Here is my modest proposal for revitalizing this country’s economy. Mind you I am not an economist (though I do sometimes wish I were one, more on that later), aside from reading Keynes and Smith, a few of their more modern counterparts, and taking 2 semesters of Econ in college, I have no economic training. I have however been an entrepreneur for half my life, which entitles me to a perspective on things that seems to be lacking from the Federal Reserve these days. My plan as you’ll see is very simple, and could definitely use some refinement, which I encourage you to submit through the comments.
Step 1 of TADA! – Cost $175,000,000,000 (175 Billion)
There were 5.8 Million employers in the United States in 2004 (probably a lot less right now) according to the US Census Bureau . Of these 5.8 Million firms, only 17,047 had more than 500 employees. Just over 100,000 had more than 99 employees. So that means this is a country of small businesses, and it is about time we started to embrace them (between 1998-2004 small businesses made up 51% of the GDP ). They are the ones driving this economy, not the titans. They are also the ones that are easiest to help. During the last year over 3.6million jobs were lost, half during the final 3 months of 2008 . Since January, nearly 600,000 jobs were lost. This has caused the unemployment rate to rise to 7.6%, the highest figures we’ve seen in ages!
So how do we fix this? Easy. We incentivize the creation of new jobs. My proposal is to give every company with 500 employees or less (could even be allocated to those with 100 employees or less), that’s over 5 Million firms, $30,000 for hiring a new employee. We’re talking about a $30,000 tax break at the end of the year if they have one new employee on their payroll who was a full time employee, earning a living wage, and receiving at the very least basic benefits (health). The company would have to have had an active payroll during the prior tax year, be actively conducting business, not delinquent on taxes, and submit proof that said employee actually performed some form of tangible tax (i.e. I cannot hire my housewife as my new employee to collect her benefits).
Sure there will be tons of abuse, but that’s why I am not a policymaker, and I think that the corporation would have to submit quarterly reports and matching bank statements (this could be automated using a computer system to verify it all).
This part of the TADA stimulus would in theory result in millions of new jobs created and hundreds of thousands of companies getting the extra help they need to improve their businesses and bottom lines.
It would probably cost $5 Billion or so to disperse these funds and create the oversights and staff needed to manage it all, but again, those are new jobs and dollars that are directly infusing our economy.
Step 2 of TADA! – Cost $50,000,000,000 ($50 Billion)
This part of the stimulus plan aims squarely at the credit crunch faced by many small businesses today. Lots and lots of small businesses that relied on lines of credit from their banks no longer have access to that credit for one reason or another. This makes it nearly impossible for them to run their businesses smoothly or at all if they have irregular cash flows. Lots of banks are trying to hedge their risk as its not as much in fashion anymore to lend money to everyone who can sign their names. This hurts the legitimate businesses, which need that money for payroll, inventory, operations, etc.
So how do we fix this? We allocate up to $50,000 in GRANTS for up to 1 million employers and small businesses. This money would be useful for shoring up lines of credit, as it could be used as collateral with banks who were not interested in lending to these companies anymore, as it would imply the government is vouching for these companies up to $50k.
So who can get these grants, and how can they use them? Well to prevent fraud on a massive scale, we would have to setup tiers. First tier would be new businesses which had not been incorporated before, they would have to first apply for up to $5k in seed funding, enough to get business licenses, incorporate, and get the ball rolling. (Realistically most of these funds would end up in the coffers of the states and local governments, thus helping them shore up their budgets a bit). There would have to be several tiers for distributing these grants based on number of employees, their taxroll, and geographic reasons. The top tier would be for existing businesses with under 2 Million in receipts who could receive up to 35k to be used for business expenses. If these companies hire a new person, they would get an additional $15k in grant money, bringing their total to $50k. So if you’re a small business you would be able to receive up to $80k in benefits from the government, which would effectively allow you to hire 2 people for only the costs of their benefits.
On a macro scale, this would make labor costs in the US much more competitive for companies who had been contemplating outsourcing or offshoring jobs.
So what are the possible negative implications of this plan?
Well there will be a logistical nightmare at first, but the government has tons of experience giving out cash (remember the stimulus checks?), but I think with the right budget that can be overcome easily. The other downside will be fraud and abuse of the system, but if we put enough checks in place and punish abuse severely, its likely to be less than we expect.
If you look at the potential numbers, this could go a long way to erasing the ridiculous job loss numbers we’ve seen in the last few years, and more recently the last few months. If a majority (51%) of these companies that can hire someone, do so, we’re talking about an aggregate growth of 2.9Million new jobs being created in 1 year, and $103 Billion in payroll being created instantly at a cost of $87 Billion. Ultimately a small business would have to be stupid not to take advantage of this plan, they could hire an entry level worker for free! Furthermore, the time it would take to recoup that via taxation is negligible in the grand scheme of things.
So what would you do to improve this admittedly simplistic stimulus plan?