Tax Reform and Jobs

Plenty of government and financial scumbaggery went on over the holiday break. Some of the highlights include Obama signing Congress’s National Defense Authorization Act (NDAA) which stomps all over our Constitutional Bill of Rights. Financial derivatives broker MF Global and its CEO Jon Corzine filed a $41B bankruptcy claim which brought to light that they’d “lost” $1.2B in client money by illegally combining client and company funds.  And D.C. councilman Harry Thomas Jr. was charged with stealing $350K in government funds earmarked for youth sports programs in order to purchase, among other things, a luxury SUV and rounds of golf.

But that’s not what I want to write about today. There will always be liars, crooks, and politicians (or is that redundant?) to complain about, but how about another solution proposal instead? In fact, how about two solutions wrapped into one?

President Obama is crowing about the unemployment rate dropping to 8.5%, the lowest it’s been since February 2009. That rate is still above his promised 8% and of course, under-reported given that it doesn’t include the folks that have stopped actively looking for work. Businesses are complaining about our corporate tax rate that tops out at 35%, the second highest rate in the world. They state that this forces them to transfer and invest their profits overseas rather than keep them here where they can help our economy.  That 35% rate is also misleading since our tax laws include so many corporate loop holes that few companies actually pay that rate. Instead, they use creative accountants to help them retain more of their profits, doubling the problem for citizens. Companies have less money to hire and pay US workers and our government receives less tax from those companies to pay for its programs.

This brings us to my idea. Why don’t we dramatically simplify the tax rules, offering companies a large tax break based on their percentage of US employees? We remove most of the tax code loop holes, leveling the playing field. Then we offer companies the opportunity to lower their tax rate to 20% based on the percentage of their workforce, including contractors, who are US citizens. The baseline for this tax break starts at 60% of the workforce. If 100% of their employees are US citizens, that company pays 20%. If 75% are US citizens, they pay 27.5%. If 60% or less of their workers are citizens, they’re subject to the current 35%. Obviously migrating offshore jobs back onshore takes time so we offer a one-year grace period from the day the bill is passed. After that, the new rules are in effect. Companies that employ Americans enjoy a greatly reduced tax rate. Companies that export their jobs pay the higher rate to make up for the harm they’re doing to our economy. Sounds reasonable, don’t you think?