The issue: What’s behind California’s high unemployment rate?
The two major impediments to reducing unemployment are conservative Republicans in the U.S. Congress, and the culture of greed that copiously guides top management actions in large corporations.
Conservative Republican legislators’ egregious stand on national economic issues is based not on sound economic principles, but rather on convoluted ideas regarding the role of taxes and government spending in a recessionary economy.
A study by nonpartisan Congressional Research Service, “Taxes and the Economy: An Economic Analysis of the Top Rates Since 1945,” concluded that tax cuts do not lead to economic growth. These findings were based on an analysis covering a 65-year period. After President George H.W. Bush raised taxes in 1990 and President Bill Clinton raised the top marginal tax rate in 1993, economic growth followed for several years. President George W. Bush’s tax cuts in 2001 and 2003 led to American economy’s meltdown in 2008.
Despite the evidence, the conservative Republicans in the U.S. Congress continue to vehemently oppose all tax increases, inanely asserting that they would hurt the economy. They falsely claim that higher corporate taxes would lower profits, thus resulting in increasing the unemployment. A recent analysis by the Washington Post revealed that tax rates for most U.S. corporations have plummeted.
Some examples: In 1969, Procter & Gamble paid 40 percent federal tax on profits while last year it paid 15 percent; McDonald’s 37 percent in 1973 versus 14 percent in 2012; Microsoft 33 percent in 1987 and 14 percent in 2012; United Technologies 47 percent in 1969 and 5.8 percent in 2012. Corporations accomplish it by shifting income to low tax rate countries.
While presently paying a lower percentage of U.S. taxes on profits, the same corporations benefit in multiple ways from U.S. government spending of revenue collected from taxpayers. Some examples: Internet created through government research; workforce educated in the universities receiving government funding; interstate highway system; infrastructure; legal system; regulations and their enforcement to protect business interests; security provided by the military; commercial applications of technological innovations from NASA and other programs.
Since the end of 2008, average annual corporate earnings have risen more than 20 percent. Despite this, many corporations have laid off workers. United Technologies’ revenue rose from $42.7 billion in 2005 to $57.7 billion in 2012; it eliminated 4,000 workers last year and plans to terminate 3,000 more this year. The corporations hiring more employees did so mostly abroad. Out of 11,438 workers hired by 3M in recent years, only 608 were in the United States.
Another example of destructive actions of conservative Republican legislators is their obsessive insistence on government spending cuts. Deep spending cuts began taking effect March 1. Consequently, there was a disappointing 88,000-job gain in March, compared with an average monthly 196,000-job gain the previous six months.
Many decades ago, legendary economist John Maynard Keynes declared, “The boom, not the slump, is the time for austerity.” Nobel laureate economist Paul Krugman echoed the same expert advice this week, “The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy.”
Either the Republican legislators never took Economics 101 or they have forgotten its lessons.
Zaf Iqbal is past associate dean and professor emeritus of accounting at Cal Poly’s Orfalea College of Business. He volunteers with local nonprofits including Habitat for Humanity, the Retired Senior Volunteer Program and the Children’s Resource Network. He is past president of the San Luis Obispo Democratic Club.