JOBS — HOW TO GET FULL EMPLOYMENT IN A YEAR What the government should have done but of course…didn’t do! Picture this: You have an important meeting to get to, you go to your car and it’s got a flat tire. So…you start working on your windshield wipers. People will look and see you working on your car and figure you’re taking action. But in reality, you’re going nowhere until you change the tire. That’s a great analogy for what’s happening in government right now, fiddling with the windshield wipers while the tires are flat, going nowhere. Here are the problems and how to fix them and get full employment in a year. The cost of hiring: I have a client, let’s call him Bill. He’s a contractor and just landed a nice contract that will keep him busy well past the summer. He needs to hire three laborers, wants to pay them $12 per hour and wanted me to figure out the total cost: Here’s what Bill will have to pay for each worker in addition to the $12 per hour: Social Security taxes Medicare taxes MTA Tax New York State unemployment Federal unemployment Workers compensation (This is a huge cost, by far the biggest) Mandatory NY State disability insurance Increased liability insurance. By the time you add everything up, the cost of each of Bill’s potential workers is an additional $9 to $11 per hour, not counting additional accounting and other costs. And that’s without one dollar of benefits. Now Bill can only afford one worker, yet he still needs three for the job. I saw Bill the other day. He had three guys in his truck and I bet he pays all three off the books, adding yet another peg to the vast underground economy. The underground economy hurts us all and I never in a million years would recommend that he hire people off the books. Yet it goes on all the time because small business, struggling to survive can’t afford the ridiculous costs of hiring someone. So here’s what the Feds should do: Instead of spending billions upon billions on projects that produce little results and only benefit some congressman’s district, or wasting it on bailouts, apply these funds to reduce the costs of employment. Subsidize Workers Compensation, Disability Insurance and Federal and State Unemployment Insurance. Make it affordable to hire someone, stop forcing people like Bill to pay workers off the books. Bill is an honest person like most small business owners, but he’s facing survival. It’s been said that small business is the engine of job creation, so let’s stop pulling the rug from under them and actually help them, and we’ll see unemployment drop faster than a boulder off a cliff. Reduce the corporate tax rate: The problem with reducing the corporate tax rate is that politician always say, “we should give tax breaks to the poor and middle class instead.” That sentiment that has no basis in reality. The poor don’t pay taxes and don’t create jobs. They get money from the government through the IRS, it’s called the Earned Income Credit. The middle class will greatly benefit from profitable, competitive American business, they will realize benefits from an abundance of jobs and a steady, profitable stock market for their 401(k)’s. Japan, China, Korea, Europe, all not only have lower tax rates for their corporations, they often subsidize them. In the case of China, they manipulate currency so their goods are cheaper while ours are more expensive. Japan is notoriously restrictive for American goods and have terrific breaks in place for their corporations. What do we do? Tax the heck out of ours with a resulting high national trade deficit. I know that’s not the only factor, but it’s certainly a significant one. But that’s not the only thing we should do. Along with lower corporate tax rates, comes greater responsibility for job creation, so we should implement the “Carrot & Stick” method. The “carrot”: Generous jobs tax credits & incentive: Incentives works. That’s why salespeople are paid on commission. We should immediately institute generous tax credits and other incentives for hiring people. It should make sense to hire people and the only way to do that is to make it so it improves the bottom line; net profits! And by the way, people working pay income taxes, social security taxes and medicare taxes thus reducing the problems in those areas. The “stick”: Tax penalties for sending jobs overseas and not hiring people domestically: Here’s the problem: If a company needs an engineer, and it can get one in Bombay, or Beijing for $12,000 per year instead of paying $60,000 to hire an American in Iowa or Long Island, what do you think it will do? That’s why most tech lines and customer services numbers are manned by workers in foreign countries getting paid a fraction of what an American worker would get. However, if that company loses a $20,000 tax hiring incentive, and has to pay a $40,000 penalty for farming out that job overseas, now what do you think would happen? Sure all this will cost. But look how much we’re spending now, and what are the results? 10% unemployment for three years and no end in sight! With some common sense application, we can do much better. Patrick P. Astre, CFP, EA, RFC is a financial author, advisor, and Enrolled Agent representing taxpayers rights before the IRS. His office is on Rt 25A in Shoreham and he welcomes your questions and comments. You may reach him at his office 631-744-9100 or his website www.prosperousboomer.com and subscribe to his newsletter through the website.