1 percent jobs solution

Jul 17, 2010 — The Boston Globe

By Robert L. Reynolds

Jul. 17, 2010 (The Boston Globe delivered by Newstex) -- OF ALL the challenges America faces as the economy struggles to recover, nothing is more vital than jump-starting private sector job growth. And nothing has been more demoralizing than the limited success federal stimulus spending has had in creating private industry jobs. Private job growth in June was barely more than half the number needed just to keep pace with a growing work force. We need to try something new. The federal government should link tax relief for private business with job creation and keep our still-shaky recovery from sputtering out.
Here's how. For the three calendar years from 2010 through 2012, the federal government should grant any business that increases its US employee head count by 1 percent in a year a 10 percent reduction in corporate income taxes. If a company hires 2 percent more workers in the United States in a year, it would save 20 percent in federal corporate taxes and so on - with no other conditions attached - all the way up to total tax forgiveness for companies that hire 10 percent or more net new American workers in a given year. It's clean, simple and motivating.
Yes, this policy would be costly and rising long-term deficits are a legitimate concern. But short-term costs incurred to spur private sector job growth need to be measured against the potentially massive revenue hit the federal government could face if the recovery loses momentum and we slip into a double-dip recession. Even just muddling through several years of sluggish growth and high unemployment would badly damage federal revenues. Robust economic growth, led by private business, is the best long-term hope for significant deficit reduction.
While tax breaks for job-creating businesses would not fully pay for themselves, there would be positive fiscal feedback. Lower unemployment compensation costs, for example, and higher personal income and sales tax revenues - a great help to cash-strapped states and local governments. That's not to mention the boost to national morale and government credibility.
More than 8 million jobs have been lost since 2008 - more than 90 percent of them in private industry. And while corporate America is emerging from recession with rising profits and strong finances, there are few signs of strong private sector job growth. That may be due to lingering caution among employers.

But that psychology should be targeted head on. We can't afford to risk a "jobless'' recovery that stalls and slips south on us. To avoid that, we need to revive what John Maynard Keynes called the "animal spirits'' of America's business community. And nothing could do more to raise our spirits than a credible, efficient assault on unemployment itself. The best social program, the best economic program, the best family program, after all, is a job. People with jobs buy more and feel better. And optimism, like pessimism, is contagious.
But not all jobs are created equal. Public sector jobs depend, by definition, on tax revenues generated by private enterprise. Debt-wary taxpayers are increasingly reluctant to support any further "stimulus'' if it takes the form of mainly government employment and higher federal deficits.
In contrast to most federal "jobs'' spending to date, linking business tax breaks to private sector job creation would defuse much of the suspicion that tax dollars might be wasted on boondoggles or make-work jobs. A sharp focus on job creation in America makes much better sense than scattershot spending to spur consumption - which may just attract imports and thereby create more jobs abroad. There would, of course, have to be safeguards built into the law. Companies that try to "game'' the system should face tough penalties. These changes would drive a significant rise in private sector hiring, especially among firms that are already on a growth track. They would also spur the growth of America's most successful, dynamic companies - large and small. Tax cuts for new jobs might thus speed up the churning at the heart of capitalism - a process economist Joseph Schumpeter called "creative destruction.''
But after all of the job destruction America has endured since 2008, it's time to put our money behind some real job creation. If we don't act now - with millions of our fellow citizens out of work - when will we?

Robert L. Reynolds is the president and CEO of Putnam Investments.

Newstex ID: BGL-1035-47045120