The contentious standoff between the president and the Republican House has completely stymied creative proposals to increase jobs in America. The key to job growth lies not with federal and state government programs, but with effective tax policy that encourages American corporations to begin to hire.
Up to this point, Democrats have been focused on government stimulus and have virtually ignored the potential of American businesses. Republicans, on the other hand, seem to only care about the deficit and its impact on our economy. Neither party has suggested any encouragement (stick or carrot) to facilitate business expansion.
My suggestions assume that the massive accumulation of cash by corporations domestically and offshore is the key to breaking out of the current economic malaise. Jobs created by corporate America are longer lasting, higher paying, and more impactful than federally-funded work programs. We must unleash the power of our corporations and incentivize them to spend accumulated cash in the U.S.
Estimates by some indicate that there is over $1.84 trillion of cash and equivalents on non-financial American corporate balance sheets. American companies have $1.2 trillion of profits in offshore companies that are sheltered from U.S. taxes.
The federal government should enact legislation to encourage capital investment, reduce corporate taxes, and decrease offshore cash accounts. The ultimate objective would be to increase employment, as new plants and equipment need to be manned, and to repatriate cash that will be spent in the U.S.
Throughout the last century, Congress has encouraged capital spending to increase employment. Therefore, it is somewhat perplexing why the current Congress has not followed suit. An investment tax credit equal to a meaningful percent of the cost of new equipment would have a huge impact on employment and decrease corporate taxes.
A decrease in corporate taxes based on new employment by corporations would be another effective tool. Higher corporate wage costs would be partially offset by a tax credit that effectively reduces corporate tax payments. And hopefully this incentive would decrease the number of jobs being transferred each year to countries with cheaper labor costs.
Finally, to encourage repatriation of offshore funds, Congress should begin to tax corporate cash accumulation in foreign subsidiaries of U.S. companies. The threat of taxes on this cash, if it were not repatriated, would encourage corporations to bring it back to the U.S. This would trigger normal taxes on the money that would have to be paid someday in any case. Corporations would rather delay this event but would be forced to move the money or incur additional assessments.
Our government is broke; it cannot support another stimulus program without increasing the deficit unless it institutes new draconian taxes which could not pass the House. Corporate confidence would increase with the implementation of strong economic policies that decrease regulations and provide incentives to encourage more spending on capital assets, which must be matched by higher employment.
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