Obama proposed this deal last night:
The American Jobs Act includes $140bn for building roads, bridges and other major infrastructure projects that would put hundreds of thousands into work; $70bn in tax breaks for small businesses; tax credits for companies taking on military veterans; tax and training for the long-term jobless, and aid to states so that they do not have to lay off 280,000 teachers, as well as other workers. Infrastructure projects include repairing and modernising 35,000 schools.
The biggest expenditure, $175bn, is to put more money into the pockets of workers and their families through a 50% cut in payroll tax.
That's nothing like big enough to solve the USA's problems.
But kids will benefit.
Hundreds of thousands will have jobs.
Small employers will benefit.
This is a stimulus package.
And it will have a long term beneficial legacy.
But the Republicans shunned it.
That's because like the Tories in the UK they are utterly indifferent to the needs of real people. They don't want a strong economy. And the chaos of recession and depression is their opprtunity to dismantle the role of governemnt, and no doubt the role of democracy with it if they get their way.
Obama looks a forlorn figure in the US but God help America if they get a Republican president.
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The Republicans want to dismantle democracy? Surely not. Surely not.
I am far from being an expert and I have a simplistic view of very complex inter-relationships, but doesn’t the whole neoliberalism, liberalization, globalisation, tax haven, free trade, free movement of capital, and free movement of people agenda make any government stimulus package much less effective in helping the UK citizens who will eventually have to pay the bill?
Infrastructure projects will be put out to tender, and many will go to foreign and multinational companies (who may have opaque tax arrangements around their profits). Jobs will be created, but employers have openly said they prefer migrant workers who have better skills and a better work ethic than what they find in the UK labour market (for the same level of pay i.e. migrants are better value for money). For example, when the Olympics contruction project started in 2008, a record 20,000 national insurance numbers were issues in Newham to migrant workers. At least 2 of of the main IT suppliers for the Olympics are in the top 10 importers of non-EEA IT workers and offshorers of IT work.
So how do you make sure that any stimulus package doesn’t get heavily diverted away from helping UK citizens and the UK economy?
In my opinion, the best way to stimulate UK jobs is to cut (and eventually remove) employer national insurance contributions. It is the hidden tax on employment and jobs, and governments have increased in because it is invisible to most people. Of course this would be helping employers rather than everyone directly, but it is the most likely tax cut to help employment and be mostly directed to businesses than employ people in this country.
Which is precisely why the polices of the Green New Deal are designed the way they are – they happen on the ground in the UK
See my blog on Green quantitative easing this morning
As for your idea of a stimulus – where would you find the replacement £40 billion you are giving away?
“As for your idea of a stimulus — where would you find the replacement £40 billion you are giving away?”
Well, it either gets added to the deficit, or the government recover it through more public sector cuts.
Important to remember; tax cuts are money the government no longer has and has to recoup it from elsewhere. If there are more hospital closures or more indirect taves, that’s generally how they’re getting that money back.
How to fund it is a good question, and, of course the effect might need less funding than you think.
Firstly, let’s say that the public sector already pays a quarter of the employers national insurance contributions (just a guess). So thst is £10 billion already.
Secondly, it will become cheaper to employ people in the UK making it more competitive to do so. Jobs will be created and protected and the benefits bill will fall and more taxes will be collected.
Good points Gary but I dont see how this reduction or elimination of NI addresses the labour and services liberalisation issues you’ve highlighted i.e. who gets the contracts, who gets the jobs?
One other point I would like to put forward but I don’t know if it is correct. Increassing employers national insurance increases the price of UK produced goods and services. Increasing VAT affects all vat’able goods and services. So vat is preferable to employer NIC if you want to help the UK.
Imagine if a government service could be offshored to Hungary and be 10% cheaper, but removing employer NIC would negate that saving.
But that would only be true if the gov’t failed to account for the fact it’s really paying itself….
Richard – as you say “that would only be true if the gov’t failed to account for the fact it’s really paying itself….”, which of course it does not. The treasury raises money and other departments spend it and there isn’t any joined up cost/benefit analysis of public sector spending and offshoring etc (e.g. the recent Bombardier/Siemens decision).
Even HMRC is leading the way in offshoring work to “save” money without accounting for the loss of income tax and national insurance. Doing the work in-house in the UK would result in much of the money returning to the treasury. However the free trade, liberalisation, neoliberalism, international “fairness” and “competition”, “opening up of public services to the private sector” (especially the non-UK private sector) etc dogma means only the price is considered and not the wider picture.
You can’t subsidise “doing it in the UK”, but you can shift taxes away from UK employment to consumption.
Some US states are less subtle and tax phone calls to/from offshore call centres.
Linda – Yes, switching taxes away from employment to consumption does not eliminate the labour and services liberalisation issues, but it does rebalance things a small amount. And as you know on the mode 4 side, transferred workers are already exempted from NIC for the first 52 weeks (Social Security Contributions Regulations 2001 section 145 b) which mainly covers skilled workers.
Maybe less well known is the information from last year’s HMRC consultation on the minimum wage and expenses. Some employment businesses providing unskilled/low skilled temporary staff operate “salary sacrifice” schemes so that national insurance contributions are cut significantly or not paid:
http://www.hm-treasury.gov.uk/d/consult_minimumwage_expenses_responses.pdf
In some sectors:
“It reported that 70% of these workers are migrant workers and over one-third of those interviewed did not understand the contents of the documentation that their Employment Business had given them, but felt under pressure to sign up to it.”
Temporary migrant workers are used extensively as agency workers both in skilled and unskilled work, and are particularly unlikely to pay NIC.
The fact it does not does not mean it should not