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Employing America

A Government/Private Sector Job Creation Partnership Proposal

Introduction

Republicans, tea partiers and other rightwing ideologues are against raising taxes on those with incomes exceeding $200,000, who they have re-branded as "Job Creators", because such action would allegedly discourage them from creating jobs.  However, near record low taxation of upper income individuals and corporations has not motivated these job creators to actually create jobs (at least in this country), as official unemployment (8.5 percent in December 2011) and true unemployment (15.2 percent in December 2011) remain catastrophically high.  

Even in boom times full employment has been elusive, as millions are always out of work or underemployed, regardless of the nation's prosperity level.  This is why we need a comprehensive jobs program, not a mere crisis Band-Aid, to put America back to work permanently and approach what should be any just society's ultimate economic goal; providing jobs for all who want them.


Employing America

A Government/Private Sector Job Creation Partnership Proposal

Introduction

Republicans, tea partiers and other rightwing ideologues are against raising taxes on those with incomes exceeding $200,000, who they have re-branded as "Job Creators", because such action would allegedly discourage them from creating jobs.  However, near record low taxation of upper income individuals and corporations has not motivated these job creators to actually create jobs (at least in this country), as official unemployment (8.5 percent in December 2011) and true unemployment (15.2 percent in December 2011) remain catastrophically high.  

Even in boom times full employment has been elusive, as millions are always out of work or underemployed, regardless of the nation's prosperity level.  This is why we need a comprehensive jobs program, not a mere crisis Band-Aid, to put America back to work permanently and approach what should be any just society's ultimate economic goal; providing jobs for all who want them.

The safety net slashing far right disingenuously and incorrectly refer to Obama as the "Food Stamp President" and call for a "Paycheck Presidency", although the policies they advocate would more likely spawn a "Garbage Dumpster Presidency".  Their paycheck creating strategy is to cut spending, particularly programs helping the poor, such as Food Stamps.  But how does starving a program designed to combat hunger, used by the destitute and the working poor alike, create one job or net paycheck?  It doesn't.  But permanently implementing my jobs plan would be a positive step towards creating a paycheck economy.  

These job creators blame their reluctance to hire on economic uncertainty.  They define "uncertainty" as the possibility of their taxes increasing by an undefined amount at an unknown future date.  They also "fear" the government sometime in the future (but they don't know when) will protect consumers, competition or the environment with regulations that may or may not reduce their profits.  This excessive risk averseness during times of near record profitability is wimpy at best and sabotages our economy.  I call it "timid capitalism".

Instead of waiting for job creators to retreat from their timid capitalism and begin devoting capital to hiring, why not raise their taxes slightly and dedicate the entire increase to job creation, which would be easier said than done given the current political climate.

This proposal channels revenue into three areas.  It would pay for existing employers to hire new employees, create an angel capital fund for displaced workers to start businesses related to their previous industry or job function and empower the unemployed and underemployed to pitch companies to create jobs for them with money from this bill.  

Funding the Jobs Program

The jobs program would be financed by rolling back the Bush tax cuts for individuals with taxable income greater than $200,000 and families with taxable earnings exceeding $250,000, instituting a millionaires surcharge of one percent of all wages and investments exceeding $1 million annually, treating capital gains as ordinary income (with institutional and private pension exemptions) and profit sharing from government funded angel capital recipients.  This revenue would be completely dedicated to the jobs program and its administration (which would also create jobs).

There is a legitimate argument that those earning $200-250,000, in regions such as the New York and Silicon Valley metro areas, particularly dual income families (two teachers for example), are not rich.  However, the taxable income line on tax returns already factors in deductions for state and local taxes, mortgage interest and charity, so individuals and families would have to gross significantly more than the listed thresholds to be affected by a return to Clinton era tax rates.

The money would be distributed first come/first serve with no preference given to any one of the proposal's three components.

The program would reduce the federal deficit.  Many of those gaining employment under the plan would normally receive unemployment, food stamps and other federal aid if they remained unemployed, but would no longer need such assistance if they returned to work.  State and local social service burdens would decline as well.  This bill would have a multiplier effect, as those reentering the workforce spend money and stimulate additional job growth.

