Back to Work

by Bill Clinton

  An investment banker friend suggested what might be a better way to achieve the same goal. He said many banks are doing well by collecting mortgage payments without making loans because they no longer pay interest on deposits. He believes that if the Fed required 1 percent to be paid on deposits by banks with low loan-to-deposit ratios, they’d make more loans, especially to small businesses. One of these ideas is worth a try.

  4. Give corporations incentives to bring more money back to the United States. Beyond bank holdings, the only available large concentration of cash is in corporate treasuries. A lot of it is being held overseas. One reason corporations don’t repatriate the money they make in other countries is that they have to pay U.S. taxes on the income when it comes home, reducing their earnings and giving them an incentive to reinvest it in new production and research facilities in other countries. Another reason is that other nations are more aggressive than the United States in doing what American states and cities do: providing positive incentives for companies to locate in their countries and helping companies with operations there already to expand.

  In 2011, Andrew Liveris, CEO of Dow Chemical, a U.S. company with global operations that has maintained 40 percent of its workforce in America while two-thirds of its sales are in other countries, released a book titled Make It in America. It has several suggestions for increasing companies’ investment in the United States. Some of them would require congressional action, but this is one area in which we might be able to get bipartisan agreement.

  As Liveris points out, the cost of labor is not preventing good jobs in advanced manufacturing and related research and development activities from being created in America. Labor is increasingly a smaller percentage of overall costs in sophisticated manufacturing, and our labor costs are already competitive with Germany’s, the world’s most successful exporter of high-end manufactured products. Also, our workers are highly productive, reducing the disparity in costs with countries in which employees earn less but are also less efficient. The United States is having trouble in manufacturing because other countries are outcompeting us with lower tax rates, more tax breaks, loans, and some outright grants to offset start-up costs. Other countries’ governments also often pledge to buy a new factory’s products to minimize the risks of losing money in the early years. Why would countries like Germany and Singapore do this? Because they know every new high-quality manufacturing job creates on average 2.5 other jobs as long as the plant is running.

  The United States doesn’t do this enough. A couple of years ago, Los Angeles was trying to recruit a foreign company to build fast trains for a planned high-speed-rail network to connect California’s most populous areas. Both the company and its major competitor for the federally funded project were based in Europe. The big difference was that one company planned to make all the railcars in Los Angeles, creating several thousand high-paying jobs, while the other planned to import them from its home country. Eventually, the Los Angeles proposal fell apart for other reasons, but it is relevant to this discussion. Why? Because the federal government told Los Angeles that since federal money would pay for the fast trains, the very different impacts on the local economy of the two proposals could not be considered in awarding the bid! In other words, if the performance, safety, and customer-comfort qualities of the two products were identical and the bid of the company committed to manufacture railcars in America was $100 higher than the importer’s bid, the importer should win the contract paid for with your tax dollars. This is nuts.

  In 1993, when I supported an increase in the corporate tax rate on income above $10 million from 34 to 36 percent to reduce the deficit, it made sense because our rates were still highly competitive with those of other countries. That’s not true anymore. When companies like Intel, HP, Microsoft, and Dell opened manufacturing plants in Ireland, they did so in part because the Irish cut corporate taxes to 12.5 percent.1 The average European tax rate is 23 percent.

  Among wealthy nations, we now have the second-highest corporate tax rate in the world, and because of recent changes in other countries we’re now the only wealthy nation that taxes income earned overseas when it’s brought back home. We’ve also fallen to seventeenth in the level of our research and development tax incentives. We have to become more competitive. Big corporations don’t get hurt by the current system. They just put plants in other places, create good jobs there, and leave their earnings there.

  In the future, we’ll have to design a progressive revenue system that relies more on personal income and consumption taxes, like the value-added tax, which also would help to increase our exports, because they escape the last step of tax, making our products more affordable in other markets.

  For now, I think the Democrats and Republicans should work together to amend the corporate tax laws with the understanding that the tax rates would go down but the revenue wouldn’t, by broadening the tax base through the elimination and tightening of credits and deductions as the Simpson-Bowles Commission recommended. Remember, while our tax rate is 35 percent, our tax take is 23 percent of corporate income, because of a wide array of credits and deductions that reduce some big corporations’ tax burden to less than 20 percent of income. If the percentage of income we take is competitive, why do we need to change? Because the benefits of the credits and deductions are unevenly distributed and often go to companies that won’t, or can’t, create nearly as many jobs in the United States as companies that actually pay the higher rate.

  While writing this book, I learned that many large U.S.–based companies publish their overall employment figures but don’t break them down by country. Apparently, they’re concerned about bad publicity. Andrew Liveris published Dow’s numbers in his book, but he’s proud of the fact that Dow has 40 percent of its employment in the United States compared with one-third of its sales here. It would be helpful to know how companies claiming large credits and deductions rank in the ratio of employment to sales in the United States. Then we could design a corporate tax reform proposal that would target more tax relief to the job creators.

