August 28, 2012 Paul Clolery
Minute after minute, hour after hour, day after day, the Democrats and Republicans will be arguing about taxes at their conventions and on the campaign trail. They will bicker about the merits of tax cuts versus tax increases and revenue enhancements.
Here’s the problem: Eight years of tax cuts while fighting two wars during the administration of President George W. Bush left a confiscatory budget deficit and federal debt. President Barack Obama’s plan of increased taxes and federal fees slowed the downward slope but has not turned around the economy as was advertised. Unemployment remains an economic albatross.
And, according the Congressional Budget Office, the nation is staring down the barrel of another recession if there is no change to the course of the current federal budget.
Eight years of tax cuts did not spur the economy. Nearly four years of increased taxes and fees have had little positive effect. The only thing to conclude is that economists and politicians are looking at the wrong common denominator in the equation.
Fiddling with taxes has not been the answer because not factored correctly into the math is the human element of stimulus. The national discussion needs to be about people and jobs, not taxes. The nation’s charitable sector gets it. The sector is about people and transforming lives.
Depending on who is doing the math, the tax-exempt sector employs between 10 and 12 percent of all Americans. The numbers are far greater in states such as New York where the number is around 20 percent. Those workers pay taxes, as do the tax-exempts when it comes to payroll taxes and unrelated business income. Many cities are now demanding and receiving payments in lieu of taxes from their tax-exempt organizations.
While the national economy was creating no net new jobs during August of last year, the charitable sector was adding positions, according to Lester Salamon, who heads the Center for Civil Society Studies at Johns Hopkins University in Baltimore, Md.
During an era of tax cuts and business incentives, from May 1999 through May 2009, jobs in the private sector increased just 1.1 percent, according to Bloomberg/BusinessWeek. The majority of those jobs were in health and education, areas dominated by the nonprofit sector.
There was a day last year when Apple Computer had $76 billion in cash on hand, $2 billion more than the federal government. Where’s Apple investing in jobs? Apple’s jobs are in Asia, not the United States. Of course, the answer to the question of what it will take to get U.S. companies to invest in the American workforce remains thorny.
So while the general economy is idling, the nonprofit sector is getting it done when it comes to creating jobs and, if you’ll pardon the expression, economic stimulus.
But since the politicians are fixated on taxes, here’s a tax idea that will create jobs.
According to a J.P. Morgan report, roughly 600 U.S. companies are holding 60 percent of their cash overseas in more tax-friendly environs. According to the report, those firms have at least $588 billion in cash sitting in foreign accounts. The federal government should incentivize those companies to repatriate that money — tax free — with one caveat.
At least 28 percent of the repatriated money must go to the tax-exempt sector for job creation and service delivery that improves the common good. The 28 percent is pegged to the amount of tax paid by an individual who is single with taxable income between $85,650 and $178,650, not quite a 1-percenter.
The repatriated money could to a tax-exempt bonding agency that underwrites road construction. It could go to a charity that delivers vital social services local, state and federal agencies can no longer afford. The money could go to nonprofit organizations dedicated to job training or to community colleges and four-year institutions for more educational opportunities. That money would be a new funding source and would allow the federal government to spend less, reducing the federal deficit while fueling the economy.
There are 3.4 million jobs available in the U.S. today but insufficient numbers trained for those positions. The nonprofit sector has an impressive track record of getting people back to work through practical job training programs and that repatriated money can fund those programs.
What’s a better investment: Wall Street or Main Street? Both are needed but since Wall Street and Washington seem unable or unwilling to lead the jobs push, the nonprofit sector on Main Street needs to do it.
In this scenario, the government reduces spending on social programs and unemployment insurance. Charities receive the funding they need to deliver vital social services, improve lives and strengthen communities across this nation. Businesses get a highly-trained workforce with those firms that bring money back home getting the first crack at the newly-minted, employees. Those new employees will pay their fair share of taxes infusing money back to the federal government to shrink the deficit.
Paul Clolery is editor-in-chief of The NonProfit Times.