Decision Time for Taxes and Job Growth
The big news lately has been the release of fourth quarter earnings by corporations; and many earnings reports have been extremely positive, surprising a good number of investors and economists. While circumstances have developed mostly as we expected; as anticipated the recovery in employment has also continued to lag behind.
While the job market has continued to suffer, it has done so mostly unnecessarily. If Congress and the White House were set on eliminating unemployment, as they often claim, they could accomplish a lot with just two easy steps:
- Allow corporations to deduct expenses associated with new plants and equipment, rather than depreciating these assets over many years.
- Encourage corporations to bring back funds held offshore at a low tax rate - say 5% - and also reduce the US corporate income tax to 20%.
These changes in tax policy would do several things. First, they would put our corporate income tax roughly on par with the rest of the world. Second, they would encourage companies to bring back money they are currently sheltering off-shore, which few realize as being a staggering sum of over $1 trillion.
Most importantly, however, these policy changes regarding capital investments would encourage companies to invest in plants and equipment by making their tax benefit immediate, rather than delayed.
Many argue that such pro-business tax policy is unfair to the working class of this country. Ironically, they seem to prefer keeping corporate taxes high, which has so far discouraged job growth so much of the working class has been unable to find work.
The bottom line is that the political leaders in this country need to decide between (a) tax breaks and jobs or (b) no tax breaks and no jobs.
As the political debate continues in this country, things are getting much more heated in other parts of the world; most notably in Egypt. What is going on in Egypt will have serious implications for the global economy, as the Suez Canal is a major shipping route, especially for oil.
Meanwhile, back state-side there has been a big push among drilling companies to purchase gas leases in various parts of Ohio, Michigan, West Virginia, and New York, which seems a likely sign that they will resume exploring for gas and oil on-shore in the United States.
This couldn't come at a better time, as lately prices in the US have been on the rise, especially for food and energy. Many attribute these price hikes to inflation, though it's actually a simple matter of supply and demand.
Energy supply has come into short supply because of factors like Obama's moratorium on off-shore drilling, while food prices have risen as outrageous weather conditions have killed crops. It certainly isn't helping that roughly 30% of corn produced in this country has been used for producing ethanol, thanks to political pressure from green energy advocates.
Many of these things - the political turmoil in the Middle East, the rising food and energy prices, and the lack of corporate investment - may sound familiar for those old enough to remember the administration of Jimmy Carter, whose administration tried to mask the problem of rising prices by printing more money. If the government tries that this time around, inflation will assuredly result; just as it did under Carter.