The Independent Voice of Southern Methodist University Since 1915

The Daily Campus

The Daily Campus

The Independent Voice of Southern Methodist University Since 1915

The Daily Campus

The Independent Voice of Southern Methodist University Since 1915

The Daily Campus


A plan to reduce underemployment

With President Obama and Congressional Democrats still savoring their victory on health care reform, it is time to refocus attention on what resonates most with the American public: putting people back to work. Put another way, the remainder of 2010 should primarily be about jobs, jobs, jobs.

One need only to look at the numbers to appreciate the urgency. Officially, the nation’s unemployment rate stands at 9.7%, down from a high of 10.2% last November.

But the official rate masks a more ominous picture of an increasingly disenchanted work force. According to a Gallup daily tracking poll taken at the beginning of this month, the rate of underemployment in America stands at 19.8%. Underemployment takes into account those (i) officially classified as being unemployed (those who do not have a job despite actively seeking one), (ii) who are jobless and have given up looking for work (who are not counted in the official unemployment rate) and (iii) who are working part-time but desire full-time work.

At just a shade below 20%, the underemployment rate is double the official jobless rate reported each month by the Department of Labor. Nearly 30 million Americans, one-fifth of the work force, desire but are unable to find full time work.

As an indication of how underemployment affects the overall economy, Gallup also reported that during February, those underemployed reported spending 35% less on a daily basis than those fully employed. Since consumer spending is the engine that powers the American economy, accounting for 70% of gross domestic product, the underemployment rate not only affects those individuals and families being directly hurt, but also the overall American economy as well.

Despite its overriding focus on the health care bill, it would be inaccurate to accuse the Obama administration of relegating job creation to a second-tier concern. Indeed, less than 45 days after taking office, the president signed into law a  $787 billion economic stimulus package designed to jumpstart economic growth and create between one and 2.3 million jobs.

Unfortunately, from all indications, the stimulus has been more noteworthy for massively adding to the budget deficit than for creating jobs. While economists differ on the numbers, the general consensus is that it will wind up saving or creating less than the one million target.

Last week, amidst the final push for health care reform, the president signed a jobs bill designed to incentivize employers to hire the jobless, providing employers with an exemption from the 6.2% Social Security payroll tax through the end of 2010 on workers they hire who have been unemployed for at least 60 days. However, despite rosier forecasts from the administration and Congressional Democrats, most economists predict that the bill will have only a modest impact on employment, creating less than 200,000 jobs that would not otherwise have existed.

So what is left to be done to effectively deal with an unemployment crisis that stubbornly persists despite bookoo-bucks being thrown at it by Washington?  Here’s an idea that most Democrats might find anathema but that could be the right antidote to get employers—large, medium and small—to loosen-up their no-new-hiring mindset.

The federal corporate income tax rate of 35% is the highest of the 30 developed economies that comprise the Organization for Economic Co-operation and Development.

When state and local taxes are added, the corporate tax rate in the United States is 39.27%. Only Japan’s rate, at 39.54%, comes in higher. The average corporate tax rate for all OECD countries is 26.6%, meaning that corporations here are taxed one and one half times as much as their overseas competitors.  

Business lobbyists have long maintained that high tax rates are preventing their clients from expanding their operations and hiring additional workers.

It is also widely assumed that foreign companies and start-ups are leery of opening or expanding operations in the United States in view of the 40% tax bite.

It  would be a considerable understatement to assert that the American business community views Obama and his administration with suspicion. They consider him to be a big taxing, big spending liberal who rarely misses an opportunity to upbraid them for one thing or another, qualities that do not exactly inspire confidence as businesses seek to convince indebted, underemployed and spendthrift consumers to purchase their goods and services.

What is needed is for the president to reach out with a dramatic confidence-building gesture that the business community will enthusiastically embrace. Obama should send a bill to Congress that lowers the federal corporate tax rate from 35% to 25%, with annual 2% reductions to be phased in over five years.

With one dramatic act, the business community’s view of the Obama administration would shift 180 degrees, provided that the president and his Congressional allies work as hard in pushing for its enactment as they did for their signature health care proposal.

Lowering the tax rate, most economists agree, would entice business to hire more workers in anticipation of planned expansion. Foreign companies debating the merits of opening American subsidiaries would no longer be deterred by inordinately heavy taxes. This would be a win-win situation all around—for Obama, for the business community and for the one in five Americans currently underemployed.

Unfortunately, the chances of this happening are, at best, a long shot. Too many of the president’s core constituencies, most notably liberals and unions, would rebel at anything perceived as being helpful to business, never mind that those businesses hire workers and pay the taxes that fund the entitlements they so eagerly embrace. Would the president risk alienating these groups? It would take an act of tremendous political courage for him to do so.

Stranger things have happened.

Nathan Mitzner is a junior risk management insurance major. He can be reached for comment at [email protected].

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