D e s e r t E x p o s u r e
January 2012
Job Creators vs. Job Killers
What really matters to employment?
As 2012 dawns with the nation still gripped by high unemployment, we hear a lot of talk about "job creators." Who are these people and what's keeping them from, well, creating jobs?
In New Mexico, a case can be made that the state's gross-receipts tax is holding back economic growth, especially in small businesses that create the most jobs. Gov. Susana Martinez should be applauded for her pledge last month to press the legislature for fixes to the gross-receipts tax. Her administration aims to tackle some of the "pyramiding" that causes New Mexico businesses to pay, in effect, taxes on the expense of taxes.
There's also talk of simply eliminating gross-receipts taxes on some of the state's smallest businesses. Not only would this encourage entrepreneurship, it would keep hard-working New Mexicans from unwittingly becoming tax cheats. Think about it: Does your dog-walker pay gross-receipts tax? Does that lemonade stand have a CRS number and file regular tax reports?
To understand how New Mexico's taxation of services — not just goods, as with an ordinary sales tax — unfairly impacts small businesses, consider the outside services a small business typically pays for: accounting, cleaning, equipment repairs, legal advice, and so on. In addition to fees for such services, a small business must pay gross-receipts taxes as high as 8.6875% on those fees. A large corporation, however, typically has accountants, janitors, technicians and attorneys on its payroll, so it pays no gross-receipts tax on these expenses.
But larger businesses get hit, too. A Phoenix company courted by Albuquerque officials, First Solar, told the city that a key reason it opted against locating a plant in New Mexico was because electricity is so important to the company's operations. In New Mexico, electricity is subject to our version of the sales tax.
New Mexico has tried to remain competitive despite its gross-receipts tax by a complex system of tax credits and incentives — which often go too far, resulting in some businesses paying no taxes at all. Without these convoluted measures, according to the New Mexico Tax Research Institute, the state would rank dead last, with the least-competitive tax structure in the country. Richard Anklim, president of the institute, told the Albuquerque Journal, "We don't like the fact that we are so reliant on incentives. We are Band-aid-ing a structure that is not ideal."
While Martinez is attacking "job killers" on the state level, many of her fellow Republicans — including our own Rep. Steve Pearce — decry the negative employment effects of regulations nationally. If only we didn't fret so much about pollution or endangered species or worker safety, supposedly, jobs would bloom like daisies in a ditch.
This argument, however, runs aground on the facts. In 2010, according to the Bureau of Labor Statistics, only three-tenths of 1% of people who lost their jobs were let go principally because of government regulation or intervention. In surveys of small businesses conducted by the National Federation of Independent Business, a plurality of companies consistently say the "single biggest problem" they face is not red tape but low sales — a lack of consumer demand.
Has the Obama administration actually imposed more onerous regulations than its predecessors, stifling the economic recovery? An analysis by Bloomberg News finds no such uptick in red tape compared to previous administrations. In the oil and gas industry so important to New Mexico, the GOP has claimed that Obama's policies have cost 934,000 jobs — a number scaled back to 256,000 after USA Today exposed the faulty math. The paper adds, "But even that is too high. It is actually a prediction that oil-industry employment will remain unchanged, and that 256,000 'potential' new jobs will fail to materialize."
Such overblown claims are hardly new. In 1990, the US Business Roundtable published a study predicting that amendments to the Clean Air Act would cost between 200,000 and 2 million jobs. The actual impact was fewer than 6,000 jobs nationwide.
Overall, despite talk of America's purportedly anti-business policies, a World Economic Forum report on global competitiveness ranks the US fifth, behind only small countries like Finland and Singapore. That's essentially unchanged despite the recession, as is the number of Americans starting a business each year, according to the Kauffman Foundation.
So where has America slipped? Infrastructure, according to the World Economic Forum, where the US has gone from the top 10 to 24th in the world. Education, too, has declined — instead of boasting the world's highest percentage of college graduates, the US now ranks 14th. R&D has suffered, too: The percentage of federal spending on research and development today is now half what it was in the 1950s.
That sounds like a case for more government, investing smartly, not less.
If not red tape, what has been "killing" US jobs? According to the Labor Department, "corporate restructuring" is most to blame for declines in employment. You might recall that one of the leading GOP presidential candidates, Mitt Romney, made his fortune at Bain Capital, a private-equity firm he ran for 15 years. According to economist Paul Krugman, "One recent analysis of 'private equity transactions' — the kind of buyouts and takeovers Bain specialized in — noted that business in general is always both creating and destroying jobs, and that this is also true of companies that were buyout or takeover targets. However, job creation at the target firms is no greater than in similar firms that aren't targets, while 'gross job destruction is substantially higher.'"
In the case of Bain, four of its top 10 acquisitions by dollar value ended up going bankrupt, costing employees their jobs. Nonetheless, Bain made money on three of those deals.
That's not to say Bain or Romney did anything wrong. But it should give us pause when the rhetoric about "job creators" heats up. Some smart tinkering with New Mexico's regressive gross-receipts tax might indeed boost our economy and improve employment numbers. Unwisely slashing essential regulations or unleashing the most rapacious elements of capitalism… well, haven't we already seen that movie during the Bush administration?
David A. Fryxell is editor and publisher of Desert Exposure.