Paying "Job Creators" to Actually Create Jobs

The plan's cornerstone is giving businesses grants to hire people.  Companies would receive money to cover the cost of hiring full-time U.S. based employees and not just their salaries.  The original stimulus legislation and Obama's more recent proposals have been unjustly criticized for their seemingly high cost per job created.  The cost/job estimates, which vary depending on the source and in the case of Rupert Murdoch owned media, agenda, sound obscene because most people incorrectly assume a worker's salary is the only expense involved in hiring that person.  In reality, there are many other expenses associated with providing someone with a job.

Grant recipients would be permitted to spend up to double base compensation on hiring employees.  In addition to the new hire's salary, businesses could earmark money to cover expenses such as payroll taxes, unemployment insurance, healthcare and other benefits, equipment, training and travel.  However, recruitment costs would be ineligible to be recouped by the grant.  The grants would be renewable as long as the program is adequately funded.  The number of grants and total money that companies could be awarded would only be limited by funding, labor supply and eligibility to receive them.

To stop employers from reducing the workforce they pay from their own coffers, companies receiving money from this program would have to maintain or add to the payroll they cover exclusive of government aid, both in number of workers and aggregate base compensation.

The bill's purpose isn't to create jobs paying an unlivable minimum wage, but to provide living wage employment.  Therefore all jobs financed by this program would require living wages.  For most of the country, a living wage will be defined as at least $30,000 per year; for metropolitan Chicago, the rate would be $40,000 and $50,000 in the New York City (The 5 Boroughs, Northern and Central Jersey, Long Island, Westchester, Southern CT and the Mid-Hudson region), Silicon Valley, San Francisco, Los Angeles, Washington and Boston metro areas.  Employers would be free to offer salaries considerably higher than the living wage threshold applicable to their region.  The minimum grant businesses could receive under this plan would be approximately $60,000 (80, or 100k in high cost of living areas), double the total cost to hire a $30,000, $40,000 or $50,000 a year employee.

The program would implement safeguards to limit fraud, improper fund use and the general gaming of the system.  Businesses would be forbidden to use grant money to hire the immediate family of someone with greater than a 5 percent stake in the company or any member of a person with more than a 5 percent ownership share's household.  They also wouldn't be permitted  to apply grants towards paying the close relatives of personnel sporting titles such as Owner, CEO, President, COO, CFO, CMO, VP, Managing Director, General Manager, Comptroller, Controller, Marketing Director, Operations Manager, Sales Manager and other similar monikers or anyone sharing a residence with them.  

A company's size and compensation structure would determine the maximum individual salary it could pay with these grants.  The maximum salary an employer could devote grant dollars to would be the greater of 10 percent of gross sales or 5x its workers' average salary, with maximum compensation financed by this bill capped at $500,000 (a $1 million grant).  If 10 percent of gross sales and 5x average compensation are both under $100,000, a business would be allowed to pay up to $100,000 ($200,000 in grant money) under this program.  Companies would be prohibited from receiving more than two grants over $500K (for salaries of $250,000+) per year.  The minimum and maximum pay thresholds would increase annually based on inflation.

Compensation restrictions only apply to grant funded jobs.  Companies who expand staff via this program would be free to pay non-grant financed employees as much or little as they want subject to minimum wage laws.

This jobs plan is designed to employ Americans, so no grant could be applied to hiring H1B Visa workers.  The bill also isn't designed to pay for musical job chairs among the currently employed.  Although businesses would be free to employ any American citizen or legal resident they please with the grants, they would be strongly encouraged to hire those currently out of work or underemployed.  Their jobs program based hiring practices would be scrutinized to limit discrimination against those in most need of jobs (e.g. people collecting unemployment, those whose benefits have run out, the discouraged who have stopped looking for work because of actual or perceived poor job prospects, part-time workers seeking full-time employment, unemployed recent high school and college grads, individuals working in jobs paying considerably less than merited by their work history or education and unsuccessful entrepreneurs with minimal or zero business income.).  The grant administrators would solicit resumes or applications from the above groups and submit them to potential grantees, who would be required to interview at least some in these categories.  