  I do disagree with one element of the Simpson-Bowles plan. I think we should keep the research and development incentive and increase it. It will more than pay for itself, because more and more companies want their research operations located near their factories, to get the quickest possible feedback and implementation of positive discoveries.

  5. Let companies repatriate the cash now with no tax liability if it’s reinvested to create new jobs. Even if the two parties agree to work together in good faith, it could take a year or more to reform the corporate tax laws. Meanwhile, I think we should make another effort to bring a lot of the overseas earnings of U.S. companies back home. The 2004 effort to do this, which gave corporations a grace period to repatriate money and have it taxed at a 5.25 percent rate, was widely considered a bust, because almost none of the money was invested to create new jobs. Instead, most of it went to pay dividends, buy back stocks to raise their price, and increase executive pay. The three companies that repatriated the most cash, 20 percent of the total, actually cut thirty thousand jobs in the United States. While the government did get a onetime increase in revenues, it’s estimated that the Treasury lost $80 billion over a decade on money that would have trickled back into the United States, even at the higher rate.

  We now know that since all other wealthy nations have abandoned taxing the income their corporations earn in other countries, we’re not going to get that $80 billion. Therefore, I think the president should offer U.S. companies a three-part deal: (1) an honest effort to work with Congress to develop a competitive corporate tax system, with lower rates that will save money for most companies while requiring those paying far below the average rate of 23 percent to pay their fair share; (2) the ability to repatriate the money now and do whatever they want with it, though at a higher rate than the 2004 tax holiday rate, say 15 or 20 percent, with the money going to seed an infrastructure bank or, if that can’t be done, to fund
infrastructure grants to states; and (3) the ability to repatriate with no tax liability any funds they can prove are spent to increase net new jobs in the United States. We’re not going to get the money in taxes anyway. Let’s give companies a real incentive to put America back to work. If they just want it to increase dividends and compensation, they’ll pay 15 to 20 percent to reap the personal gains, and we can use the money to repair and modernize our infrastructure.2

  6. Pass President Obama’s payroll tax cuts. In the American Jobs Act, the president has proposed a 50 percent cut in payroll taxes for 160 million workers, a tax cut worth about $1,500 to the typical family, and a 50 percent cut in employer payroll taxes on the first $5 million in payroll. If enacted by Congress, it will have a positive impact on employees who’ll have more spending money and employers who believe that, with more employees, they can increase sales of their products or services. All the independent studies show that the positive impact of payroll tax cuts is considerably greater than that of keeping the Bush-era tax cuts for high-income individuals.

  The president has also proposed a complete payroll tax holiday for all net new jobs and increased wages, up to $50 million in payroll increases. We don’t collect payroll taxes on nonexistent jobs anyway. This would help employers of all sizes as well as their employees. There are ways to prevent abuse and to require that the tax be paid if, for example, already-employed workers are counted as new ones, so that employers will get the benefit only if they add jobs.

  In addition to the large tax cuts, the president has proposed a $4,000 tax credit for employers who hire people who’ve been out of work for more than six months, rising to $5,600 for unemployed veterans and $9,600 for disabled veterans.

  AS WE SQUEEZE DEBT out of the economy, bring corporate money back into it, and provide payroll tax relief, there are some other things government can do that could make a big difference.

  Before I get into the specifics of what and why, we should look at the nature of our jobs challenge.

  Even in good times, every country needs an economic strategy designed to speed the development of business and job growth in the most promising areas. That is especially true in nations with more open trading systems, where the competition is stiff and nothing can be taken for granted. Remember what happened to job growth in the first decade of the twenty-first century before the crash in September 2008. It was virtually nonexistent, because all our growth was concentrated in housing, consumer spending, and finance. The first two were limited by the capacity of average Americans to take on more debt, especially when they weren’t getting pay raises.

  The financial sector, facing limited opportunities to make money the old-fashioned way, by providing issues of new equity or debt to help companies grow and hire, resorted to ever more esoteric devices to transfer mortgage risks away from those who had taken them, to hedge against possible losses, or just to gamble on whether mortgages or other assets were going to go up or down in value. There was an enormous amount of money moving around, but it didn’t create employment and, in the end, wound up costing millions of jobs. The people who made a percentage on each deal did well, but because of the nature of the investments there was no trickle down. The net effect was to increase inequality, weaken once profitable businesses, and reduce employment.

  We need a strategy that will create jobs and expand businesses, one that includes profitable opportunities for the financial sector to invest in broad-based growth. All of us have a big stake in putting America back to work. For one thing, we can’t solve the debt problem without more growth. Without growth, tax increases won’t produce the necessary revenues, and spending cuts will be outpaced by spending increases related to unemployment and poverty. It will take strong growth, spending cuts, and revenue increases to make a real dent in the annual deficit and our long-term debt problem.

