Rob Arnott gave a brilliant interview on Kingworld News recently when he stated that the government should consider the creation of a “negative income tax” for people without jobs.
Having taken up work as a lumberjack/firewood guy in New Mexico in 2008 (I was known as “Woody” for almost 2 years) to subsidise my income from financial advisory work, I found that I needed to expand my small operation by hiring on an employee to whom I could pay a fair wage considering the employee did not have to pay for chainsaws, a log truck, wood splitter, newspaper ads, etc…
I thought of offering him $10 an hour which would be more than generous. The only problem was, that between the two of us we could only gross around $200 a day or so on average during the peak wood burning season, and it was certainly not easy work. Nevermind the fact that it was somewhat humiliating for a finance degree holder from ASU to be out in the woods with overalls and work gloves on, but during the financial crisis my investment business was incredibly slow thanks to a failed proxy battle and to some incredibly shady management teams at a few of the microcap value stocks that I owned at the time, but I digress. (wouldn’t it be nice for the SEC to actually verify the books of public companies for investors? Isn’t that their job?)
You see, right now people in their late twenties and early thirties are facing the worst job crisis since the Great Depression. As Arnott has argued, 18% or more of U.S. males are out of work. The number may actually be around 35% according to www.automaticearth.com. Losing your job is incredibly humiliating, and many people who lost their jobs also lost a good deal of capital in the crash (and again during this latest crash). In any event, I found a great service in Santa Fe that subsidized workers by paying employers $2 an hour to hire people with a criminal record.
The guy who I hired, who will go unnamed, ultimately did not work out because I couldn’t give him enough hours to work. One of the saddest aspects of the unemployment situation in the U.S. is that many times men with families are forced to work off the books or in the black market to make ends meet.
What I liked about the subsidy program was the system allowed me to hire the guy for $8 an hour while he received $2 an hour from the charity — everyone was happy, including the taxpayer who has to pay for his food stamps, unemployment, and incarceration. Arnott’s viewpoint that says the government should stop bailing out corporations and instead should subsidise workers makes a ton of sense, because we are spending and printing vast sums of money but we have failed to create any actual jobs.
I would also argue that small businesses in rural communities are the backbone of America. By allowing the weaker small businesses to hire via a negative income tax and by not extending this negative tax to fortune 500 corporations we may actually level the playing field while stirring much needed competition in the service verticals. By small business I mean corporations that have a net income of under $100MM per year. Subsidizing businesses larger than this largely means handing money to those who don’t need the help — namely, S&P 500 companies who largely hire workers overseas and are more or less globally based and not as “American” as a small two guy firewood operation like mine was. Besides, large corporations have failed their shareholders because of stock options, agency conflicts, and a soft economy more than anything else and we have to find a way to make running a large company about the shareholders not the entrenched overpaid management C suite. Greed is not necessarily good.
You see if you spend $450 billion on a “jobs bill” that depends on the government to create those jobs, you simply have a recipe for waste, fraud, and corruption. If instead you paid small businesses to hire workers, you could put every jobless person in this country back to work and could greatly boost small business in America. Small businesses create the jobs, and right now we need jobs not IPads.
To hear the Arnott interview and to listen to a much smarter and wealthier individual break down the jobs picture, go to kingworldnews.com
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