July 2011
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Day July 31, 2011

Simple Ways to Address Debt, Create Jobs, and Improve U.S. Financial Credibility

When the debt ceiling discussions began, months ago, the country appeared to be split between two contrary opinions.  Most conservatives had become convinced that the U.S. was “broke,” and that only immediate and titanic cuts in spending could possibly save us.  Most liberals were convinced that “debt and deficit” problems were not real, and were simply a ploy for conservatives to cut spending.

Although there still seems to be widespread confusion about the issues at hand, it seems like the general public has learned a good deal in the runup to the Aug. 2nd deadline (if not as much as one would hope).  We’ve learned, for example, that sovereign debt ratings, not just our ability to borrow, are important — and at stake.  We’ve learned a good deal about the sources of our deficits and debt — even if we still disagree about how to handle them.

I find, in talking to liberals and conservatives on this issue, that certain simple — but effective — ideas can appeal to both sides, without being caught up in the “grand narratives” that characterize each side in our Congressional stalemate. One of them, the idea of tying job creation to overseas tax repatriation holidays, I discussed in a previous post (and will simply list here).  But there are others, and I would like to suggest that implementing even one or two would radically change the game, by changing the confidence level of citizens, companies, and the world in our ability to address our issues.

I would further suggest that our largest problem today is not a crisis of confidence about U.S. indebtedness.  Americans and the world at large lack confidence in the ability of Americans to govern their way out of the problem.  The global markets, and the bond market in particular, want U.S. sovereign debt to remain the risk-free benchmark, and despite occasional posturing, nobody is eager to displace the U.S. dollar as reserve currency, given the uncertainty and dislocation that would inevitably create, during a time of sluggish economic growth.

What we need to demonstrate is not, I would suggest, a complete solution to our deficit and debt problems, but a credible start and follow-through.  President Obama has been talking about “significant downpayments” on deficit reduction for precisely this reason.  It’s not a new idea.  It’s also the strategy of every consumer with significant debt — you can’t simply tell the credit card company you’re trying to make payments, you have to establish a track record of actually doing it.

There are reasons, of course, that the party “out of power” would try to block even simple, common-sensical ideas.  Winning the next election means not giving up points to the other side, if possible.  But I hope we’re close to the point where Americans start demanding progress and solutions — not the ultimatum-style “solutions” we’ve seen daily in the debt ceiling “negotiations,” but concrete steps.

Here are a few that seem to have bipartisan appeal, in my discussions with folks lately.

A common sense idea about “tax holidays”

We appear to be on the verge of a deal to raise the debt ceiling, and there seems to be a chance that it’ll contain some things that will horrify many working people and most Democrats.  One of these is a “tax repatriation holiday,” in which corporations who have profits “stashed” overseas, can bring those profits back into the U.S. tax free.

In the last few days, I’ve had conversations with conservatives, and I think there’s a compromise position that appeals to both sides, appeals to patriotism, but “gets something in exchange” for the tax holiday.  Which would be a good thing, because despite the rhetoric, we all know that American companies are not going to automatically turn around and use the profits to hire Americans.

The reason we know this is that they have plenty of profits onshore, and they haven’t used those profits to hire many people, either.  For a simple reason — the economy lacks sufficient demand to require new hiring.  This has been exhaustively covered elsewhere, so I won’t bore you by repeating the evidence.

So, if we want jobs in exchange for a tax repatriation holiday, here’s how we do it.

Under a program which automatically sunsets (say, 5 years, but that’s negotiable), American companies are allowed to repatriate profits tax-free, for each new job created in the United States.  In order to create incentives for full-time jobs, capable of supporting a wage earner and their family:

  1. For each new job created, a company would be allowed to repatriate a multiple (M) of the fully burdened cost of the employee.  “Fully burdened” means wages and benefits — the total cost of having someone on staff.
  2. Each job would be eligible for the repatriation credit in each year the program existed, perhaps at a declining modifier.  This creates incentives to keep the jobs created, and not lay them off on Day 366.
  3. Attaching the credit to the fully burdened cost, rather than the salary alone, creates incentives for companies to create full-time jobs that carry benefits, which are essential to ensuring that jobs can support families.  Indeed, the better the benefits a company provides, the more profits it can repatriate.
  4. Also, using the fully burdened cost allows the plan to work easily in those industries with union contracts, since it does not specify anything about the structure of compensation.

There are obviously details that need to be worked out.  What is the multiplier?  How long does the program or credit last?  Should we simply keep a program like this in perpetuity as a means of allowing global trade to be “open” but still incentivize domestic job creation?  Should the repatriation by completely tax-free in year one, and at a steep discount off normal tax rates in future years?

The main outlines sound fair, and even patriotic.  And it’s a mix of liberal and conservative ideas.  From my initial discussions with folks, the idea seems to appeal to both sides, and sounds “fair” both to companies and to the country.

Kick it around a bit, share it with friends, and tell your Congressperson about it.