EDITORIAL

Feb 9, 2010 — Tampa Tribune

Feb. 9, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- A major goal of both state and local government is to help the private sector produce more jobs.

Simply cutting taxes for everyone is the most visible, direct way to encourage more spending and more production.

That's why Gov. Charlie Crist's straightforward proposal to reduce the state corporate income tax is a reasonable, if necessarily small, step in the right direction.

In contrast, several of the job-growth ideas pushed by President Barack Obama are quite complicated and unlikely to help the economy.

Among other things, Obama wants to reward employers who add jobs and punish employers who "export jobs."

Both proposals sound good in speeches but lose their appeal when examined closely.

It would be smarter and simpler to follow Crist's example. Crist is asking the Legislature to cut the state corporate income tax by one percentage point, from 5.5 percent down to 4.5 percent, on the first $1 million of a company's taxable income. It's "a pretty good stimulant," Crist says, with his usual optimism.

Actually, it's a meager inducement. The maximum tax savings is $10,000, not enough to hire a single fulltime employee. But it would be a legitimate stimulus that would put a little money into the economy at its most productive point, the state's profitable businesses.

Obama takes a less direct and less effective approach in several of his proposals to Congress.

As an incentive to create jobs, he wants to offer a $5,000 tax credit for each new job an employer adds to the payroll.

The credit would not be enough to cover the whole cost of the new worker. That means the main beneficiaries would be the thriving businesses that are expanding and would be hiring anyway.

Employers hire when they think the extra labor will increase profits, and only then. Their real problem these days is a shortage of customers.

The hiring credit would come with complex restrictions and qualifications. Previous experiments with job-creation rewards found that many small businesses didn't bother to apply, while others found clever ways to exploit the loophole.

Another idea that could have unintended consequences is Obama's proposal to, as he puts it, stop giving tax breaks to corporations who export jobs.

Expressed that way, it sounds great. No one wants his or her job outsourced to another country.

But it is more accurate to think of it as an increase in the cost of the foreign activities of U.S.-based firms.

Skeptics who understand international business are asking how higher taxes on U.S. companies can be considered an incentive to keep their headquarters in this county, where the federal corporate income tax is already 35 percent.

A national taxpayer advocacy group, Americans for Tax Reform, notes that "the reason these tax breaks are in place is to avoid double taxation of international corporate income. To take away these tax breaks is to tell an American company that it will potentially have to pay taxes twice on the same income."

The change would seem to give a tax advantage to foreign companies with U.S. subsidiaries and punish U.S. firms with foreign subsidiaries.

A better, more transparent way to encourage business growth would be to cut the federal corporate tax rate by one percentage point.

The tax savings would be recycled directly into the economy, eventually adding to government revenue and helping jobs begin to grow.

Newstex ID: KRTB-0201-41900227