On Rising Unemployment

Will Tax Reform Create Jobs?

By Children’s Home Society of Florida Foundation

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With a jobs report showing 54,000 new jobs last month, unemployment moved back up to 9.1%. Both parties are in agreement that the current economy is not producing a sufficient number of new jobs to reduce the unemployment rate.

House Ways and Means Committee

The House Ways and Means Committee continued to conduct hearings on tax reform that may increase employment. Chairman Dave Camp (R-MI) opened the June 2 meeting with a statement that it is time for “a systematic review of the tax code for a very simple reason – the tax code is preventing, not promoting, job creation.”

Chairman Camp notes that it is important to reform the tax code by lowering rates. He suggests that lowering marginal tax rates on business income will facilitate job creation.

Camp stated that the “combined federal-state corporate tax rate of 39.1%” is one of the highest in the world. In addition, there are over 200 federal tax provisions that are expected to expire in the next few years. Without a stable tax system and low rates, it is difficult for companies to grow and create new jobs. Chairman Camp has proposed a reduction in corporate and individual tax rates to 25%. The purpose of the hearings is to discuss how to reduce corporate and personal deductions so that overall tax rates can be lowered.

Ranking Minority Member Sander Levin (D-MI) commented, “I think most of us agree that a lower corporate rate is desirable. But the trade-offs involved in getting there truly matter.”

Assessment

At a subsequent meeting the next day with a group in Washington, Levin noted that it is one thing to propose a reduction in rates to 25%. However, reducing the personal rate would require a substantial change in the rules for mortgage interest and health insurance deductions. Similarly, reducing corporate rates would require a substantial change in the manufacturing deduction and the research credit.

While both individuals and corporations like the concept of lower rates, the changes in those deductions will affect many Americans. Rep. Levin suggests that it will be important to have an extensive discussion of those changes before there is legislation.

Editor’s Note: Tax reform for 2011 is still quite uncertain. However, as the unemployment numbers continue to hold near 9%, both parties are clearly concerned about the 14 million unemployed Americans. The high level of unemployment may be a motivator to consider substantial tax change this year.

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