking long enough to listen to each other the answer may lie in both outlooks and we, as a people, have been deaf and blind to it.  There is and always has been a way to chart a new course toward a brighter economic tomorrow.

“Main Street” thinking might suggest what if…using the current corporate and business tax rates, a company can either choose to continue paying them to a government they may distrust or reduce them to zero by hiring full-time employees whose salaries and fringe benefits will be transformed into a dollar-for-dollar corporate tax credit applied to the taxes the corporation or business entity would have paid?  Off-shore workers’ salaries and fringe benefits, of course, should not be subject to this benefit nor should temporary or part-time employees or foreign nationals.  Undocumented workers should also not qualify pending new legislation relating to the path to citizenship.  But past performances might suggest that the promise of substantial tax credits often has a way of creating an attitude change.

If we choose to pursue the implementation of this basic paradigm, we will be able to tell which business entities are truly “patriotic” and which are not since any business that might reject this offer is probably making boatloads of money using off-shore labor at the expense of ordinary Americans in need of a job and ordinary taxpayers who must continue to fund unemployment benefits because of the lack of jobs.  If there is any truth to the claim that private businesses create jobs, this is the best incentive and the best way to prove it…a classic tax-barrier-free, market solution to a persistent and recurring problem.

If you do the math, the increased number of fully-employed people and the taxes and commerce they will produce will more than offset the loss of corporate and business taxes.  It is at worst a revenue-neutral proposal. Moreover, it puts corporations and other business entities in a philosophically tenuous position to be against something like this.  They will have to deal with a public who will know that the company chooses to go off-shore to avoid providing jobs for fellow Americans even if hiring Americans may not add to its bottom-line expenses.  Further, they will demonstrate unambiguously their preference of immediate profit over the long-term well-being of their fellow citizens and the nation’s economy.  Stuff like that doesn’t play well in the heartland or any other part of this nation particularly Main Street.

Creating and pursuing a policy that appears to leave the government out of the operational loop by corporate and business management choice but one that still profoundly benefits the government and the taxpayers in the long run makes sense.  In an unexpected way, it puts the private sector front and center as the voluntary solution to unemployment, not just another government program that some may view as a giveaway.

By fully implementing this model, the voluntary re-purposing the current $200 billion or so in annual corporate/business tax revenue, we could generate over 4 million jobs at up to $50,000 per hire (a suggested per-employee tax credit upper limit) with no negative fiscal effect on business.  It also removes much of the financial risk for established companies who may wish to innovate; to try something new and untested; something that has to be staffed by new employees with cutting-edge skill sets.  If companies elect to pay the new hires at whatever the going rate is now for a given job (most of which are below the $50,000 limit), the outcome could create even more jobs to the point of marginalizing the unemployment rate to nearly zero. The upside for business and the larger economy is that it produces over 4 million decently-paid employees many of whom may have families who are also tax-paying consumers.

We could make it an even sweeter deal for most Americans by putting in a proviso or two that stipulate if the company or any board members or senior management shelters or launders money in off-shore tax havens the company will not be eligible to participate in this program. The Cayman Islands and other choice locations should not be monetary “Laundromats” for American corporate or personal high-roller interests. It may also lure back into the fold the many corporate magnates and major shareholders who avoid taxes altogether which makes them appear to some Americans as tax-avoiding scoundrels.  Currently the amount of tax-sheltered money flowing world-wide is about $45 trillion or the equivalent of the GDP of both the U.S. and Japan combined.  This may bring some of that money back into circulation here in this country. It is, after all, tax evasion somehow magically clothed in ethical and moral acceptability. If the legislation does bring back some of those dollars, it will more than replace any short-term revenue lost by implementing this new approach. These qualifying requirements and maybe others such as a limit on the salaries and stomach-churning “bonuses” and severance packages for upper management (many of whom have been fired as abject failures) could create some interesting moments at shareholders’ meetings!

You don’t need Main Street to tell you that the current tax system as it applies to corporations and other entities is a travesty.  Since the 1950’s this is what has been happening.  Even with a statutory tax rate of 35% the biggest companies polled by a number of agencies pay an effective rate of only 12%.  This rises to 16.9% if one includes tax obligations to foreign entities that do business with these companies.  So despite all of the blustering from Wall Street and board rooms, our corporate world has one of the lowest actual tax rates among industrialized nations.  It is a testament to the “Rube Goldberg” nature of our tax system and the extraordinary skill of the many green-eye-shade types who so nimbly exploit it under the mantra of “out of complexity comes opportunity”.  Collectively, the effective corporate tax “contribution” has fallen as a percentage of federal tax revenue from more than 30% in the 1950’s to less than 10% today.  Here are examples of some of the more extreme corporate tax scenarios in this ongoing heyday of this-for-that relations with key players in money-driven election cycles.  According to the Huffington Post and others, the following pay no corporate income taxes:

