A Simple Idea to Boost Job Creation
Help businesses bring back jobs and create new ones by refunding some of the salary
People want to work
We’re quickly headed for a world with more people that want jobs than there are jobs available. In order to avoid extreme levels of poverty, some argue for a universal basic income (UBI), a living wage paid to all citizens, whether they are working or not. This would take care of people’s biological needs: food and shelter. I’m a fan of UBI, but most people aren’t ready for it yet. People still want jobs.
Politicians love to talk about jobs, and that’s for a reason. It’s why Trump won over left-wing voters in the rust belt states: he promised to bring back manufacturing jobs that were lost to globalization. Unfortunately for those voters, even if Trump somehow moved all manufacturing back to the US, automation would ensure that only a fraction of the jobs lost decades ago would return today.
People like having jobs. They provide more than money, they provide purpose and identity. When meeting someone at a party the first question uttered is usually “What do you do?”. Basic income doesn’t help here. It’s a lot to ask of someone to respond with “I just collect a check from the government”.
How can we create more jobs? Governments around the world have tried in various ways, but they have yet to try this really simple idea…
The Universal Job Refund
Offer a refund to companies for the first $30k of wages paid to all full-time employees. Only citizens and permanent residents are eligible. In other words: Refund the part of the wages a company pays employees that get them to comfortable living conditions.
For the first calendar year of employment, the employer pays the wages of the employee like normal. When taxes are filed, the employer gets a $30k refund on taxes owed for each full time employee. If the company doesn’t owe that much, they get a check written to them for the difference. By discounting the cost of employment, many American workers that would be valuable, but too costly, suddenly become employable. It would no longer make good business sense to ship manufacturing jobs overseas now that labor is cheaper at home.
This plan does not determine which jobs should be created and has few direct costs to implement. The free market determines the best jobs to be done, and who should do them. People who want jobs still have to show up everyday and work hard. Those who do a bad job can still be fired.
There are plenty of jobs that would provide employers value but are currently too expensive to pay for in the US. If the first $30k of salary for these jobs were covered, they would likely return.
Even companies that are not currently outsourcing their jobs could hire more people. By greatly lowering the cost of labor, new classes of jobs can be created. Imagine a Coca-Cola bottling plant mostly run by robots. Now that labor is cheap, they could hire a few hundred people to write custom messages or doodles on the bottom of each can. Customers like the “artisanal” touch on products, but it’s currently too expensive in mass production. Look around your home, what products could benefit from a more human touch?
By making it all of a sudden cheaper for companies to hire Americans, there’s no more need to crack down on immigration, whether it’s “legal” immigration or “illegal”. A company would much rather hire an American that will earn them a $30k tax refund as opposed to a Canadian or Mexican at the same salary (disclosure: I’m a Canadian working in the US). Employers would only hire a foreigner if they were worth the $30k refund they’d otherwise miss out on. Who needs a wall?
This isn’t a wholly new idea. It’s a combination of the universal basic income and a targeted job rebate scheme (the most recent is in Australia). Unlike Australia’s plan, the universal job refund isn’t filled with complex rules that create confusion and loopholes. By being simple and universal it avoids controversy and costly bureaucracy (more on this later).
A Universal Job Refund (aka UJR) has many implications and raises many questions, so please read on. Keep in mind though: This article isn’t meant to be highly detailed or exhaustive, it’s intended to get a conversation started.
How can this be funded?
Having more people working, spending their money, and paying income tax will help a bit, but it likely won’t be enough. Taxes will need to be raised, but it need not be as bad as you might think. In fact, it can be done in a way that most people and businesses would hardly notice a change at all.
Let’s assume we refund the first $30k of each full-time employee’s wages in 2017. This would save US businesses $30k in expenses each year per employee, so theoretically they could have their taxes raised by a similar amount and see no change on the amount they actually pay. But what to tax?
Here are just a few ways to offset the job refund:
- Introduce the border adjustment tax (encourages exports and domestic manufacturing)
- Increase the payroll tax for salaries above $30k (reduces inequality)
- Cut existing corporate subsidies aimed at creating jobs (start with the billions given to big oil every year)
- Increase the capital gains tax for company executives (closes huge tax loophole for the wealthy)
- Introduce a carbon consumption tax (encourages green technologies)
- Tax corporate cash reserves (encourages spending)
Adjusting and introducing new corporate taxes should be revenue and cost neutral for the average company. However, some companies will end up as either a winner or loser. This is good though! The winners will be those that hire lots of Americans, use green technologies, and do other things we like. The losers will have a strong incentive to change their business practices for the better.
Nobody likes an increase in taxes but they’re easier to digest when they are introduced with huge savings in another area. It’s a simple give and take.
Is this the same as universal basic income?
No, but they have some features in common.
