[Congressional Record Volume 143, Number 64 (Thursday, May 15, 1997)]
[Extensions of Remarks]
[Pages E941-E942]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




         A BOLD PROPOSAL FOR STIMULATING EMPLOYMENT AND GROWTH

                                 ______
                                 

                          HON. LEE H. HAMILTON

                               of indiana

                    in the house of representatives

                         Thursday, May 15, 1997

  Mr. HAMILTON. Mr. Speaker, I would like to bring to the attention of 
Members an important article published in Barron's earlier this year by 
William Drayton, an innovative thinker on economic and social 
development who founded the highly regarded non-profit organization, 
Ashoka. Mr. Drayton highlights the disappointing growth performance of 
the U.S. economy in recent decades. He also notes that more than 100 
million Americans are either underemployed or unemployed. Mr. Drayton 
argues that helping make these Americans more productive is the key to 
restoring higher long-term growth to the U.S. economy. To stimulate job 
creation, Mr. Drayton makes a bold proposal: replace existing payroll 
taxes with a variety of resource-based ``patrimony taxes.'' Not 
everyone will agree with this proposal, but Mr. Drayton's article 
merits careful consideration. It offers an original way of thinking 
about a problem that has frustrated U.S. policymakers for many years.

                     [From Barron's, Feb. 24, 1997]

                           The Hidden Jobless

                          (By William Drayton)

       What if America could rev up a growth rate that would make 
     Asians blush? What if it could be done all by market forces, 
     without an increase in taxes, or the deficit, or Big 
     Government? An administration willing to stop taxing jobs--
     and get the lost revenues from natural resources could bring 
     America roaring into the 21st century with millions of new 
     jobs. America could retain world economic leadership, and it 
     would be able to heal the social divisions increasingly 
     tearing us apart.
       The first step is to accept that the country is not using 
     50% of its workforce--i.e., that unemployment is many times 
     the 5.3% that the White House trumpets. The numbers are hard 
     to duck. The 1990 census counted 6.87 million officially 
     unemployed versus 133 million employed. However, only 80 
     million of that 133 million had full-time jobs (at least 35 
     hours a week). The other 53 million were part-time and 
     seasonal workers, and only 14.6 million of them averaged 20 
     hours a week or more. A further 49.9 million perfectly 
     healthy adults who are entirely free to work are omitted from 
     the Labor Department's ``work force'' or ``unemployed'' 
     categories: Because they are neither working nor actively 
     seeking work, they are officially invisible. Including these 
     invisible souls, 57% of the potential workforce are un- or 
     underemployed--and that does not count millions more who 
     have, for instance, some ailment but nonetheless want 
     work. This makes for a very loose labor market indeed, and 
     it entails gigantic social costs.
       If the country has over 100 million un- and underemployed, 
     why do our statistics and discussions focus only on the seven 
     million ``unemployed''? Because they are the political 
     problem: The others have psychologically accepted dependency/
     unemployment and are not actively angry or seeking help.
       Giving these tens of millions of people jobs is our 
     country's only possible avenue to fast growth. There simply 
     is no resource other than this vast reservoir of un- or 
     underutilized labor--and all the education, health care, and 
     other human capital invested in them--that can provide the 
     energy necessary for the economy to break out of its pathetic 
     2.5 percent growth rate. We have lost our raw materials 
     advantage: As one of the most exploited continents in the 
     world, we increasingly import--our oil and metals, for 
     example. Nor do we any longer have privileged access to low-
     cost capital. Every year it becomes easier for companies in 
     Thailand to tap cheap money in the ever-more-efficient global 
     financial markets. Only in its people and their human capital 
     does America have a huge unutilized resource that could fire 
     growth.
       The simplest and most powerful single policy to produce 
     tens of millions of new jobs is to swap today's $525 billion 
     in payroll taxes (chiefly Social Security, health, and 
     unemployment) for equal revenues from a new ``patrimony tax'' 
     on the continent's natural wealth. This would lower the price 
     of labor relative to natural resources by 35 percent-40 
     percent over seven to eight years of gradual introduction. 
     (If income-tax payroll deductions are also cut, the relative 
     price shift would be well over 50 percent). This trillion-
     dollar-plus relative price shift is leveraged jujitsu: Higher 
     natural-resource prices increase employment; so do lower 
     labor costs. Social Security benefits would not be touched, 
     just paid for in a new and politically attractive way.
       Economic growth would multiply as the new workers produced 
     far more goods and services, as families and government no 
     longer had to pay for tens of millions of dependents; as 
     crime and other social ills receded; as taxes shifted from 
     production to consumption; and as the economy's new price 
     signals encouraged rather than victimized the fast growth 
     knowledge sectors that are our global strength and our 
     future.
       Here's how it would work. Reducing payroll tax rates by 
     three percentage points each year would provide a $92 billion 
     annual stimulus to employment. If the policy cut employee 
     contributions first, the typical employee could be sent a 
     $1,000 refund check for each such three-point reduction--a 
     politician's dream.
       Since the payroll tax ultimately comes out of workers' 
     pockets in industries where they have little bargaining 
     power, cutting it is one of the few feasible means of 
     reducing the country's growing, corrosive income inequality.
       Where workers do have leverage and therefore rising 
     salaries--i.e., the knowledge sectors so key to our future--
     employers have to absorb the tax. Cutting it would allow them 
     to hire more workers, cut prices (and therefore sell and hire 
     more), and/or enjoy larger profits (which invites new 
     competitors with new jobs).
       Then there's the policy's incentive magic: It compounds 
     such direct increases in the demand for workers by 
     simultaneously raising the lost revenues through new taxes on 
     the use of natural resources: The first year relative price 
     shift thereby suddenly weighs in at $184 billion, not $92 
     billion.
       There's political magic as well: These natural resource 
     taxes can be enacted. As Al Gore (and many environmentalists 
     before him) have learned painfully, stand-alone natural 
     resource taxes are likely to crash and burn. These patrimony 
     taxes, however, should fly politically. That's because they 
     are inextricably married to giant political positives--
     increasing jobs and growth while slashing both payroll taxes 
     and mass unemployment's social ills.
       Given this popular underpinning and a little creativity, 
     there are many, many politically feasible patrimony taxes. 
     For example:
       Energy Inefficiency Tax. A tax charged each year on the 
     25%-50% least-energy-efficient new cars, appliances, etc., 
     and commercial buildings. The tax's automatic annual 
     adjustment keeps revenue steady, spurs innovation and avoids 
     the political heartburn of periodic adjustments. It spares 
     the poor since they can buy old or relatively efficient new 
     goods untaxed. It entails little administrative cost (most of 
     the information is already available), and the political pain 
     is tolerable (because taxed industries have winners as well 
     as losers and because the super mobilized new property 
     developers are excused). It would raise roughly $10 billion-
     $20 billion annually.
       Non-Labor Value-Added Tax. The standard European 
     consumption tax could be modified to tax all portions of 
     production except labor. Such a tax with a 10% rate would 
     produce over $180 billion. If housing, food, and medicine 
     were excluded, it would still raise $80 billion.
       Recycling-Incentive Tax. By charging two cents a box, 
     bottle or other package unless it contained a minimum 
     percentage of recycled material, this tax would create 
     substantial new demand for scrap and $10 billion-$20 billion 
     in revenues.
       How would people respond to such changed incentives? 
     Farmers, for example, would find summer hires more 
     attractive than before--because they would cost less and 
     could substitute for machines that chew up newly expensive 
     energy and materials, and because a series of natural-
     resources-conserving activities, ranging from composting 
     to fighting erosion would warrant the labor required. 
     People-intensive outfits, from research labs to consulting 
     firms, would grow as their chief cost was cut.
       There are no bureaucrats, no sectional preferences, no 
     ``industrial politics'' here. This policy uses what truly 
     moves markets: changed prices.
       Much more than national wealth and individual well-being 
     are at stake. Allowing our decades-old below-expectations 
     growth to continue will leave us mired ever more deeply in a 
     historically familiar trap. Our first response--which is 
     historically typical--was to keep consumption growing as fast 
     as we felt it should by consuming capital--be it through 
     controlling rents, cutting education or not maintaining our 
     bridges. With the debt blow-off of the 1980s we reached the 
     even more destructive next stage: If the majority can no 
     longer ensure that its consumption continues to compound, it 
     will be tempted to unite politically to protect whatever it 
     does have from the claims of others.