When an employee hired with grant money is fired or quits, the employer would be obligated to hire a replacement financed by the prorated remainder of the grant or reimburse the government the prorated amount.

Angel Capital

Angel capital is the plan's second component.  This angel investment program isn't designed to discover the next Google or Facebook.  Its purpose is to create entrepreneurial opportunities for experienced displaced workers, who would found low capital intensive businesses related to their professional expertise and experience.  For example, an unemployed lawyer could start a private practice, an out of work middle-aged finance executive could open up an accounting firm and a laid off marketing employee could found an advertising or PR agency.  This program is meant for companies starting from scratch, not those already with employees beyond the founder or office space (excluding a home office).  The government would hire industry experts to mentor the startups it invests in.

Venture capital is a better known term to those outside the financial and business startup worlds, but angel investment better suits government sponsored financing.  Angel investment differs from venture capital in funding amount (Angel cash outlays are usually much smaller than venture expenditures.) and degree of company involvement (Venture financiers are typically involved with the management of the organizations they invest in, while angel funders are mostly hands off.).  

The Angel Investment commitment would be three years at $500,000 per year.  After three years, the company would either stand on its own or be dissolved.  While still limiting day-to-day involvement, industry mentors would work with management to ensure the money invested keeps the company solvent during the investment interval.  After the investment period's end, if it is profitable enough to be viable without additional program sponsored capital, the startup would pay the government 10 percent of gross profits off the top before salaries, until the original investment + 25 percent adjusted for inflation is recouped.  Nothing would be owed if the company fails.  

To discourage fraud, the government would frequently audit the companies it invests in.  To prevent someone from serially starting failing enterprises with money from this program, individuals would be allowed to head only one government funded angel project in their lifetime.  

The post investment profit sharing would replenish some of the program's funds, but given the high rate of new business failure, the angel capital entity would be unlikely to turn a profit or break even.  This would doom the program in the private for profit world, but the government's job is not to maximize profits.  Its primary function, as per the constitution, is to promote the general welfare, which in this case means job creation and stimulating private spending, both of which benefit the private for profit sector.

The startups could spend seed funding on hiring personnel, securing office space, purchasing equipment, marketing the company and any other good or service its management fancies, within certain guidelines, subject to mentor feedback.  Angel capital recipients would be obliged to hire five employees including the founder, an additional professional in the company's area of specialization or business category, an office support person, a finance employee and depending on the industry, someone whose primary responsibilities should involve, sales/marketing/business development, unless industry experts direct them to do otherwise.  Upon expert approval, the startup would be permitted to substitute a tech specialist for one of the above employees.  In instances where the founder has finance or sales/marketing expertise, the company would be allowed to replace the above potentially redundant skill set with an employee possessing any relevant background of their choosing.  

Revenue permitting, startups would be free to expand beyond the initial five employees.  Companies would have to employ a minimum of five until profit sharing completion or business dissolution.  Replacement of personnel exiting the organization would be required and paid for with the prorated grant amount earmarked for that employee's role.  To comply with living wage job creation goals and safeguards against cronyism, nepotism and other forms of abuse, an angel financed startup would be subject to the hiring restrictions and compensation minimums and maximums outlined in the grant section, until it is dissolved or completes its government profit sharing arrangement.  

There would be additional compensation restrictions levied on startup founders to prevent them from using the angel fund to primarily line their own pockets.  With some hardship exceptions, the founder's non-performance based monetary compensation would be limited to $50,000 per year adjusted for inflation during the  angel capital distribution phase.  However, founders would be eligible for any performance based compensation available to other employees, such as commissions, if the money comes from revenue not government investment.  After angel investment termination, but before the government is completely reimbursed, the founder could be paid up to the maximum allowed under the grant program based on company size and sales, provided that the government's share of profit is based on revenue before salary deductions.  After the government is reimbursed its initial investment plus 25 percent, adjusted for inflation, the company would be free to compensate any employee, including its founder, whatever amount it sees fit and expand or contract its workforce to any desired size.