To solve the crisis of disappearing jobs, some people propose offering a universal basic income (UBI). Every person would get paid the minimum wage needed to live comfortably, whether they have a job or not. For example, both the working rich and the unemployed would get $30k over the course of a year, paid for by the federal government. Some of these costs would be offset by a boost to the economy, by eliminating a few of the 80 federal welfare programs, and by increasing taxes. There are lots of benefits to the idea but some problems too. Other than the cost of the program, the biggest issue is that most people don’t want to live on government handouts alone.
Universal job refund (UJR) and universal basic income (UBI) are similar due to their universality, and therefore their simplicity. Neither system discriminates based on social class nor race. Everyone gets the same amount. While UBI focuses on fulfilling the financial needs of everyone, UJR partners with business to not just get people money, but also a job.
While UBI should certainly still be explored, UJR has certain benefits over UBI, especially now. By targeting employers, as opposed to individuals, it provides an easier way to raise taxes to fund the program. As discussed previously, when the plan is first introduced, it’s possible to be revenue and cost neutral by raising or introducing certain corporate taxes.
If you’re already a big fan of UBI, you should be a fan of UJR too. In addition to their shared universality and simplicity, UJR is easier to sell to the public first since it’s about creating jobs, not handouts. It doesn’t violate people’s revulsion to the idea of lazy people “living on the dole”. While there are many people for which a UBI would be superior, such as single parents or people taking care of elderly family members, it’s of no value if society doesn’t buy into it and make it a reality.
UJR can then help society appreciate it in a broader form: UBI. It can show the power of a universal social dividend, opening the door to the public’s eventual acceptance of a universal basic income.
One can even imagine a hybrid: If UJR provides $30k for workers, $20k can be provided to people who cannot get a job, such as those caring for family. This way there’s still a strong incentive to work, but we’re not turning our backs on those who can’t.
Should the self-employed benefit? How?
Yes, if they don’t receive the benefit, they’ll be unfairly disadvantaged when competing against bigger companies. Imagine a self-employed accountant trying to compete against a big accounting firm. If the self-employed accountant doesn’t have their own employment subsidized the same way as the big firm, they’ll need to charge more for their services, and will lose customers.
To solve this, people with sole proprietorships should be able to apply for a single $30k job rebate at the end of the year. Since the benefit is in the form of a tax rebate (as opposed to a refund), it can only be claimed by individuals that have a taxable level of income.
If the sole proprietor has employees and wants to receive multiple tax refunds, they can incorporate.
Americans working for foreign companies while living in the US can also claim the tax rebate themselves. This would incentivize foreign companies to employ Americans living in the US.
Is this a tax deduction?
No, it’s not like a donation to charity. This is a refund on taxes after they’re calculated. A donation to charity is treated as an expense, just like wages are currently. That means if a company is in the 33% tax bracket, their $100 charitable donation costs them $67. But with a UJR, if the company employs 3 full time employees, they get a $90k refund.
What about the minimum wage?
The minimum wage is still highly controversial, even among economists. It is designed to improve the standard of living for the lowest wage earners, but opponents contend that it does so at the cost of job creation. It also makes business less globally competitive.
The universal job refund, on the other hand, creates jobs and makes businesses more globally competitive. It does so while also raising the standard of living for the lowest income earners. It’s like a minimum wage but both employers and employees benefit!
Why are high-wage jobs included?
The short answer is that it’s simpler. That might not seem all that compelling, but one of the biggest problems of existing programs aimed at creating jobs is their complexities. The complexity of job making and welfare programs greatly increases the cost overhead and opens them up to abuse, by both companies and individuals.
Also, if it was only aimed at low paying jobs, it would risk hurting high paying jobs. For example, if the only jobs that could get a refund were those that paid $30k a year, then companies would avoid raising the salaries of their lowest paid employees. A 10% raise would cost the employer 110% more. So where do you draw the line? Do you create exceptions for jobs that get raises? If so, what would prevent employers from hiring someone at $30k then raising the salary to $100k? These are only a few of many complexities that would arise.
Universality sidesteps all sorts of loopholes and shenanigans, it’s essential.
The plan in action
For this to work, there should be a central website that tracks, week by week, who each person is employed by at any given time. Employers register and unregister employees. People have the option to unregister themselves, notifying the employer. The refund amount is pro-rated by the number of weeks employed.
- You’ve accepted an offer to work full-time at Ford Motor Company in January. Ford registers you at jobrefund.gov, using your social security number.
- You go on to work at Ford for 20 weeks, they can then claim a (20/52 x $30k =) $11538.46 tax refund at the end of the year.
- You then run your own business for the rest of the year, allowing you to claim the remaining $18461.54 against your personal income tax.
What do you think?
Please send any thoughts you have, I’d love to hear what you think!