Jobs, Taxes & Benefits

Jump to a section:

There are two problems
Philosophy and politics
The effect of September 11

Throughout our history we have debated the nature of our society. Are we responsible for each other, using our combined contributions from taxes to help each other? This is primarily the philosophy of the Democratic Party. Or are we primarily a nation of individuals who, when left alone to compete and innovate, will provide jobs for many and charity where it is needed? This is primarily the philosophy of the Republican Party.

Medicare and Social Security will still need to be repaired or rebuilt, recession or no recession. The most optimistic views of our economy recognize that we are and will be in a period of slow growth. This is a long term problem that is not going away.

Given the recession and the vast numbers of unemployed, something needs to be done quickly to help the unemployed. This is a shorter term problem.

return to top

The debate heated up in Washington during the campaign before the election of November 2000. In January of 2001 it was headline news. The new Bush administration wanted people to feel optimistic and spend money. They argued that if people spend their savings, even if they are unemployed, businesses will have customers and will rehire workers.

They also believed that large corporations should have tax cuts and those cuts would eventually cause corporations to hire more people.

However, many economists and some members of Congress oppose the Bush administration and believe we are right to worry. This argument says that, even with tax cuts, businesses will not rehire until workers have jobs in other businesses and spend money, thereby becoming customers again.

They argue that businesses have downsized quickly and many have cash. In addition businesses could borrow money from banks if they wish to expand, because the Federal Reserve has lowered interest rates twelve times. Therefore, they argue that unemployed workers should be saving whatever money they have and that emergency measures should be taken to give them temporary health benefits to replace the ones they lost when they lost their jobs.

There were and are economists and historians arguing on both sides of the debate, but, given the $304 billion dollar surplus (including Social Security and Medicare payments) or the $93 billion dollar surplus without them, in March 2001 the Congress did pass a ten year plan for tax cuts to both businesses and individuals.

return to top

However, since September 11, lost jobs deducted $80 billion from tax revenues. Antiterrorism spending took out another $25 billion. The airline bailout took $6 billion. Then there was more spending to pay for the war in Afghanistan, homeland defense, and Iraq. Under the Bush policy of pursuing other nations that harbor weapons and terrorist organizations, there may be new wars. And there will be more to come to protect tunnels and bridges and reimburse states and cities for upgrades to the public health system as it gears up against bioterrorism.

On the whole, Republicans and Democrats agree on spending for the campaign against terrorism. The Democrats even tried and failed to get more money for helping states with homeland defense and antiterrorism investment in the CIA, FBI, local police forces, and public health services.

Both parties also agreed in the spring of 2001 on a $300 dollar per person rebate in that year's income tax on the assumption that people would spend the money and help businesses. As it turned out, many people saved the money because they were afraid of losing their jobs.

On the issues of taxes and benefits, however, the two parties are staying within their basic philosophical differences. The Bush administration and the leadership in the House of Representatives continue to push for tax cuts, including:

• eliminating the Alternative Minimum Tax that businesses must pay even if they have sizeable expenses which they can deduct from their earnings before taxes. Bush wants to cancel this tax and give back to large businesses the money they paid from 1986 to today.
• eliminating the estate or death tax on the grounds that children should be allowed to benefit from their parents' success, especially if there is a family-owned business. Estates valued at $1million are exempt from that tax now.
• cutting the capital gains tax on the sale of investments in stocks and bonds of businesses.
• adding a tax credit for business investments in research and development.

The Democrats who, in the November election of 2002, lost the one vote majority in the Senate (provided by James Jeffords, the Independent from Vermont who disagreed with the Republicans and votes with the Democrats) want:

• a $300 per person short term rebate to get cash into the economy in 2003:
• reduction in the payroll tax that all job holders pay, because many of them do not make enough money to pay income taxes.
• temporary (for one year only) increases in the current unemployment insurance (now 26 weeks) and subsidies for lost health benefits through more months of COBRA (insurance paid by ex-employee at the preferred rate that was paid by the employer) or through Medicaid (the government health insurance program for the poor). Only 39% of unemployed Americans looking for jobs qualify for benefits (down from 50% a generation ago). What has changed is that 20% of the labor force works part-time, or are temps, subcontractors, or self-employed.
• tax credits for businesses for research and development. On this they agree with Republicans, but on none of the others.

These differences were debated as part of an "economic stimulus package" which reached a stalemate in December, 2001 and will likely be an issue in the 2004 election.

In 2003 economists search for where the tax money is going to come from to pay for the wars, homeland security, and support for the millions of Americans who are out of work and without health care insurance.

Watch the words

When some say “the recession is over”, they mean that profits of private businesses are not continuing to get worse at the same speed as in the last two years. It does not mean that businesses are growing and hiring.

In May 2003 businesses are still selling their stocks at a higher price than their earnings deserve (known as a price/earnings ratio) and many people are selling their stock or not buying new stock. Businesses can only raise money two ways, selling corporate bonds which do not increase the number of shareholders (and dilute the value of an individual share), issue new stocks which are shares in the profits (if there are profits), or borrowing money from banks or at the cheapest possible rates (influenced by the Federal Reserve Bank that sets the rates for banks to borrow from other banks).

If they don’t see the possibility of new customers, businesses are not going to risk borrowing new money for growth or hire new employees and give new health benefits. Many companies today that are downsizing their workforce have cash on hand but do not see the possibility of new customers. They are using fewer workers to serve the same number or fewer customers. That is called “productivity” but does not create jobs.

Where did the customers go?

The whole world is now part of one large global market. The United States can not only sell to foreigners, there are an unlimited number of very smart foreigners who can make and sell products and services to Americans. Is it fair that some of them live in countries where the cost of doing business is much less than here? When America started out, that is how we made money – doing the same work as the English and French, but at cheaper prices. Even with slave labor.

Every year these poorer countries who are competing with us raise their wages and their prices. Some day the competition will be fairer. It is too late to go back to selling only within our borders. It is too soon to make the competition equal to our standard of living.

What will make new businesses and new jobs happen?

This is where people disagree. This is where political parties choose sides.

Some people think richer people make jobs by hiring poorer people. In that view, any action that can put more money into the hands of richer people is a good idea.

There are others, including some rich people, who maintain that rich people already have everything they need and, therefore, giving them more to spend won’t get more money to businesses. After all, they can only eat three meals a day, take a set number of vacations, and buy only so many clothes.

Some people think spreading money among working families and poorer people will cause them to buy more and buying more will cause businesses to make more money and hire more workers. In that view, any action that puts more money into the hands of people who need to buy more food, housing, clothing and medicine will help businesses that sell those basics.

History tells us that real business growth comes out of totally new ideas. Think of the invention of the railroad, the telephone, the computer, medicines, xray machines, the automobile, the airplane, elevators and escalators, theme parks. New ideas, real innovations, cause lenders and other investors to take more risk and invest money with inventors. New ideas create jobs that never existed before. New ideas cause people to use their savings to buy new products.

Now – turn to What’s New and find out what the May 2003 tax and budget bill out of Congress believes and who supported what.

click here to go to next section

return to top