Taxes and Incentives for Job Creation

In the Terry Pratchett novel “Witches Abroad”, he sets up an image of “the optimist’s fire”, which he then defines as “two logs and hope”. I bring this up because I’m seeing people who desperately want to be seen as hard-nosed and fiscally responsible proposing the optimist’s economic booster: tax cuts and hope.

Cutting taxes on industry (and regulations, too!), it is said, will finally bring about job creation and get the economic fire burning once again. I am afraid that I’m not seeing the causal link here. Our corporate citizens have plenty of money on hand, various estimates putting those cash reserves in the trillions. It’s not like any tax cuts are contemplated on that scale, so that leads to the vexing question of why jobs aren’t being created now? If they are worried about consumer spending, tax cuts for businesses don’t address that at all.

Well, having said that, I would propose a tax cut for businesses. But I am not proposing an across-the-board tax cut. No, I think that there should be a tax incentive for businesses that create new jobs. If you have a business and are bringing more people into the workforce than you did the year before, your business should get a break on its taxes. If you have a business that is standing pat on jobs or shedding them or outsourcing them, then, sorry, but no tax break for you. Probably this would have to have some metric that ties together both number of jobs and total compensation per job. The right incentive structure will reward companies more for better-paying jobs, and less for low-paying job creation. But that’s a refinement to be considered after getting more people onboard with the big idea.

This puts the right outlook on using the tax code to influence business: it makes clear what behavior is needed to take advantage of the tax incentive, and makes clear that until that behavior is actualized, there is no corporate handout in the offing. It rewards the corporate citizens who are making things better here in the USA, and withholds benefits from those who seek to cut labor corners or send jobs overseas. It means that we aren’t cutting our own economic throats to no better purpose than padding executive bonuses, which seems to be all that we’ve gotten out of corporate tax-cutting in recent memory. It would mean that we are applying a lighter where it is needed rather than hoping that a fire will start on its own somewhere, somehow. And, best of all, even if it doesn’t work and most corporations refuse to create jobs anyway, we haven’t burdened the rest of the taxpaying public unnecessarily.