The news yesterday was disturbing but not unexpected. The unemployment rate is up from 9.6% to 9.8%. Let’s look at some possibilities for the cause of this increase.
When the new tax rules/rates are published next year there is a strong possibility that there will be significant increases in many areas. With Congress’ lack of action on renewing or extending the Bush tax cuts we are all looking at immediate tax increases. Even if the increases are held to those earning over $250,000 that includes most of the small business owners. In a report from the Tax Foundation, over one third of the additional taxes collected with the expiration of the Bush tax cuts will come from businesses. With this uncertainty small business owners are reluctant to hire. When they don’t hire their businesses can’t grow. Another reason it can’t grow is that the workers who would have been hired and become customers at other businesses will not have the money to become customers.
What about the businesses which are able to continue in operation? With fewer people able to purchase from them they will have to resort to innovative ways to successfully compete for those customers. This is where the hard decisions about price and service come in. In order to attract customers extraordinary “deals” are made available. These deals may be lower prices, free shipping, or bonus merchandise included with the purchase. Whatever it is, it costs the business. With increased costs profits go down. With less profit there is less money to hire new employees that help grow the business.
Now let’s look at that 9.8% unemployment figure. That only represents those unemployed persons who are looking for work. There are an estimated 1.3 million workers who have become discouraged with the job hunt and have quit looking. There is also that category of those who just don’t want to work and let the government (read you and me) support them. When you take those figures into account the unemployment figure could easily be closer to 15%.
This is a massive drain on the overall productivity of our country. There are a number of ways to turn this trend back to the positive. The first and most obvious is to cut taxes, especially on those who pay the wages. If you tax those who pay the workers there will be fewer workers hired. According to the Tax Foundation, as of March 2008, the latest figures I was able to find, the combined US corporate tax rate was 39.3%, second in the world only to Japan which had a corporate tax rate of 39.5%. Is there any wonder that US companies are having a hard time competing on the world market?
Closely associated with reducing taxes on the wage payers is to drastically reduce government regulation on businesses. Just paying for the infrastructure and administrative costs involved with regulation compliance is a huge drain on the profit structure of all businesses. This amounts to additional taxes on business but does not result in additional revenue to the government.
Presidents Kennedy and Reagan found out that reducing taxes increases revenue to the government as a result of increased economic activity. With this current administration’s proclivity for controlling all aspects of our lives, it is past time to tell them to get out of our pocket books and bank accounts.
As always, I welcome your comments and discussion.