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U.S. companies need payroll tax cut to create new jobs
June 10, 2006

BY ROBERT WALKER



























The Conference Board reported that consumer confidence fell sharply in May and many analysts attributed the fall to lingering concerns regarding jobs. Yes, people are concerned about the overall economy and they certainly are worried about higher gasoline prices, but for most voters it really comes down to this: How's the jobs picture?



Even with Iraq on the verge of civil war and oil prices surging, recent polls indicated that voters are equally concerned about jobs. How could that be? The job market has been steadily improving. The White House, in fact, has been trumpeting that 4.6 million jobs have been created since the tax cuts of 2003. The unemployment rate, by historical standards, is relatively low. So why all the fuss?

Sure, unemployment is a concern for the 4.7 percent of the labor force that is unemployed, but why should people put so much emphasis on job creation when more than 95 percent of people in the labor force already have jobs?

First, the jobs picture is a lot worse than the unemployment rate suggests. A lot of "discouraged workers" have dropped out of the labor force. The Center for American Politics, for example, reports that the unemployment rate in March would have been "7.0 percent if the same share of the population was unemployed today as at the beginning of the business cycle."

In fact, unemployment is more widespread than commonly believed. More than 70 million adults are not in the labor force, meaning that they are not actively seeking work. But many of them might seek work if jobs were more readily available, pay was higher or working conditions more flexible.

Even if you're working in today's economy, you may be worried about your job being outsourced or your employer relocating the business overseas.

Estimates vary, but as many as 50 million American jobs could, conceivably, be outsourced overseas. Citing the loss of 2.9 million manufacturing jobs in the last five years, conservative economist Paul Craig Roberts opined that, "The only safe jobs are in domestic services that require a 'hands-on' presence, such as barbers, hospital orderlies and waitresses.''

Working Americans are justly concerned. Over the past three decades they have witnessed firsthand the collapse of industries and the loss of jobs. And they know with painful certainty that a weak job market has contributed to a drop in real wages for many workers and made it easier for employers to curb health insurance benefits or freeze pension plans.

They don't take much solace from corporate profit margins or a rising stock market. They understand with growing anxiety that a rising tide may not lift all boats. What the country needs now is an economic policy that makes job creation "job one" in America.

Other industrialized nations, particularly those with even higher unemployment, are moving in that direction. Two years ago, Russia slashed its payroll tax rate from 36.5 to 26 percent. Germany's new government has pledged to reduce payroll taxes by 2 percentage points, and Italy's new prime minister has vowed to cut payroll taxes by 5 percentage points. These governments understand the central importance of job creation.

America faces many challenges, including our dangerous dependence on oil and the threat of global warming. In seeking solutions to these problems, let's not neglect the need to create jobs. If higher energy taxes, for example, are needed to reduce our consumption of oil, let's use the proceeds to reduce payroll taxes. That's what T. Boone Pickens, the oil magnate, recently proposed, and a growing number of conservative and liberal economists endorse the idea.

Fourteen years ago, political advisers were telling the politicians that "It's the economy, stupid." People today are a little savvier about what matters. The economy could be doing quite nicely, but for the vast majority of Americans, creating more jobs is what really matters.


Robert Walker is president of the nonpartisan fuller employment group Get America Working!