Seemingly every day politicians propose massive changes to U.S. taxes, laws, and budgets in order to “create jobs” (the politician will take the credit, presumably, if a small business owner decides to take the risk (and endure the paperwork) of hiring an additional worker; yet another cruel irony of doing business in the U.S.).
I’m wondering if a big impediment to job creation is in fact all of the talk about grand job creation schemes. Suppose that you own a business and you’re told that within a few months there will be some dramatic change in payroll tax rates, tax credits available for hiring new workers, etc. Would you hire people right now or wait until the dust settles and you know what the tax and regulatory environment will look like? (Debating tax credits for new workers seems like a particularly destructive activity; why hire a new worker today when, if you wait a month, the government might pick up most of the cost?)
A politician who proposes a 10-point “job creation” plan may be ensuring that few jobs will be created until all 10 points have been debated by Congress, passed into law or not, etc.
[Separately, this weekend I stayed with friends in California. I asked how one of their sons was doing. “He’s doing great,” they said, “with lots of work helping U.S. companies expand their business in China.” I replied that this was great news and that he should be congratulated for helping to pay for Social Security, Medicare, our various wars, etc. “Actually he’s not going to be contributing much because he renounced his U.S. citizenship and is now a citizen of Taiwan.”]
Occam’s razor cuts this quandary: the main reason businesses aren’t hiring is that they don’t have the work for new workers to do, and their sales are not increasing sufficiently to expect the work to show up. No work, no workers. Simple.
In a way, I think the state of the laws actually constitutes a filter controlling which people set up businesses and hire others as employees.
My nature is such that I have never been able to imagine hiring even a single other person, in view of the thousands of laws that would instantly come into play. How could I, who am not even a lawyer myself, possibly hope to know what the law dictates and forbids? Yet it is a well-known dictum that “ignorance of the law is no defence”. In a world where even experienced lawyers admit that they can’t keep track of the refinements of employment law, how can a layman dare take such an enormous risk?
Yet the evidence of my eyes shows that thousands of people do actually take those risks every year. The only explanation I can think of is that they have a more sanguine, less anxious nature than I do.
Well the problem is, that we’ve learned if politicians speak of “job creation” or anything else and how positive it would be. We know, there’s a new attack on our purse ongoing.
And we learned also the louder the speeches grow, the more expensive it will get.
Not sure this is a smart move. Good luck to him once China takes over Taiwan. Paying US taxes to keep citizenship may be a good hedge against political risks in China.
http://news.yahoo.com/top-chinese-wealthys-wish-list-leave-china-065826880.html
Robert is correct. Phil’s friend’s son is simply an example of a tax dodge by someone cynically unwilling to pay his fair share. I have known a few people, including one cousin, who renounced their US citizenship (not all in favor of Taiwan, though my cousin did claim Taiwanese citizenship) for the purpose of avoiding US taxes. At least two of them, to my knowledge, later sued for their US citizenship to be re-instated after things went sour where they went. To my amazement, the US accepted them back.
Phil — you have direct experience with the headaches of opening a small business in the US, but why do you think it is necessarily better anywhere else? I have family who run businesses in Taiwan and China. It is probable that the official paperwork and legal environment there is less onerous. However, they tell me of the extensive network of under-the-table payments (i.e. bribes) they need to maintain to be allowed to operate, so the unofficial burden appears to be quite onerous and expensive.
Mark: Unwilling to pay his fair share? The kid lives in Taiwan and works mostly in mainland China. What would his fair share of supporting the U.S. government be? And which state and local governments does fairness compel him to support?
Is opening a small business easier in China? I don’t know. With 8-10% annual GDP growth the rewards may be much larger so it would still be worth it even if the initial effort is the same or greater. Anyway, this young guy has plenty of work where he lives and he might well be unemployed here in the U.S. I don’t know why what he is doing is reprehensible compared to, say, a young person who moves from Michigan to Texas in order to get work.
Yes, I heartily agree that governments would do well to get out of the business of trying to manipulate the economy with mysterious programs with no proven outcome. Government running/owning businesses and some of the grand schemes Phil alludes to are confusing for investors and in many ways counter productive – of course these stabs-in-the-dark are very political. The wellbeing of political parties has seemingly trumped the wellbeing of America and Americans.
Perhaps influencing the interest rate with monetary policy is productive. But the biggest bang for the buck comes from fiscal policy – tax increases for the top earners and spending on infrastrure. The govenment’s main task, in terms of the economy, is to try to create surplusses during good times and spend like drunken sailors during tough times. If the govenment attempts to pull the country out of recession by drastically cutting spending (reverse investment) to balance budgets now, what kind of (private sector investor) fool would want to invest in an economy that even our own government will not invest in?
Much of the infrastructure in America is in shambles, unsustainable or non existant (consider the state of mass transit) – SPEND now, spend big. It would seem to me that, not only would this massive spending provide real wages through real jobs and improve the country and the psyche of the working citizen, it would also signal to private investors that this country is not on the brink of collapse but is a safe and vigorous place to start or build a business.
Roberto: Build more infrastructure in the U.S.? Wouldn’t it make more sense for Americans to invest in infrastructure in growing economies such as China, India, and Brazil? There is a much better return on investment building a new airport in a city in China that currently has none than in renovating a terminal at an existing U.S. airport.
Sorry Phil you are wrong, you must replace depreciated goods. Because you obviously need them for production. If there are not streets (just an example) it will be a hell much more expensive to transport goods. If you close some airports the ways to the next one will get much longer and more expensive. This holds for every country, I also can not understand your enthusiasm for China. Go there write something like this blog there and you see what you’ll get.
Nostradoofus immodestly asserts that he solved this problem 18 months ago in his post, “How to create 5 million jobs overnight”:
http://nostradoofus.com/2010/02/12/how-to-create-5m-jobs-overnight/index.html
A huge percentage of US employment is at businesses with just one or two employees. By implication, the greatest impact would be to convince sole proprietorships or tiny businesses to hire just one additional employee. But these are the employers least able to understand and manage the morass of employment law, weekly tax filings, liabilities, and constant changes therein. The solution is to make that complexity go away, for just those smallest employers.
The economy goes through changes over a period of time. Recession and expansion are both signs of a healthy economy. In a recession, companies sell less so they have less money and less work for new workers to do. The politicians try to come up with grand schemes and tax incentive but the truth is the government can control job creation only through direct spending on major infrastructure projects. Tax incentives, unless they are significant, do little to create new jobs. it may even hinder job growth because it could cause complexities in tax regulations.
Agree with Hicham: regulatory complexity/uncertainty is a much bigger problem than tax levels.
Saving a few bucks in payroll tax is immaterial next to the potential of saving 50 hours a year in evaluating health plans, 150 hours a year preparing returns for 4 separate taxing agencies, 50 hours figuring out what kind of liability/workers comp/other policies are legally required. I would pay higher taxes to see these streamlined.
I needed to add that government could try to streamline the whole tax process and make it easier on small companies. They could use a template system in which each company president knows exactly where they stand and what they have to pay.
The less time people spend trying to figure out the system , the more they will spend trying to grow the business.
I also think that the government follows any plan they put in place with a vast advertising company explaining it to the general public.