A tax policy that really will create jobs and raise wages

A tax policy that really will create jobs and raise wages
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It took only a few seconds for the members of the Wall Street Journal’s CEO Council — who run companies with more than 8 million employees — to destroy the basic premise behind the Republican tax bill, that tax breaks to big corporations will create jobs and raise wages.

A large roomful of CEO council members were asked were asked by the moderator at their recent convening with Gary Cohn, the chair of Trump’s Council on Economic Advisors, “If the tax reform goes through do you plan to increase your company’s capital investment.” Only five raised their hands. Which led Cohn to say, “Why aren’t the other hands up?

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The reason is simple: Businesses invest when there is more demand for their products, not because their tax rate is lower. We don’t have a capital shortage now; we have a demand shortage, driven by stagnant wages. Cutting corporate taxes will only lead — as it did the last time we lowered the tax rate for companies that brought profits back to the U.S. — to more money for shareholders and CEOs. Many of the companies who got the biggest tax breaks actually reduced jobs.

 

But the Republicans trickle-down (Cohn’s description) snake oil will still have some appeal as long as Democrats cede the ground that Americans care most about: raising wages and creating jobs. It’s not enough that the public is strongly opposed to more tax breaks for the super-rich and wealthy corporations. Democrats must also talk about a tax policy that really would raise wages and create good jobs if they are to convince Americans that they can create a better future for their families and communities.

Tax policy that aims to create jobs and raise wages should do that directly. Here’s how: Raise taxes on the wealthy and big corporations and invest those funds in building an infrastructure for the 21st Century economy. Every dollar of those investments should be spent on jobs that pay decent wages, with requirements to hire people from the rural and urban communities that have the highest unemployment rates and lowest wages.

One such plan, proposed by Congressional Progressive Caucus, would invest “$2 trillion to transform our fossil-fuel energy system, overburdened mass transit, deteriorating schools, lead-contaminated water systems, and crumbling roads and bridges.” That would create 20 millions jobs, based on an estimate from the Roosevelt Institute that each $100,000 of investment in infrastructure creates one job. The CPC would tie that spending to “local hiring and livable wages.”

The Roosevelt Institute proposes an even more ambitious plan, based on a combination of public and private financing, to “create $4.6 trillion worth of transformative infrastructure investment over a 10-year period with a cash cost of just over $1 trillion in today’s dollars over the first 10 years.” Their plan would create four million jobs in each of those ten years. The Roosevelt plan proposes specific levels of investment in transportation, broadband, clean energy, climate mitigation and modern schools.

What’s noteworthy about these investments is, unlike the Republican tax plan that throws money at the wealthy and corporations without making any changes in how that money is spent, these infrastructure investments would build the foundations of economic success that communities and businesses need to thrive. And by raising taxes to pay for the public portion of the investment, coupled with the real increase in tax revenues that would come from putting people to work at decent pay and giving businesses more work, such a plan actually reduce the deficit without the hocus-pocus of “dynamic scoring.”

On the revenue side, there are a number of tax reforms that would pay for the public share of investment while addressing urgent societal problems. Starting with the soaring imbalance between the very wealthy and the rest of us. Key reforms here include taxing capital gains at the same rate as ordinary income, increasing the estate tax and ending the step-up provision that allows estates to escape every paying capital gains.

For all Trump’s hand-wringing about corporations shipping profits overseas to avoid paying taxes in the U.S. the GOP tax legislation would make it worse. Instead, we should impose a minimum tax on overseas corporate profits wherever they are earned. That would eliminate any disincentive to repatriate the funds, since taxes would have already been paid. A 19 percent minimum tax proposed by the Obama administration would raise $350 billion over ten years.

To address incentives for short-term speculation on stocks, which has negative economic value, there should be a tiny tax on financial transactions. And to drive the movement away from climate-wrecking fossil fuels, there should be a tax on carbon, with provisions to mitigate impacts on moderate-income families.

If Democrats are going to use the current period to prepare the grounds for leading in 2021, they need to be putting forth bold proposals now. The GOP tax plan is a golden opportunity for Democrats to go beyond railing against tax giveaways to the wealthy and huge corporations to championing tax reform that increases taxes on those forces to, create good jobs, raise wages and invest in the infrastructure that will drive America's economic leadership throughout the 21st Century. 

Richard Kirsch is the director of Our Story- The Hub for American Narratives, which works to bolster the capacity of progressives organizations and leaders to powerfully communicate core American values. Kirsch was a senior fellow at the Roosevelt Institute, the National Campaign Manager of Health Care for America Now and the executive director of state-based policy organizations. He is the author of Fighting for Our Health — the Epic Battle to Make Health Care a Right in the United States. He has an MBA from the University of Chicago.