The Senate has voted on their version of the Tax Cuts and Job Act and it is now in reconciliation. This is when both the House and Senate will work together to resolve the differences and then it will be off to the President for his signature. The Political Great Whine briefly reviewed a draft of the Senate’s version and was hoping to find specific language about job creation, training, or anything that would mandate businesses to invest their massive tax savings into job opportunities…but did not find anything. This post will discuss three provisions in the current tax legislation that will impact working and middle class families. Specifically, as it pertains to the creation of jobs.
Reduces the Corporate Tax Rate for Businesses
There are a lot of goodies in the legislation for businesses, the biggest of which is the 20% flat tax rate. The rationale is that by reducing the corporate tax rate, companies will not go abroad and those who are, will now have an incentive to come back resulting in job creation here in the United States. The assumption that businesses will stay in the U.S and create more jobs ignores the evidence that the primary reason companies go abroad is to reduce their biggest expense of all – labor.
One of the basic tenets of capitalism is to maximize profits and minimize costs. If a company can increase their production and pay lower wages in China, then that is where they are heading. Many of the developing countries that companies move to do not have minimum wage laws and due to the country’s poor economy, getting paid $2 an hour (American dollars) is understandably upward mobility. Of course, have a lower corporate tax rate is icing on the cake, but what is driving companies to move abroad is cheap labor not cheap taxes.
Repeals the Work Opportunity Tax Credit (WOTC)
Beginning after December 2017, the Work Opportunity Tax Credit (WOTC) will go away. This is a monetary incentive for businesses to hire the following groups:
- Recipients of Temporary Assistance for Needy Families (TANF)
- Food Stamp Recipients
- Unemployed Veterans (including disabled Vets)
- Designated communities in Rural Renewal Counties (RRC) or Empowerment Zones.
Currently, businesses get a tax credit if they can show that they recruited and hired individuals in any of those groups. Veterans, low-income, and rural communities will have to compete with highly skilled and highly educated individuals for jobs that are increasingly requiring more skills and education. With the WOTC potentially gone by January 2018, there will be no financial incentive for businesses to invest in less skilled and/or less educated individuals. It is not clear how getting rid of an incentive that promotes work opportunities for disabled Veterans, low-income families, and rural families will promote job growth.
The language in the Tax Cuts and Jobs Act clearly outlines the tax cuts that businesses will receive, but there is no requirement to use the savings to create jobs.
Consolidates and Repeals Several Education-Related Deductions/Credits
So many educational incentives have been removed, it is difficult to pick a place to start. First, working and middle-class families will no longer be able to deduct the amount of interest paid towards student loans obtained to earn degrees and learn new skills. The amount of assistance individuals receive from their employers to continue their education will no longer be tax-exempt and will be added to their taxable income. State and local tax deductions for public schools have been entirely eliminated. Expensive colleges that have endowments which help low/middle-class individuals pay for their education will have to pay an excise tax which is approximately $250,000 per student. However, conservative Christian colleges such as Betsy Devos’s alma mater Hillsdale College) are exempt. Those are just a few.
For businesses, the financial incentive to invest in training less-skilled workers is removed and for individuals, the deductions and credits that made professional development affordable are gone. Higher paying jobs in hot industries like technology and analytics require degrees, certifications, and experience that are neither free nor cheap. Open source courses are a good way to sample courses at various institutions for free but you cannot earn a certificate, degree, or list it on your resume.
Where are the “Jobs” in the Tax Cut and Jobs Act?
The removal of financial incentives that help businesses create job opportunities or that help people afford the education/training needed to compete for well-paying jobs is not a winning strategy for the working and middle-class. The tax cutting part of the “Tax Cuts and Job Act” is clearly defined in the 450 pages of legislation but the “Jobs” part of the title is not addressed at all.
For more details about the legislation, please read the analysis conducted by the Tax Policy Center.
Thanks for “listening” to me whine. Hopefully my whining has made you think. If so, tell your friends/family/colleagues that you heard it through the Political Great Whine!