The Pagliuca jobs plan calls for new job creation incentives, including a new job tax credit of $5,000 to corporations for each new worker hired (if that worker lost their job in this recession), with an extra boost to $7,500 for workers in "strategic industries" (life sciences, biotechnology, green technology and clean technology). Pagliuca also calls for a 2 year, $4,000 job training tax credit.
The more interesting part of today's plan is Pagliuca's proposal to make it revenue neutral. He plans to pay for these tax credits through:
An increase in the Capital Gains Tax: Pagliuca wants to bring the capital gains tax rate up to 20% (from 15%), a rate he says "would remain low enough to encourage the kind of responsible investment we need to grow out of our current economic struggles and ensure all Americans are paying their fair share."
An End to Corporate Bonus Tax Loopholes: Pagliuca wanst to end the corporate tax deductibility of all cash executive compensation above $1 million. According to Pags, closing this loophle "will force companies to move their compensation systems away from cash based systems that reward risk taking and towards stock and option based systems that reward growth and stability."
According to the Pags campaign, these proposals, when combined with his plans for investing in life sciences, reforming the financial system, and controlling healthcare costs, could generate more than $30 billion in new investments in job creation.
“The jobs plan I’ve outlined today is part four of my comprehensive job creation agenda and compliments the three previous economic plans I’ve put forth already,” said Pagliuca. “As a strategy, my plans will help get people back to work again.”
Read the full plan after the jump.
Job Focused Tax Reform: A Pagliuca for Senate Proposal
Background
Since last August, more than 100,000 people in Massachusetts and 5.5 million people across the country have lost their jobs. Against this backdrop, many big banks on Wall Street that were aided by the US Government and the taxpayers, stand ready to pay out huge bonuses. This is not right.
At the same time, we as a nation face one of the most significant fiscal challenges of our lifetimes. It is estimated that in 2009, the federal deficit (the amount by which spending exceeds tax revenue) will be almost $2 trillion. Our national debt will reach $12.9 trillion by the end of the year – roughly $42,000 per person. This is a problem that threatens the financial future of our nation and may handicap our country for generations to come. The clearest way out of our current troubles is growth – growth in jobs, growth in income, growth in the economy.
Proposal
Below, I have proposed four simple and targeted changes to our tax code that I believe will have a profound impact in stimulating this growth. These changes will work both to reform executive compensation and create good, lasting jobs of the future. There are four critical principles necessary to spur job growth:
Incent businesses to create jobs – this should be the focus of any tax reform in the current economic climate
Train our workforce for the jobs of the future to ensure that the US retains a global comparative advantage
Create policies that lead to responsible corporate behavior
Develop funding mechanisms that will not increase the deficit
These proposals are not meant to be the end of the discussion – just the beginning. I am a strong supporter of many of the tax reforms proposed by President Obama, I have a separate plan for closing the budget deficit which I will be releasing soon, and we should look carefully at reversing many of the tax reductions enacted under President Bush. The following proposals are meant to be additive to the conversation and are new ideas to get our economy going again.
Incentives for Job Growth
1. New Job Tax Credit – As I have traveled the state, I’ve heard many small business owners tell me that they are ready to start hiring again, if only it were a little easier; if only the cost were a little less daunting. I’ve already released several sets of ideas designed to help make this easier. My proposals for reducing healthcare costs and creating jobs in our state’s strategic industries were designed with exactly this objective in mind. These proposals can be found on my website, www.stevepagliuca.com.
In addition, I propose a one-time $5,000 tax credit for each new worker hired. This credit would be increased to $7,500 for workers in “strategic industries” such as life sciences, biotechnology, green technology and clean technology. Massachusetts is a leader in these industries and, as such, would differentially benefit from this program. In addition, these industries provide both a strong ‘multiplier effect’ in downstream economic activity as well as the creation of downstream manufacturing and services jobs. A recent study by the non-partisan Mass Biotech Council estimates that for every direct job created in the biotechnology sector, two indirect jobs are created in support services and related consumer spending.
