Articles - Business / Client Dev & Marketing

After two years and 126+ million votes cast, the election has been decided and we are embarked upon a new administration.  The agenda for the new administration is shaping up.  There are tax, spending, and  regulatory policy changes now in review that will impact employers and the job market for at least the next few years.

The business community is evaluating the potential impact of new taxes, spending and regulations on market conditions for 2009, seeking insights into how such changes will affect sales, growth plans, market competitiveness and profits.  And the conclusions will directly impact decisions about jobs – both the expansion of workforces and replacement hiring.   Will we adopt a tax and spend approach to addressing the US economy’s needs today, or adopt tax policies that reduce the tax burden?

Recommendation: Lower taxes for businesses and consumers allow the private sector to do what it does best: create jobs.  If we are indeed entering a period of more taxation, regulation and government spending, what are some of the implications?   Taxes at state or federal levels diminish profits, the economic fuel that creates and sustains jobs.   Consider:

1. I. State Taxation

States are competing for employers and the jobs they bring to their economies.  Tax policies at the state level affect decisions such as location of new facilities as well as plant and staff expansion.    If a state increases taxes, an employer, in order to maintain profitability, must either increase prices to consumers (potentially reducing competiveness in the market), or reduce costs (such as wages or headcount) or accept lower profits (impacting shareholder value and ongoing financing of the business).  According to the Tax Foundation, the top five “business friendly” states that have found a balance between state revenue needs and business taxes are (in order) Wyoming, South Dakota, Nevada, Alaska and Florida.   The least attractive states for business, based upon tax policies, are led by New Jersey in last place, followed by New York, California, Ohio and Rhode Island.  Over the next few years, state tax policies will affect the business decisions noted.  The core question state policy makers will hopefully consider is whether the impact is positive or negative for jobs and growth.

1. II. Federal Taxation

Federal tax policies affect the economy in many ways, but consider the most recent tax policy affecting all taxpayers: the tax cuts of 2002.

Bush tax cuts

1. Tax rates: Reduced tax rates for all taxpayers by replacing the 2001 five tier tax rates of 15, 28, 31, 36, and 39.6 percent with a four tier rate structure of 10, 15, 25, and 33 percent.    Result: Everyone who files a 1040 for 2008 will pay less income tax due to the across-the-board reductions in the tax rates.
2. Tax table indexing: the levels of taxable incomes were indexed for inflation (as inflation rises, the tables adjust upward to offset the impact of lost purchasing power).  The following chart illustrates the results of indexing the tax tables.

[GRAPH: Vertical bar]

Percent of those filing 1040s who did not owe Federal income tax

2000     25%

2007     33%

Source: Tax Foundation Fiscal Facts Report, 9/19/08

In 2009, 33% taxpayers who file 1040s (47 million filers) will not owe federal income taxes, according to the Tax Foundation report noted.

A failure to renew the Bush tax cuts will have two consequences:

1. Everyone who files a 1040 will pay more in taxes;
2. Millions of taxpayers who will not owe federal taxes in 2008 or 2009 will find themselves back on the tax schedules in 2010.

At the federal level, the next administration has indicated that it will not renew the Bush tax cuts, and may adopt income tax policies that restore higher levels of taxation for some levels of income.  The larger question of whether tens of millions of taxpayers will find themselves back on the tax rolls has not been addressed.  If we want to work our way out of the current downturn, clarifying tax plans for taxpayers would be a positive first step early next year.

BIOGRAPHY

Bill Broderick is a consultant with 25+ years experience in HR management, retained search and HR projects. He is a Director of Fennimore Solutions, a retained search and staffing firm focused on Supply Chain and Operations assignments.

He also leads an Internet startup job board, Workministry.com, a social network recruiting resource designed to enable employers to access groups/networks of job seekers to fulfill staffing goals.

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