September 2003

The Economic Model Changing Before Our Eyes

by Paul M. Bray

We hear a lot about job killing taxes as if taxes alone were determining the maintenance of jobs in our state. In fact, the dismal job picture in New York State (212,000 private jobs lost in the last two years)and much of the nation (2.7 million jobs lost in the last three years) resulting in a jobless economic recovery is a factor of much larger global market forces than the relatively minimal cost of doing business impact of state taxes.

In the almost two years since the national recession ended in November 2001, there are far fewer jobs that when the recession began, a first time occurrence since the Great Depression. This is happening as a growing working age population creates a need for 110,000 new jobs per month. Most if not all indicators for job growth are negative even though the DOW may be headed for 10,000, the GNP may reach a healthy annual growth rate of 2.6% or more and personal income growth has accelerated in 39 states in the first quarter of 2003.

It looks very much like the traditional model of growth where everyone is a winner may not be realistic. What appears to be happening is a global economic effect with the USA as the dynamic engine for the global economy in part based (1) on productivity without jobs or wages growing and (2) on outsourcing that began with manufacturing jobs going to Mexico and Asia and now includes high end tech jobs like computer programming going to countries like India.

On the one hand, this has created great wealth for us as a nation with a high level of home ownership, an abundance of relatively abundant and inexpensive consumer goods and an economic rising tide effect for many poor nations. But this is coming at a serious cost in the loss of jobs that the political powers that be do not want to face.

Employment patterns have changed in the past. Manufacturing, for example, migrated from the northeast and mid-west to the south just as it is now migrating off shore from the south. The market with a little help from time to time from its friends, the Democrats priming the pump and providing a social safety net and the Republicans with tax relief and corporate welfare, were able to assist the creation of new jobs for a growing labor force. The 90s saw a tremendous growth in value that led to job creation, the explosion of the stock market and great expansion of wealth for the wealthiest.

Today the signs are that structural changes require a new economic model that addresses increasing joblessness and underemployment for many of our citizens including for the first time since the depression many of the well-educated.

While I am far from presumptuous enough to suggest what that model may be, we do need to rethink some current assumptions. First, we need to return to notions of wealth sharing like income tax progressivity that have fallen from the public radar. A recent article in the New York Times pointed out that thirty years ago there was not open discourse about gay rights as there was at that time about wealth sharing. Today, gay rights is openly talked about while wealth sharing has become the taboo subject despite the 3000% growth in CEO pay.

At a time when joblessness adds to the problem of thirty-one million Americans-one in four workers-earning $8.70 an hour or less usually without health care, childcare and pensions, shouldn't we take a serious look at how the nation's wealth is being distributed? We should at least shelve the benefit the wealthy efforts to repeal New York's alternative corporate minimum tax and the federal estate tax.

State officials should seriously rethink current job creation policies from so-called job creating corporate tax incentives to the tens of millions of targeted research dollars given to universities around the state to develop high tech and bio tech jobs at the same time that the state universities' budget is being cut by $183.5 million.

Attorney and author of the New York Tax Handbook, Rob Plattner, expressed his skepticism about the value of tax incentives for job creation in an article in the State Tax Notes entitled "How Has State Tax Policy Gone So Wrong?" Regarding tax cuts targeted to creating a specified number of jobs, Plattner points out, "Generally, no one even bothers to investigate whether new jobs were created as a result of the cut." IBM, a favorite of state politicians when it comes to tax breaks, isn't saying how many jobs it has brought to New York to date.

With regard to growing tech pork, the State is in effect picking up corporate research costs without any guarantee that the products resulting from the research will be manufactured in New York. There are reasons to believe this is not the best investment for public funds when tech jobs are increasingly going off shore. An example of the fluidity of high tech jobs is the Ottawa, Canada fiber optics product firm of JDS Uniphase Corp. that in the 90s employed 13,000 in research, development and manufacturing has shipped most of those jobs out of Canada leaving only 2,400 of its employees in Ottawa.

Tax cuts and tech pork leave less money available for having a first rate educational system beginning with early childhood programs on up to the diversity of public and private institutions of higher education and a first class health care system.

Instead of an economic model based on tax cuts and corporate welfare chasing what has become a chimera of job creation, perhaps we should concentrate on a just and fair tax system that will give us a highly educated and healthy state citizenry capable of prospering in the changing, competitive and challenging global economy.

Paul M. Bray is President of the P.M.Bray LLC, an Albany environmental and planning law firm. His e-mail address is pmbray@aol.com.