Employer Perspectives on the Jobs Gap

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Human Resources Subcommittee

Hearing on Jobs and Opportunity: 

Employer Perspectives on the Jobs Gap

Wednesday, April 25, 2018, 11:30 AM

By Michael G. Bindner

Center for Fiscal Equity

Chairman Smith and Ranking Member Davis, thank you for the opportunity to submit our comments on this topic. We had already submitted comments on local issues earlier this month, which we believe already cover Federal Perspectives, because the Employment and Training Administration mostly provides support for the Workforce Investment Boards, which are effective at the local level. In these comments, we will reiterate the employer perspective and, as usual, how tax reform can be of assistance. As usual, our comments are based on our four-part tax reform plan, which is as follows:

• A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
• Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25% in either 5% or 10% increments.  Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.
• Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age sixty.

Tax programs can assist employers by providing them with greater incentives to pay for employee training, rather than using their resources to look for already trained employees without having to raise wages. One such tax is the Net Business Receipts Tax the Center proposes. There are three areas where tax changes would encourage companies to do what their current bottom line prohibits.

The first is the way the NBRT is collected. It taxes labor and profit at the same rate, so there is no tax incentive to cut wages to increase profits (assuming adequate taxation of CEOs, who would also have an incentive to cut labor costs and give themselves a bonus, a factor we will likely see very soon).

This correlates with the obvious economic answer to the job shortage problem. Raise wages, not just for new employees, but all of them. It is not up to the U.S. Congress to protect the profit margins of managers and owners who don’t like to share, even after (indeed, especially after) a large tax cut (such cuts are incentive to cut cost, not hire).

The most important factor in returning people to work is an adequate wage for work.  Ideally, this should come from a higher minimum wage, which puts the burden on employers and ultimately customers for fair pay, rather than a tax support for low wage workers (regardless of parental status). 

The market cannot provide this wage, as there will always be more desperate employees who can be taken advantage of to force wages lower for everyone else.  A minimum wage protects those employers who would do the right thing by their employees if not for their competitors.

A $15 per hour minimum wage is currently being demanded by a significant share of the voters.  Perhaps it is time to listen.  If the marginal productive product of these employees is more than this rate, job losses will not occur – of course, the estimates of this product can be easily manipulated by opponents who believe that managers provide much more productivity than people who actually work, so such estimates should be examined critically.  Internally, people usually have the correct number, but are loathe to share it if doing so hurts their political point.

The second way is the ability to add credits and exclusions to the NBRT (unlike a Goods and Services Tax). While an education credit could pay tuition, the employer should cover the wage while in training and that wage should be high enough to pay rent, et al.

Some jobs require college educations to advance.  The first two years of college would be grouped with the last two years of high school and would be provided by the state (including parochial high school and college), by employers directly or through a third-party provider or through contributions to a public or private school.  Students would receive a stipend and both tuition and stipend would be fully creditable against the NBRT.  Labor provided as a supplement to the employer would be fully taxed as other value added.  After the second of school, employees would be paid for the remainder of college and graduate school along the same lines as vocational training.

The third area is wages for families. Older workers are sometimes shunned because they have higher wage demands due to their need to feed and house their families. We suspect that many employers are looking for a way to continue to bypass these workers with the help of Congress Don’t you dare help them.

Aside from higher base wages and training, the best way to keep families wanting to work is to give them enough money.  None other than Milton Friedman suggested a negative income tax and both Republican and Democratic presidents have enacted and expanded the Earned Income Tax Credit and the Child Tax Credit. 

We propose that the Child Tax Credit be increased to at least $500 per month, which should be counted against the recent repeal of the child tax exemption (which is gone anyway with the income tax for most families) and the deductions for home mortgage interest and property taxes.  Replacing welfare programs and the EITC should allow a $1000 per month credit, which would be paid as an offset to the NBRT and paid with wages.  Even if the NBRT rate must be raised to cover the cost of the excess credit. This amount would allow workers with families to compete for the open jobs. It would also PREVENT ABORTION!

The loss of the EITC would be ameliorated by a higher Child Tax Credit, the paid training opportunities and a floor on the Employee Contribution to Social Security.  Social Security accumulation would be held harmless, or increased, by crediting the employer contribution equally (regardless of wage) and funding it with the NBRT.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.