Telling truth to tax reformers

Unfortunately, the employment crisis President Trump evoked in his speech to Congress is not fake news; it’s very real. But there is a way to avoid all the old fights and turn it around.

Mass joblessness exists notwithstanding low official U.S. unemployment. The President told Congress an under-recognized truth when he said, “Ninety-four million Americans are out of the labor force.”

{mosads}That alarmist-sounding number comes from the latest Bureau of Labor Statistics employment report.  But the full picture is even worse. Add the 7.6 million officially unemployed to the 94 million defined as out of the workforce, and you arrive at an appalling fact: Over 100 million working age Americans — 40% of the civilian adult population of 254 million — don’t work.  Of those who do, many work part-time or seasonally.  Only about half of working-age Americans have full-time jobs. 

What about the other half? Some are happily retired, and some can’t or don’t want to work. But some 85 million don’t work because, since there are no jobs, they don’t have the option. The fact that they are thus denied the chance to pitch in badly hurts both them and the economy. This is unacceptable and unsustainable; it can’t go on.

Intuitively, all of us, from Sanders volunteers to Tea Party activists, know this is true. We also all know that America would be a far richer and better place if the 85 million without work who would love to step up were given the chance. They would be healthier, happier, and independent. And everyone else would no longer have to pay the huge sums we now do to support today’s mass dependency.

And yet, despite endless rhetoric (remember Bill Clinton’s “It’s the economy, stupid”?), nothing has changed in decades. The proportion of Americans not working has by and large not budged since the 1950s.  Why?

Stuck in an old mindset and frozen arguments, we haven’t been able to see the waste and pain caused by denying so many tens of millions a job, let alone new approaches that could end this impasse. But one exists. If we lowered the price of hiring people and raised the price of the other input to production, which is things — specifically energy, materials, and land — we would hire more people and cut waste and pollution.

The best way to do this would be to phase out payroll taxes and substitute budget-neutral taxes on things. That would instantly make hiring more people 30 percent less expensive compared to consuming things. This simple price signal entails no debt. It creates no bureaucracies with their delays, possible corruption, and choosing winners and losers. It would generate roughly 45 million full-time new jobs and associated economic growth, and it would be one of the best things we could do for the environment.

That would be a big win for a wide range of constituencies: most businesses, labor, the environment, and underemployed groups including older people, youth, people with disabilities, women, people of color, and immigrants, as well as anybody who cares about them. It’s a potentially massive alignment of interests.  

That’s why the “tax things, not jobs” principle has broad support across the ideological spectrum.  It can also be applied more narrowly. For example, the idea of a Border Adjustment Tax, a variation on the Value Added Tax most other countries impose, is much discussed as both a revenue raiser and a way to help American exports (exempt) and hurt imports (taxed). Why not make it a non-labor BAT? Then the tax itself creates jobs both by helping our exports and by lowering the comparative cost of hiring.  One could further increase employment by using the BAT’s revenues to cut payroll taxes.

Bill Drayton is the chair of the non-partisan policy group Get America Working! 

The views expressed by this author are their own and are not the views of The Hill.