  In August 2011, I was at home, channel-surfing, when I saw the Dallas Mavericks owner and high-tech entrepreneur Mark Cuban appearing as a panelist on Bill Maher’s show. They were discussing the relative merits of President Obama’s budget approach and the Tea Party’s “no new taxes” position. Cuban said he didn’t mind paying more taxes but “Clinton’s tax increases” had nothing to do with the move from deficits to surpluses during my administration. According to him, the tech boom did it all.

  Cuban was wrong, but he wasn’t all wrong. I had the good fortune to become president at the moment when the information technology (IT) revolution broke out of its strongholds in Silicon Valley, Massachusetts, Texas, and northern Virginia into virtually all American businesses and homes. During my eight years, IT jobs represented only 8 percent of total employment but accounted for more than 20 percent of job growth and more than 25 percent of income growth. So the tech boom did lead to higher-than-estimated tax revenues, which enabled the United States to get its budget in balance earlier than either my administration or the Congressional Budget Office first predicted.

  But our economic plan, especially the 1993 budget, also made a big difference, for two reasons. First, the budget reversed twelve years of trickle-down economics. The combination of serious spending reductions and revenue increases drove interest rates down and sent the bond market roaring. Business investment increased, and lower annual interest costs on all loans and credit purchases saved $2,200 a year for the average family, providing more money for Americans to spend on computers and other tech products. Second, because accelerating the spread of information technology was at the heart of our economic strategy, we took a number of other steps that helped produce more jobs and growth, including the E-Rate, which saved schools, hospitals, and libraries $2 billion in Internet access costs; the decision to oppose taxing Internet sales for a few years to get e-commerce up and going; and the new telecommunications law, which fostered competition and gave many entrepreneurs the chance to hold their own with large companies.

  I left office just as the so-called tech bubble was deflating, bringing in its wake a short recession. IT stocks had gone through the roof in the late 1990s, as demand for telecommunications products and services increased an astonishing 500 percent a year between 1997 and 1999. The recession was short-lived, largely because the bursting bubble dropped the growth rate to “only” 50 percent a year. Soon the American economy was growing again, but without many new jobs, because we didn’t follow the 1990s IT boom with a new source of job growth for the first decade of the twenty-first century.

  When he was governor of Texas, President George W. Bush signed legislation that helped make his state first in the nation in the production of electricity from wind. After he became president, his Energy Department released a study saying that with an adequate transmission system, 20 percent or more of our nation’s electricity could come from the wind that blows from North Dakota’s border with Canada to south Texas’s border with Mexico. If clean energy had been targeted as our source of new jobs in the last decade, a lot more of them would have been created.

  Even if we can get more money flowing with steps like those I outlined above, we still have to have at least one big source of new, well-paying jobs. In his first two years, President Obama identified and pushed to implement four of them: building a twenty-first-century infrastructure, leading the world in the production of green energy and energy conservation technologies, restoring America’s manufacturing base, and doubling exports.

  The Tea Party bloc in the House will almost certainly oppose any congressional action in these areas if it involves new spending. That’s an ideological nonstarter for them, whether it would work or not. And the Senate Republicans will try to filibuster any new spending because they’re afraid it will work. Nevertheless, I hope the president will propose what he thinks the country needs. Who knows what will come out of the debate? Maybe something good.

  Let’s look at the benefits investments in these areas could bring.

  7. Build a twenty-first-century infrastructure. Millions of jobs could, and should, be created to maximize America’s opportun
ities for economic growth and a better quality of life in the twenty-first century. If you look at where the world is going and how fast it’s getting there, we clearly need much faster broadband connections; a smart electrical grid; more efficient ports and airports; and an upgrade of our old investments in roads, bridges, rails, and water and sewage systems. The stimulus allocated some money to begin those efforts, but not enough, and it’s largely been spent. The antigovernment members of Congress and their supporters in the country say we can’t afford to do these things. I think they sometimes forget that the “American exceptionalism” they embrace with words was built by visionary deeds. During the Depression, the Works Progress Administration and the Civilian Conservation Corps employed more than eight million people building projects that still benefit us today.

  A good place to start is the infrastructure-bank legislation supported by the president in his jobs speech. It’s co-sponsored in the Senate by John Kerry, Democrat from Massachusetts, and Kay Bailey Hutchison, Republican from Texas, and in the House by Rosa DeLauro, Democrat from Connecticut. The bill envisions building a twenty-first-century infrastructure with public-private partnerships. It could take investments from both the private sector and foreign governments flush with cash and looking for a safe place to put it. This is a good idea that has been discussed for years. Many other countries build or operate public projects with private investment. As long as there are high standards for performance and safety, we should too. Of course, the federal government has to put up some money. We could start with $10 billion or $20 billion, funded by the extra income flowing to the Treasury from the Federal Reserve’s profits on the investments it made to avert a full-scale depression. Or we could kick in the revenues corporations will pay if we allow them to repatriate income earned in other countries for reasons other than job generation. In either case, ordinary Americans would see some positive benefits from the bailout money and corporate cash surpluses. And the returns on investment are huge: it’s estimated that $10 billion in infrastructure investment could generate an economic gain of $600 billion over ten years.