  • General Electric on a profit of $28 Billion
  • PG&E on a profit of $7 Billion
  • Boeing on a profit of $21 Billion
  • Verizon on a profit of $30 Billion

Even if we use as a standard the current actual tax rate of 14% or so, these four companies would (should) collectively pay almost $13 Billion in the form of tax revenue or the equivalent of about 260,000 jobs at $50,000 annually.  If they paid “full freight” at 35% it would total about $30 Billion annually or using our plan about 600,000 decently-salaried, full-time jobs.

By recasting the corporate tax system in ways that encourage companies to invest in themselves and in America maybe they will spend less time, effort and money avoiding their financial obligations to a nation under whose protection and economic system their accumulation of wealth and its associated life style was made possible.

The tax benefit for the company under this plan will annually remain in effect until the employee retires or voluntarily leaves.  Thus if a company opts to hire a person for $50,000…as long as that person stays employed at the company, the business will enjoy the tax credit every year.  The benefit will not include replacing current employees who are forced to leave or who are dismissed for cause. Nor will it extend to employees making more than a to-be-determined maximum wage.  If a person hired under this provision stays with the company and enjoys a rapid salary increase, there should be a cutoff point above which the salary cannot be used to offset the corporate tax obligation.  That excess (only the amount of the salary that exceeds the limit) will be treated like any other employee and not be used to replace the corporate tax due. But the company can mitigate this by simply hiring another worker.  The plan will not extend to the first $50,000 of a new employee who will make an entry level salary at more than that base.  But this, reason might dictate, could be the source of some further discussion.  If the corporate tax bill or rate rises at any point, the company can easily offset it by expanding and hiring more workers if they choose to do so.  The benefit will not exceed the amount of whatever the company’s corporate tax liability is at any time.  This is the template that might have been be used to help extricate us from a severe economic downturn, not an unapologetic bailing out of the perpetrators who created a financial catastrophe.

Over the last five years, the U.S. spent over $500 billion in unemployment benefits and a lot more on the fallout from the despair created by millions of frightened, idle citizens seeking to merely survive. Prosperous people do not require endless social programs and correctional facilities.  This plan may eliminate most of the corporate and business tax revenue of around $200 billion annually but it will also reduce the unemployment “benefits/effects” tab as well by producing millions of new consumers and tax payers.  Reason and simple arithmetic would suggest that this approach is a win-win deal…good for business, good for the economy, good for the deficit, good for the idea of smaller government, good for the nation and good for the future of this democracy.  It is tax relief with an attitude!

This strategy, after all, is a pretty conservative approach (free choice, smaller government, federal support of business, market-based solutions and lower corporate taxes) with hugely progressive outcomes (jobs, equal opportunity, inclusion and upward mobility) on a scale no standalone government program could possibly equal. It is not an “either/or” proposition.  It is both and as such it could have a good chance of bi-partisan support and co-sponsorship. It would on Main Street and it should in Washington, DC.  Isn’t it better to have fellow Americans at your side instead of in your face?

The devil, of course, is in the details which must be worked out in Congress where details are all too often transformed onto a quid-pro-quo supermarket of “loopholes” and special interests.  It has been said many times that a camel is a horse made by Congress.  If Congress can keep the plan “pure” by focusing solely on national economic and social outcomes for everyone, then Congress may once again deserve our respect and admiration.  Passage will be a very positive example of how people of good will can marry what may appear to be two very different views of government and fashion a new paradigm, one that uses the energy and momentum created by each to great advantage for all.  That spirit could work in many other areas if only we were willing to close ranks and look for ways to combine different viewpoints rather than myopically rejecting an approach because a political adversary may have suggested it.  Finding ways to agree will preserve this democracy.  Simply dismissing an idea because it may have come from the mouth and mind of an opponent is the surest way to part ways with democracy and its endless quality-of-life benefits.

We have it within our power to usher in a new day. Maybe we should pretend that we all live and behave the way they do on America’s Main Streets where neighbors still meet as neighbors to confront problems as a community of friends.  All we as a people need to do is to acknowledge a real opportunity, seize the moment and together reignite what has for so long been a dazzling beacon of light for all the world, that complex, feisty, generous, often-enigmatic, high-achieving and innovative place we, all of us, still proudly call the United States of America.

Note:  The above piece was written in my office located on Main Street in a small California coastal town.

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