In some expensive regions, $50,000, even if taxes are not deducted, would not fully cover housing costs (forget about other expenses), creating a hardship for Manhattan or Silicon Valley based founders with angel program limited wages.  They could move to less expensive residences, but that might not always be an option given the current housing market.  Plus, if the downsized dwelling is not within commuting distance to the previous metro area and telecommuting is not logistically possible, starting the company in a different region might not be feasible because it could lack the contacts, infrastructure or other necessary resources endemic to the area the founder was previously based in.  

In housing cost hardship cases, the angel fund would supplement the founder's $50,000 salary with additional support.  Founders with housing costs (rent or mortgage and Real Estate taxes) exceeding 50 percent of gross household income (from the angel fund salary and other sources) would be granted enough additional funding to cover the difference between housing costs and 50 percent of gross household income.  

For example, Joe Founder's rent or mortgage plus prorated property taxes is $2500 per month or $30,000 annually (2500x12).  He has no other household income besides his angel fund financed $50,000 annual salary.  The government would pay for housing costs exceeding 50 percent of that salary or $25,000 (50,000/2), which would be subtracted from annual housing costs (30,000-25,000=5000).  Joe's extra housing assistance would be $5000 a year.  The additional financing would be applied to the base amount owed the government under the profit sharing agreement and would be paid directly to landlords, mortgage holders and government entities collecting property and realty taxes, not the person given financial aid.

Empowering the Unemployed to Create Their Own Jobs

Unfortunately, there are probably millions of the unemployed and underemployed who wouldn't immediately benefit from the above programs.  Not every company will take advantage of the grants because of institutional inertia, ideology and other excuses and explanations.  Some job seekers would be screened out of suitable positions by participating businesses for reasons unrelated to what is required to perform the job.  Many won't be hired because of bad luck or discrimination (including age and employment status), and most are ill-suited for entrepreneurship and an angel capital startup.

The bill provides the unemployed and the underemployed not initially profiting from these programs with an additional resource to secure full-time living wage work.  Out of work and underemployed job seekers would be empowered to create jobs for themselves by pitching employers to hire them with bill money.  As in the grants available to organizations doing the hiring, funds would cover salary, benefits and other expenses associated with adding employees, up to twice base compensation.  

There are many potential employment scenarios compatible with this program.  Most people have dream companies they've always aspired to work for, but could never land jobs with. This legislation could arm job seekers with the ammunition (grant money) to pursue employment with these organizations.  

This bill offers potential redemption to previously rejected job seekers, who could use this option to get a second chance at openings they were turned down for, employing grants to entice businesses to add additional personnel in the role they previously sought.

Someone rejected for a job because they didn't have quite enough experience, could pitch the employer to take a chance on them with program money.  Conversely, most unemployed experienced workers when given the choice of leaving their chosen profession or accepting a much more junior position than they most recently held, would pick the lower level spot over a career change.  However, they are not usually seriously considered for those jobs because companies fear they would  leave as soon as they found something better, a legitimate concern because of worker recruitment, replacement and training costs.  Ironically, younger workers trying to advance their career are just as likely or even more prone to jump ship when something better materializes.  Although this wouldn't eliminate replacement spending, the plan reduces overall employment cost by covering compensation and other related expenses, making the perceived risks of hiring older workers more tolerable.  

Experienced workers as well as recent college grads and others new to the workforce could use this program to market their unique skills to hiring managers and create jobs for themselves.  Companies would be more receptive to these pitches because the bill largely negates the risk of squandering resources on bad hires by paying for wages and other employment expenditures.

As in the direct to employer grants, companies hiring workers creating their own jobs financed by this plan, would be required to maintain or increase the number of employees and total base compensation they pay for themselves, to prevent companies from replacing workers they pay directly with government subsidized staff.

Those pitching companies for employment with grant funds would be perceived by some as proactive go-getters and as desperate beggars by others.  People representing each profile, with some belonging in both camps, would probably apply for these grants.  To prevent low wage employers such as big box stores from using government aid to hire an army of desperate poorly paid workers, these grants would be subject to the same living wage minimums as the company based hiring subsidies.  To stop companies from using these grants to pay excessive salaries to friends and relatives, this program would be governed by the same hiring and maximum compensation restrictions required of employers directly receiving money to add personnel.