To qualify for this credit, the hired worker must have lost their job as a result of the economic crisis and must remain on the payrolls of the firm for at least a year. This will help create new, lasting jobs. This will also have a strong and immediate payback for the government in both reduced utilization of unemployment benefits and increased payroll tax revenue.
2. Job Training Tax Credit – It is vital that America continue to invest in its workforce. I believe that job training must be a cornerstone of our education policy and is an integral part of any economic recovery. In Massachusetts, we will spend almost $770 million this year on unemployment benefits – which we should. This is a necessary, valuable social safety net and insurance measure. At the same time, however, we will spend only $21 million on job training. My plan will help correct this imbalance. We need to invest significant dollars in job training to get 320,000 people back to work and in good, sustainable jobs.
Creating these jobs requires that our workforce be ready to excel at those jobs. Therefore, I propose a 2-year, $4,000 per year individual tax credit to fund a set of pre-qualified job training programs. These programs would loosely mirror those that are already qualified under the government’s Trade Adjustment Assistance Program (TAAP) and Workforce Investment Act (WIA). This credit would be retroactively applicable to past taxes, in effect generating a rebate for many displaced workers that could be used to fund job training of their choice. To qualify, a worker would only need to demonstrate that they have lost their job in the past year and a half.
Funding Through Adjustments to Tax Code
1. End the Tax-Deductibility of Excessive Corporate Bonuses – In 2003, President Clinton changed tax law to end the corporate tax deductibility of executive salaries in excess of $1 million. Unfortunately, this change left open a loophole – ‘bonus compensation’ remained tax deductible. In theory, ‘bonus compensation’ was tied to performance and was, therefore, different than salary. In practice, corporations started guaranteeing bonuses. This led to some individuals at rescued institutions being paid large bonuses despite failure of the firm. Clearly this was not the intent of the Clinton tax reforms.
In 1993, when the Clinton change was enacted, the ratio between the compensation of the three highest paid officers in the 50 largest firms in the US to that of the average worker was ~45:1. By 2005, that number had grown to 110:1. Moreover, by rewarding ‘performance’ as measured by the profits of the company in any given year, compensation schemes encouraged reckless risk-taking for short-term gain. Huge bonuses were secured by short-term profits, not long-term firm growth and stability. AIG stands as a perfect case-study of this problem. There, a few employees in the Financial Services division took massive risks in the name of short term profits and quick bonus payouts. In the end, these risks brought down the entire firm as well as countless hard-working men and women at AIG who had never heard of the Financial Services division.
A recent study by the Federal Reserve Board has shown that there is almost no correlation between cash compensation and the value of a firm. In contrast, rewarding executives via stock options and restricted stock grants has shown a strong, positive relationship with the growth and value of the business. I have over 25 years of experience in designing compensation plans and have learned very clearly that, in the end, you get what you pay for.
I propose ending the corporate tax deductibility of ALL cash executive compensation above $1 million. Companies will still be free to pay what they want – they just won’t be able to write it off their taxes. I believe this will force companies to move their compensation systems away from cash based systems that reward risk taking and towards stock and option based systems that reward growth and stability.
2. Raise the Top Capital Gains Tax Rate to 20% - At 15%, our current top capital gains tax rate is the lowest it has been since 1933. It is also lower than that of many other developed nations. While it is true that low capital gains rates contribute to investment and growth, rates too low encourage risk-taking and may precipitate investment bubbles that destabilize our financial system. At 20%, the rate would remain low enough to encourage the kind of responsible investment we need to grow out of our current economic crisis.
Deficit Neutral Requirement
I estimate that, taken together, these proposals could generate more than $30 billion in additional tax revenue. That’s almost $6,000 for each of the 5.5 million Americans who have lost their jobs over the past 18 months. In total, these proposals present a deficit neutral approach to stimulating lasting job growth in advanced industries.
Conclusion
These reforms will help get America working again. They will help curb the misaligned and excessive compensation systems that contributed to the present economic crisis. And they will invest in our workforce so that it is ready to man the jobs of the future. This kind of investment will return our nation to growth and will keep us a leader in the world economy.
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