Hard Labour

‘If you were a CEO, would you base your company in the United States, with one of the world’s highest corporate tax rates?’

While Obama’s rousing presentation of his jobs bill to Congress was hailed as a return to form, the address depressed me. I see the US spending another $447 billion in order for nothing to change. It’s baffling why government policy wonks never seem to consider how one might respond to behavioural incentives as a normal person.

Take Obama’s proposal to halve Social Security taxes (akin to National Insurance) for 2012, benefiting the average American family by $1,500. Of course, the jobs plan is aimed at unemployment, so the idea isn’t merely to prop up workers with the luxury of a salary. Theoretically, Uncle Sam puts more money into consumers’ pockets, and then they spend it, raising demand for products and services, which spurs new hiring.

Right. But think about actually being a breadwinner in this average American family. That kindly provision is merely an extension of the 2011 payroll tax cut (which didn’t create jobs either), so the extra money won’t feel like a windfall; you’re already accustomed to a slightly fatter pay cheque. Worse, like all Obama’s promises to reduce tax take, this relief is temporary. Your taxes will bounce right back up in 2013. Everywhere you turn, gloomy newscasters are predicting a double-dip recession. With an un- and under-employment rate of 16.1 per cent, you’re not feeling too secure in your own job. Where will that $1,500 go?

I’ll tell you where: the supermarket. For the same eats that you were going to buy  anyway. Just as in the UK, American food prices are going through the roof, up 5.4 per cent in the last year — including beef up 9.3 per cent, eggs 13.3 per cent, butter 21 per cent, potatoes 14.7 per cent. Shopping in New York this summer, my husband and I had a rule of thumb: “Everything costs five dollars.” We didn’t mean steaks, but mustard. Eight miserable ounces of cream cheese. 

Thus our average American family is not going to be buying a new washing machine if the old one is still clunking along (and so what if they did? The appliance would be manufactured in China). Any spare change left over from a few larcenous trips to Key Food is going into savings or, more likely, towards paying credit-card debt racking up 21 per cent in interest.  

Or take Obama’s proposal to give businesses a $4,000 credit for hiring each new worker who’s been unemployed more than six months, and $5,600-$9,600 for hiring unemployed veterans. Swell — but the average American wage is $40,500. Employer payroll taxes, pension contributions and health-insurance benefits add tens of thousands in additional expenditure for every worker. What normal person of sound mind would take on such a considerable yearly commitment for a proportionally puny, one-off rebate? By contrast, Ontario has offered one American video gaming company $321,000 per job to relocate to Canada. Now we’re talking.

Obama’s fiscal incentives combine the worst of both worlds: they’re too tiny to accomplish their objectives, yet still cost the Treasury a bundle. Extending unemployment benefits simply keeps frustrated people on the dole. If the rusted Brooklyn-Queens Expressway is anything to go by — I don’t recommend walking underneath the thing — expenditure on transportation infrastructure isn’t a bad idea, ditto refurbishment of 35,000 schools. Yet this is still standard government stimulus spending, which failed to make an appreciable dent in the unemployment rate with vastly more capital invested in 2008.  

I write in despair — horrified by the plight of 28.4 million compatriots unable to find full-time jobs. But the grimmest normal-person test is this: if you were a CEO, would you base your company in the United States? The corporate tax rate is 35 per cent, one of the highest in the world. Even if Republican presidential hopeful Mitt Romney’s bold plan to lower that rate to 25 per cent got through Congress, big deal; Ireland’s corporate tax rate is 12.5 per cent. Why pay 25 per cent? Or if you can, like Google, filter your proceeds through Bermuda, why pay anything? American wages may be stagnant, but they’re still far higher than Asia’s. The ludicrous expectation that American employers pay for health insurance — no more logical than expecting employers to pay their staff’s cable TV bills — increases the burden of employing American workers vastly more.

An icon of Yankee ingenuity, Apple now employs a million people, over 400,000 of them in China. But Apple employs only 25,000 workers in the US — one fortieth of its workforce. When that figure aired on CNN, I announced to my husband glumly, “We’re doomed.”

Smugness alert: one could readily write a similar column about the UK.

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