[[Page E942]]

     Britain, which lost its competitive advantage in the 1880s, 
     got stuck in this dispiriting, divisive stage by 1911--miring 
     itself in a century of slow growth, social division, and 
     declining relevance.
       So much is at stake here that whichever party provides the 
     needed political leadership could establish itself as the 
     majority party for a long time. Breaking out of the current 
     downward spiral would be as great a contribution as Roosevelt 
     made when he stopped the similarly self-feeding downward 
     spiral of the Great Depression.
       This downward spiral is as global as Roosevelt's. Mass 
     unemployment and underemployment is even worse in Europe and 
     most of the developing world, and the reform opportunities 
     are similar. The payroll tax burden on legal, formal sector 
     employment in Brazil, for example, ranges from 52%-72%.
       Effective leadership in this cause could call forth an 
     extraordinarily powerful coalition, powerful because it 
     serves the central-most interests both of America as a whole 
     and of giant constituencies:
       Organized labor can only continue its decline as long as 
     roughly 50% of the workforce overhangs a loose labor market.
       The environment would benefit more from this sort of major 
     increase in the relative price of natural resources than from 
     any other plausible advance.
       Women, given leverage by a tighter job market, could close 
     in on wage differentials, open new jobs and shatter many a 
     glass ceiling.
       Older people who have lost jobs for decades as lower-paid 
     women have pushed into work and who suffer earlier deaths and 
     more illness as a result could, because of their numbers and 
     propensity to vote, become a political tsunami as they press 
     back in.
       The disabled, African-Americans, Latinos, new immigrants, 
     the young and all those concerned about America's social 
     health (be it the well-being of the young, crime or a 
     competitive workforce) have every bit as much at stake.
       Business will be divided. The chief opposition will come 
     from the politically mobilized natural resource industries; 
     but the reform's chief beneficiaries, the knowledge and 
     service sectors, now constitute over 80% of the economy.
       Some economists suggest that today's unemployment is 
     ``natural'' and that the economy would explode if we did 
     better. If there is a problem, it certainly is not one of 
     supply. If good work were available, hosts of people would 
     respond--as they did in the first two years of World War II, 
     when the number of people working jumped 35% and the average 
     work week grew 20%.
       The problem is demand. Do we have the imagination and 
     courage to see the mass unemployment around us and then to 
     act?
       The means to break out are there. The political energy 
     waiting to be tapped is enormous.
       What is missing is leadership. Unfunded tax cuts would hurt 
     growth. More training would help those trained find work--but 
     largely at the expense of other marginal workers as long as 
     there is no increase in the total demand for workers. The 
     1996 welfare reform increases the need for jobs without 
     increasing their supply. Business cycle tweakings don't cause 
     structural change.
       Worse, some of America's leaders seem to be headed towards 
     an exclusionary circling of the wagons. However, America is 
     not Britain in 1911. It fires ``can't do'' leaders. It has 
     the energy and the will to break out.

     

                          ____________________