Tax policy should always be on the table. I'm tired of listening to people who admittedly have the job of fighting tax increases. I'll do my job, and dig past the repeated boilerplate about taxes killing investment and hiring.
American business have practically zero interest rates and historically low tax rates. And yet businesses are (perhaps rationally) not hiring. No wonder - the customer that represents 25% of the economy said it is tightening their belt, and probably going to fire a bunch of employees and close many positions held by current retirees. (That's the government - local, state, and federal.)
Let's step aside from the somewhat artificial government/private sector separation. Lewis Black put it best here (starting around 0:41): whether it's government, or the private sector, there are people who do the job, and there are rules that are either followed or broken.
So let's ditch whether a job is public sector or private sector for a second. Fiscal tightening is probably going to be bad for employment in the near to mid-term, whatever its impact longer term on the economic health of the country.
I'm wondering if it's possible to construct a tax that incentivizes hiring and capital investment now, rather than later. I'm going to avoid changing taxes on earned income, and explore policies to move money that is sitting in cash/short-term bonds.
Let's say, hypothetically, I'm a major company in America, continuing to make significant profits and sitting on a pretty hefty cash reserve. Policy is enacted such that my effective cost to hire and buy equipment will increase next year and stay higher. This gives me an incentive to do as much purchasing and hiring this year as seems reasonably prudent. Maybe there's equipment that I need. Maybe I need to hire to replace retiring employees.
How would this be done? There are carrots, and there are sticks.
Carrots are gifts above and beyond what is currently given. It might be a direct tax break for hiring or captial spending. It might be targeted subsidies for industries that can scale up quickly (construction, as opposed to, say, advanced research).
Sticks would involve taking away existing breaks, or imposing completely new taxes. It could involve ending the current tax credit for hiring new employees. It could be an increase in Medicare contributions to apply to new hires after a certain date, or an increase in sales tax. It could be a change in depreciation rules for capital purchases. It could be a change in environmental or labor regulations that will exempt those hired before a certain date.
Naturally, it wouldn't make sense to make the trigger date too soon. For example, if the sticks came with hiring in one week, there wouldn't be time to really increase hiring and purchasing before the cost of hiring/purchasing increased, which could, indeed, hinder recovery. But it wouldn't make sense to make it so far into the future that the change was discounted - actuarily as well as psychologically - to the point that it didn not change behavior. One to three years seems reasonable; perhaps over a longer period and involving increases over a period of time.
Carrots require more government spending and breaks, and probably more deficits. It's a bit odd that the party most concerned with government spending wants more work on one side of the ledger, and in a way that could potentially increase deficits.
I'm not exploring the moral fairness angle, or the effectiveness long-term of such policies. I'm also not exploring the political tractability of such a proposal (though it might be better than it seems at first glance, if one chooses to fight for it). I'm just wondering how it could be done.
Too often the focus is on changes on taxes on earned or unearned income. But if the goal is to change the behavior of companies that have cash on hand, then the tools used have to operate on that cash, and not only on the promise or reality of future profits.
Would love some informed, well-reasoned thoughts on this.
