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Job Loss Continues, but Just Part of the Pain |
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The unemployment rate is the worst in four years, according to today’s jobs figures from the U.S. Department of Labor, which showed payrolls fell by 51,000 in July, the seventh straight month the nation’s jobs have declined. The new figures mean the unemployment rate worsened from 5.5 percent to 5.7 percent.
Bloomberg puts it this way:
The last time the unemployment rate climbed so much in four months was in 2001, when the U.S. was last in a recession. Job losses have combined with decreasing property values, stricter lending rules and near-record energy prices to send consumer confidence levels close to the weakest in 16 years in July.
The new jobs report makes clear Congress and President Bush must act immediately to ease the suffering of America’s working families, says AFL-CIO President John Sweeney.
We need further urgent action to keep more families from losing their homes. We must work to pass a second stimulus program which includes fiscal relief to state and cities and extended unemployment benefits, as well as funding for food stamps and ready-to-go construction to repair schools, roads and bridges—construction that will help to create good, family-supporting jobs.
Economist Dean Baker points out that the new data “indicated a further weakening of the labor market.”
The percentage of unemployment due to workers quitting their job dropped from 9.8 to 9.7 percent, the share of the long-term unemployed jumped from 18.4 percent to 19.1 percent (although this is partly due to the extension of benefits), and the number of discouraged workers rose sharply.
The official jobless figures only show a fraction of the real distress U.S. workers are suffering in the closing days of the Bush economy. A report in The New York Times this week highlighted how millions of people, officially “employed,” actually are working part-time involuntarily, holding on to positions they hope will return to full-time or working part-time because they can’t find full-time employment. The number of people now classified as working part-time involuntarily worsened to 5.3 million in June, more than 1 million over the past year. The Times notes the official unemployment figure
masks the strains of those who are losing hours or working part time because they cannot find full-time work—a stealth force that is eroding American spending power.
And for the more than 9 million U.S. workers without jobs, unemployment benefits are not providing the safety net needed to bridge the gap between jobs. The Wall Street Journal reported this week that the majority of jobless in the United States don’t get unemployment benefits.
Only 37 percent of the country’s unemployed received benefits in 2007, down from 55 percent in 1958 and 44 percent in 2001, according to the Labor Department. The others have exhausted their benefits, haven’t applied or don’t qualify.
Those who don’t qualify include many part-time workers, people who quit or were fired, and workers who didn’t earn enough money in a one-year “base period” that often excludes the most recent three to six months. Worker advocates say the New Deal-era system hasn’t been updated enough to reflect an age of more-frequent job changes, more part-time work and falling union membership.
For years, the Republican majority in the U.S. House and Senate blocked Democratic efforts to extend unemployment benefits. This year, Congress passed a bill that would extend an additional 13 weeks of unemployment insurance benefits for the estimated 300,000 jobless workers a month who don’t find a new job before running out of benefits. As part of the supplemental funding bill for the war in Iraq, the unemployment extension passed the Senate in June and was signed by Bush.
The National Employment Law Project estimates some 4 million workers will be eligible for the extension over the next year. The 13-week extension will be available to workers who run out of their jobless benefits between now and March 2009.
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With a Weak Economy, We Need Smarter Policies
The old tricks aren’t working any more. The government’s tools for a weak economy have been to lower interest rates, borrow and spend, or have a war. Now, interest rates are so low that you can’t earn enough on your savings to keep up with inflation, the government owes $31,666 for every man, woman and child in America, and we have two of the longest running wars in U.S. history. We need something new, something smarter.
Here’s a radical suggestion. Let’s stop collecting taxes in foolish ways. All we need are two simple changes to our existing system.
Start with capital gains and dividends. Right now, people who earn more money in a year than you could dream of making in your lifetime pay only a 15% tax on most of that income, which is less than the Social Security and Medicare taxes that any middle class wage earner pays on their income. With patience and good planning, they pay no tax at all on their gains. Why do we have such a strange system? Economists will cite two reasons.
First, if we tax these earnings from wealth as heavily as we tax earnings from work, then the wealthy will tend to spend more of their money instead of investing it. But the government just went deeper into debt sending out billions of dollars in checks to try (not very successfully) to get people to spend money. So why are we bribing the wealthy to NOT spend money?
Second, because people can avoid having taxable gains by simply not selling their stock, having a normal tax rate on gains will tend to keep investment dollars from flowing to the best investments, which is bad for the economy. But what if instead we got corporations to pay out all of their earnings as dividends and then have to ask people to reinvest the cash? That would be a much more effective way to make money flow where it should.
Now consider corporate tax. Under our system, if a U.S. corporation earns $1.00 in Switzerland and keeps the cash out of the U.S., it keeps $1.00. If it earns the same $1.00 in the U.S., it must give $0.35 to the tax man. So where do you suppose companies will put their most valuable activities? Worse, this is an addiction. Again, if the company brings the cash home it pays tax, so it reinvests anyplace but here. Reinvesting that cash at a 4% return abroad is as good as getting a 9.5% return after bringing it home. That kind of incentive is what has been killing U.S. jobs and keeping down U.S. wages. There is less demand for U.S. workers because this is a bad place to invest, so employees can’t demand as much pay.
What is the simple solution? Give corporations a deduction for paying dividends, and make up the lost tax revenue by getting rid of the capital gain benefits on the individual side and raising taxes a bit on people earning over $500,000 a year. On average, the over $500,000 group would still pay total federal and state income tax of only 37.6%. Cash would flow and jobs would grow. Wouldn’t that be smarter?
Matt Lykken is an international tax attorney and the Director of SharedEconomicGrowth.org.
Biographical information at http://www.sharedeconomicgrowth.org/home/aboutus.html
This makes perfect sense to me, and I’m not even an economist. Your ideas reflect what is lacking in our government, which is common sense; ideas, too, which would not be difficult at all to implement. Thank you for your post.
My Union Friend,
Here are a couple of links that I would like to share with you. I hope you will make time to watch these clips. I found them to be quite interesting from an economic and historical standpoint. Judging from your comments; I think you would enjoy them.
http://video.google.com/videoplay?docid=-515319560256183936
http://video.google.com/videoplay?docid=-9050474362583451279
Fraternal Order: I watched the first video, and am anxious to watch the second as soon as I can. Thank you so much for sending them. Wow! what an interesting chronological survey of our economic system. I have learned history from an ‘events, dates, names’ perspective, but not from an economic perspective; this information definitely clarifies many of the questions I have had about the events of our history and certainly gives me a much better understanding as to WHY things unfolded the way they did. This is a real ‘eye-opener’. Thanks again.
When this recession is over will this be another jobless recovery? In the 2001 recession, companies used the opportunity to outsource and offshore everything. While GDP picked up, jobs did not which is why it was called a jobless recovery. There is no reason to think that this recovery will be any different. The high priced consulting firms are still telling corporate America to outsource and offshore everything. We may look back at the current state of the job market as the golden years. In the future it would not surprise me if unemployment reached 10% and one third of the workforce was forced into part-time or contractor status. Then even the upper middle class will be complaining about being hollowed out.
I say write Matt Lykken in as our choice for President.I wish someone in Washington was listening to him.