technologyreview | A major question is not whether there will be enough jobs but whether there will be enough good jobs—jobs that provide middle-class earnings, safe working conditions, legal protections, social protections, and benefits (e.g., unemployment and disability benefits, health benefits, family benefits, pensions). The slow growth of pretax incomes for the bottom 50% of earners has been the main driver of increasing income inequality over the past half-century. Access to good jobs—as well as to education and health care, so people have the knowledge and good health required to work—is key to lifting these incomes and making technology-enabled growth inclusive.
Several types of policies could make good new jobs more likely to be created in the United States. These include taxes on labor and capital that affect business investment decisions; R&D policies that can direct technological change and influence both the pace and extent of new technologies’ adoption by business; training policies that enable workers to gain new skills; direct labor market interventions that provide benefits to temporary and contract workers; and measures that strengthen workers’ voice in business decisions.
Rethink tax policies
Tax policies influence businesses’ decisions to invest in new production technologies. In the United States and other advanced economies, labor is taxed at a much higher rate than the physical capital and knowledge capital required to produce goods, encouraging investments that use capital and save labor. A reduction in payroll and other employment-related taxes would moderate this bias. So would an increase in taxes on capital, including corporate income. Recently, the US corporate tax rate was cut dramatically. Proponents argued that the cut would increase business investment and that this in turn would increase employment and wages. As technology becomes more labor-saving, however, business investment in physical and knowledge capital becomes less likely to create good jobs, and the new US tax law does nothing to offset that effect.
Another issue is that as capital has become more mobile across national borders, many multinational companies have been able to make their profits “stateless” for tax purposes by shifting them to locations where they have little or no real economic activity and pay little or no tax. Stateless corporate income erodes the tax base and reduces the capacity of individual countries to raise revenues for infrastructure and social protection programs. It also exacerbates the tax disadvantage of labor, which is far less mobile than capital. In their recent book The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, Emmanuel Saez and Gabriel Zucman discuss the consequences of stateless capital income for income inequality and suggest national remedies as stopgap measures in the absence of an international agreement to tax such income. In the long run, given the magnitude of cross-border capital flows, such an agreement is essential
In the US, taxes on capital income should also be increased by raising the rate on capital gains (which are now taxed at a lower rate than personal income) and by eliminating the carried-interest loophole. Both the preferential capital gains rate and the carried-interest feature of current tax law have encouraged technology investments favoring capital and profits over labor and wages. They have also fueled the “financialization” of the US economy and increased income inequality.
Reductions in payroll taxes and other direct taxes on labor, even if offset in part by higher taxes on capital, would leave less government revenue available to fund health care, education, and benefits for workers—all key components of good jobs. A national carbon tax should be used to offset this revenue loss. Lower taxes on labor to promote employment, and higher taxes on carbon to discourage carbon use, are a wise recipe for a future of good jobs and a sustainable environment.
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