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Prescription Pad: Four Ways To Help Our Service Economy Right Now

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Matt Doheny continued his "50 Businesses, 50 Days" tour last week with visits to 14 businesses in the service economy.

Unlike other sectors, the service economy rarely deals with the production of physical goods. It can take goods and move them between producer and consumer, like in retail. It can modify goods and sell them, like a restaurant does. In addition, it deals in intangibles -- good advice, insight or customer service.

Those included in the service economy include diners, trash collectors, car washes, schools, banks, hardware stores, insurance agencies and realtors.

"The service sector makes up more than three-quarters of the United States economy," said Doheny, the Republican, Conservative and Independence parties' candidate in the 21st Congressional District. "But when money is tight, people cut back on amenities to make ends meet. You can't give great service if there's no one coming through the door. That's why this week's prescription is about the growth that leads to customer traffic."

AVOID "TAXMAGEDDON'

Americans at all income levels are facing the biggest tax hike in history if President Obama and Congress fail to act before year's end. The simultaneous expiration of several tax cuts, combined with new tax hikes in ObamaCare, will cause a $494 billion tax increase in 2013 alone.

The looming threat of "taxmageddon" has hurt job growth. The New York Times reported last week that an increasing number of manufacturers are aborting investment plans and delaying new hires because of Congress' failure to avoid this "fiscal cliff."

Businesses aren't the only ones impacted. The average American household will pay $3,800 more in taxes next year if the tax cuts are not extended. While the government reported a slight increase in personal income, the Consumer Confidence Board said personal spending remain unchanged. People are holding onto their extra money because they don't know what's coming.

The nonpartisan Congressional Budget Office says the "fiscal cliff," a combination of both increased taxes and reduced federal spending, will put us back into another recession. Economic growth, which has already failed to keep pace with population growth, would shrink by 1.3 percent in the first half of 2013 if the cliff were not avoided.

LOWER THE CORPORATE TAX RATE

There is a global competition for jobs, and the United States contends with one arm tied behind its back.

Our federal corporate tax rate is 35 percent, the highest in the world. That does not include New York state's 7.1 percent tax rate for corporations.

Companies consider the potential profit of any investment before it's made, and they understand the return, after taxes, will likely be higher in a country with a smaller corporate tax rate. Our higher rate places a significant obstacle in the way of profit, which results in less investment here. With less investment, workforce productivity moves slower. With slower productivity, there are less wage increases.

For the United States to improve its standing in the global competition for jobs, it must lower its federal corporate rate to at least - if not below - the international average of 25 percent.

RETHINK JOB TRAINING PROGRAMS

The Government Accountability Office reported last year that taxpayers were paying $18 billion annually for 47 unique, overly complex and sometimes duplicative federal employment and job training programs.

The private sector has a growing market of companies who will assist job seekers with everything from writing a resume to placing them in permanent employment. The Internet has allowed the unemployed to broaden their search for a job, as many employment websites allow companies to post want ads for free.

In addition, private sector companies are already making a substantial investment in their own job training programs. The American Society for Training and Development reports U.S. companies spent $126 billion on job training and development programs in 2009. That's targeted training that responds to economic conditions -- and the investment is seven times more than the government is spending on programs they know to be inefficient.

There is oftentimes a disparity between an unemployed person's skills -- and the skills that a potential employer is seeking. Businesses should partner with this district's Boards of Cooperative Educational Services, community colleges, and four-year universities to create programs that actually serve as on-the-job training. In addition, Workforce Investment Boards, Small Business Development Centers and other local job training programs need to be strengthened so that the actual needs of businesses are met.

Our federal jobs programs likely need to be consolidated, but they also need to be retooled and refocused so they can also be nimble enough to respond to specific needs within a region.

AVOID THE "RESERVATION WAGE'; STOP FURTHER EXPANSION OF UNEMPLOYMENT

Federal unemployment insurance is a small hedge against sudden jobs loss, but there was never an intent to create another welfare program.

Certainly, no one is getting rich off his or her weekly unemployment insurance benefit. In New York, the average payout is a little more than $300 per week.

However, economists have found that providing more generous benefits or extending the duration of benefits can increase the length of a person's unemployment. The American ideal is to give a person the opportunity to move upward, not remain stuck in a lower class because of an increasing dependence on government.

Some employers during this week's tour expressed concern about being unable to attract unemployed people collecting benefits. Economists have a name for this phenomenon: the reservation wage, or the minimum wage an unemployed person wants before taking a job.

Larry Summers, who was treasury secretary until Bill Clinton, noted in a 2008 article the disparity in impact when an unemployed person, receiving $8.25 per hour in unemployment benefits, rejects a $15 per hour job. The cost to remain unemployed, he said, was about $4.39 per hour after taxes, while the cost to both taxpayers and the health of the economy was far greater.

Economists have also reported that unemployed people tend to increase their job searches in the few weeks before benefits lapse.

Presently, unemployed workers in New York state are eligible for 79 weeks of benefits. The first 26 weeks are provided by the state, while our federal government pays for the remaining 53 weeks.

Until recently, those unemployed could receive up to 99 weeks of benefits. However, this created a tremendous imbalance between what was taken in from taxes and what was paid out in benefits.

Thirty-four states had to borrow from the federal government after exhausting their unemployment reserves. New York, which began borrowing in January 2009, still owed $2.84 billion to the federal government as of June 27.

The federal government is charging $102 million in interest on New York's loans, which the state must pay by Sept. 30. To offset its costs, New York has added a new tax on employers, equal to 0.15 percent multiplied by its total taxable wages.

These taxes only serve to hurt growth at the very time when it is needed most.

Matt would oppose efforts to make unemployment benefits more generous or extend their duration, as it hurts both the government, the business owner and, ultimately, the unemployed person.


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