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Reason Seems Absent In Call For Continued Employment Tax Holiday

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By Lowell L. Kalapa
(Released on 8/28/11)

One quick fix being touted by the administration to create the jobs America needs and so desperately wants is a continuance of the employment tax holiday that was initiated with this year’s payroll, dropping the employees’ share of the Social Security tax by two percentage points.

While it may be a good political sound bite, it certainly seems to be lacking in reasoning, especially as a greater strain is being placed on the Social Security system as Baby Boomers begin to retire or as the unemployed turn to Social Security to begin drawing benefits as a means of making ends meet. While the intent of the proposal to suspend the payment of two percent of one’s wages into the Social Security system was to put money back into the pockets of workers, it does nothing for those who remain unemployed. Further, because the reduction is only on the employee side, the employer must still come up with the full 6.4% for the employer’s share of the Social Security tax.

So one has to ask what will a continuance of the payroll tax break do for creating jobs? More importantly, what does the payroll contribution to the Social Security system do for the longevity of the program especially as the system becomes overburdened with retirees faster than the number of new jobs created? The suspension of the 2% contribution, in fact, merely hastens the day of doom for the system, a doomsday that can only be avoided in the future if benefits are reduced or the taxes on future workers are dramatically increased. If the intent is that with more money in their pockets, workers would go out and spend those extra dollars and stimulate the production of goods and services, thereby creating more jobs; as long as there is the fear of losing one’s job or not being able to pay the mortgage, consumers will not regain that confidence to go out and spend what little they have.

No, it will take more than a little pocket change to move this nation forward, to create the jobs Americans need. It has become more than apparent that America cannot spend its way out of this economic mess, piling up even more debt at a time when we have maxed out the nation’s credit card. The money is still there despite losses in the market, it is just that those who hold that cash still shrink in fear of yet another calamity.

That is where our nation’s political leaders need to step up to the plate and restore confidence and certainty in the vision for the nation. Instead of all of the gimmicks and tricks this administration has attempted over the past three years, it should announce a moratorium on any changes in the federal tax structure and on the imposition of new regulations and adopt a spending plan for the federal government that begins to reduce the growth rate in spending.

One pundit recently criticized the head of General Electric who the President had appointed to head up his economic recovery and job creation team for allowing his company to build a brand-new plant in Beijing which created hundreds of new jobs in China – not in America. But one has to stop and think. Was that decision made because there was greater potential for making a profit from the new plant because the margins were greater than building the same plant in America? Was it easier to establish that potential profit center there in a foreign country rather than here back home? Could that decision be telling us that it is no longer profitable to do business in this country and that is why the plant is being built in China?

Okay, some might argue that GE is being greedy and is only interested in making obscene profits but, hey, what do you think pays the bills, creates the jobs, and provides the capital for new and modern equipment. Profit in some vocabularies may not be politically acceptable, but guess what, profit is what creates jobs. Sure we should all be concerned about how that profit is used, but unless the business environment nurtures a profitable business climate, jobs will go overseas and American workers will go begging for work.

So what must the administration and Congress do to jump start the nation’s economy to create the jobs needed to put everyone back to work and to restore the fiscal soundness of the nation’s checkbook?

The number one job for elected officials is to put the nation’s financial house in order and to do so without extracting yet more taxes from taxpayers. In other words, bring spending back under control. Then let consumers and businesses rebuild the economic strength of the nation without government butting in, letting the free market economy flourish without much government intervention.

Lowell L. Kalapa is the president of the Tax Foundation of Hawaii. Mr. Kalapa’s commentary is printed each week in the Maui News, West Hawaii Today, Garden Isle News, and the HawaiiReporter.com.


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