Employers would not be obligated to hire anyone applying for jobs with these grants, except in situations where the rejection could be proven to be made for discriminatory reasons, particularly, although not exclusively, in cases of discrimination in areas endemic to the unemployed, such as age and employment status.  Before action is taken against companies accused of discrimination, industry experts would evaluate the suitability of the potential employees' background for the job they wish to create and the new position's utility for the business.

Companies would have three options to deal with this classification of employee leaving their organization.  They could use the prorated grant money to hire someone new of their choosing, earmark it to hire another job seeker pitching themselves or reimburse the government the unused portion.

Administrating the Program

The plan's goal is to create as many private sector jobs as possible, so every effort would be made to minimize bureaucratic red tape and administrative costs which siphon away time and money better devoted to job creation.  However, I won't buy into the rightwing narrative that jobs involved with these programs' administration are not "real jobs".  Ask anyone working for the government if their jobs are real.  Contrary to anti-government propaganda, most government jobs perform functions that are indispensable to the people living under their local, state and federal jurisdictions.  The jobs administrating the plan would not only be real, but to quote "Seinfeld", they would be "real and fabulous", preventing poverty, easing the unemployed's suffering and creating living wage work.

Personnel would be needed to evaluate grant and investment applications, administer funding to successful applicants, ensure compliance with regulatory rules and discourage fraud and abuse.  In addition to administrative and executive staff, industry experts would be involved in the complete life cycle of all programs, from grant and capital suitability determination to mentoring companies and individuals receiving financing.  Funds would also be allocated to promoting the plan's various programs.  

I don't have enough data at my disposal to estimate the revenue generated for these programs from taxes and profit sharing, the number of jobs this plan would directly or indirectly create, administrative costs or deficit impact.  It would be nice to have use of the Congressional Budget Office (CBO) or a think tank, but I don't.  Perhaps if this proposal gains traction, it would receive the number crunching scrutiny it needed to have any chance at becoming policy.

Conclusion

This bill, if it ever becomes law, would have a ripple effect, well beyond merely employing people, which in its own right could have the largest positive economic impact of any legislation in this country's history, other than Social Security, Medicare and Medicaid.  I imagine it revitalizing manufacturing because living wage workers compensated by the government instead of manufacturers, cost businesses less than poorly paid outsourced labor.  If American workers are less expensive, it would make financial sense to return these jobs to the United States or create new manufacturing opportunities, either of which would generate many more jobs in excess of those hired with government aid.  If the program receives permanent funding, U.S. manufacturing would experience long term expansion.

The plan would be a boon to entrepreneurs and not just angel capital recipients.  Businesses unable to secure the financing needed to take things to the next level could grow by adding sales and marketing staff or hire people to manage growth.  As these young companies expand, they will add non-government funded employees.  As a small business person, I wish this program was already implemented, so I could apply for grants to hire people and grow my company.        

The glacial employment recovery since the 08 meltdown has immensely increased America's "despair index".  People unemployed for months or even years, recent college grads strangled by student loans and unable to secure their first post collegiate employment and laid off middle-aged and older workers, who facing age discrimination, may not land a substantial job again, all contribute to palpable despair levels.  It is natural to be depressed and feel worthless when there are no jobs or hope in sight and people struggle to support their families, go hungry or risk homelessness.  This bill would give the chronically unemployed a chance to take back their lives and reduce the despair index.

Sales would climb as the formerly jobless spend.  This increased revenue would ignite further job growth, which in turn would precipitate more spending, greater profits and robust GDP numbers, benefiting the entire economy, including the so called job creators receiving tax increases.  Ironically, many alleged job creators would fight against this public/private partnership, despite its potential to directly and indirectly enrich them.  The Chamber of Commerce should support this, but would probably lobby against it.  

Like any policy initiative, this plan could have unexpected positive effects and/or unintended consequences.  Heavy duty numbers crunching is necessary to fine-tune the legislation, maximizing positive impact and minimizing cost and potential negative outcomes.  Political reality may dictate that this proposal undergo more tweaks than I'd like, to survive the legislative sausage making process.  I am willing to accept most pragmatic changes, even watering down the bill, if needed, to further its broad job creation goals.  

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