Our president and elected officials have stated their number one job is to bring this country’s recession to an end as soon as possible.
I DON’T BELIEVE THEM!
I know…shocker, right? What you may not understand are all the reasons. Some probably assume that it is simply because the majority are Democrats and I’m a conservative and the two shall not mix…ever. That assumption, while true, isn’t why I’m writing – I think I can prove it without focusing on politics. It is simple logic and a slight understanding of how business works.
What do we need for more jobs to be created? A simple examination of why jobs are being eliminated should provide us the answers. A company, especially a publicly-traded company, is not owned by the business leadership, but rather by shareholders. People buy stock because they want to see a return (more money) from the money they use to buy the stock.
That return is realized when the company is able to make more money (net revenue) than they expected, which is one component of what drives stock prices up. There are two components to net revenue – profit and loss (income and costs). If a company says that they think they can produce a net revenue of $100K and are able to actually do $105K for a given time period, then people would buy the stock because the current price reflects the anticipated $100K and therefore undervalued and should go up. Make sense? If not, just know that doing what you say you are going to do in the stock market is good, and exceeding it is better.
All that to say is that the owners (shareholders) expect to be making money and therefore expect profits to be at least what you projected. To achieve this, in a recession, the focus gets put on the costs a company incurs. The most expensive line item on a company’s balance sheet is payroll and consequently the place where the biggest impact to the bottom line can be made. Eliminate jobs and you cut costs and directly affect net revenue.
So, if jobs are cut to help companies maintain net revenue and shareholder expectations and we want to stop that trend, what can be done help net revenue. The second largest cost on a company’s ledger is taxes and this is where we get to the meat of the issue. If you receive a paycheck and ever ventured to look at the amount of taxes that are taken out – you’d immediately get red in the face. What you need to know is that is nothing compared to what the business must pay.
There is a tie to payroll taxes and the overall picture for a company – if you have an employee that you hire at $50K, their take-home pay is affected by the taxes that are required to be taken out. A lower tax rate means that an employer might be able to hire the same person for $48K if the tax rates were lower. If you add that up over 1,000 employees, all of a sudden you’ve just found $200K of income that you can put into something else – like new jobs.
So, if you want to create jobs in America, the first place the government should be looking is to lower the federal taxes levied against employers. Decreasing the tax rate means more money stays with the company and can be reinvested immediately to stabilize and grow the business.
But this wasn’t even considered for more than a second in Washington. Reagan implemented this very tactic to successfully bring inflation under control and it has been successfully used time and time again to help stimulate the economy. There’s a proven track record and tons of evidence…so why haven’t we seen this as a proposed solution?
If you really want to know the full reason, read the next post. It is political…so be warned.
The short answer is that job creation, at least where most of us live (private sector), hasn’t been the goal at all. If it was, we would be seeing more money in our pockets each paycheck, which would allow us to go spend it on goods and services and really “stimulate” the economy.
All this to say, any talk about job creation coming out of Washington these days should be interpreted as creating federal jobs to support new programs intended to “fix” our country. Don’t be fooled for another second because now you know.