The national debt worries many people. Some people fear that many future generations will be saddled with debt from many years ago. What most people don’t know about the national debt is that most of it is self-financed through short-term treasury bonds.
Well, self-financed means the debt is owned by American companies or individuals. Although it’s true that foreign investors (including the People’s Republic of China) own a few trillion dollars’ worth of U.S. government debt, experts estimate that as much as 80% of the debt is owned by American investors.
Raising taxes on corporations is not the only way to pay for vital government services. American companies can do more to grow tax revenues with just a few changes in how they compensate employees and investors.
About 22% of the national debt, according to The Balance, is owned by the U.S. government. Yes, the government borrows from itself.
Figuratively speaking, the American government is borrowing money from future years but it’s not clear how much of that borrowing is from future generations. That is because the government pays interest on everything it borrows. And since much of the debt is self-financed, the interest is being paid back to … American investors and the U.S. government.
The real problem is that American corporations have been given free rein to replace their American workers and infrastructures with foreign workers and infrastructure. Worse, they demand more and more tax breaks without suggesting how those tax revenues can be replaced. The current system is self-defeating. But American companies could still earn great profits while helping fuel growth in state and federal tax revenues.
Here are 7 ways the U.S. economy can pay down the national debt.
1 – Paying More Taxes
When people talk about raising tax revenue, they usually assume that means raising taxation rates. Raising new taxes is politically unpopular with most Americans, although many billionaires would gladly pay more taxes if asked to do so. Most of America’s billionaires benefit from lower tax rates, but many of them have pleaded with politicians to raise taxes on the wealthy because they can easily afford to pay them.
However, before we commit to raising tax rates for either people or corporations, we have other ways of paying more taxes. And everyone benefits.
The easiest way to increase tax revenues is to create more higher-paying jobs. Unfortunately, the American economy is locked into a cyclic pattern of lowering wages. Because companies depend on high stock share prices to compensate their executives and investors, they constantly seek ways to reduce labor costs.
Simple math says if you create enough lower-paying jobs, you can still generate more income tax revenue even by reducing labor costs overall. But to do that you must create jobs that still pay taxes. The lowest income Americans pay few or no taxes at all because of the progressive tax system.
The bottom line is that in order to grow the tax base without raising taxes for anyone, corporations need to create more high-paying jobs.
2 – Eliminate Strategic Corporate Tax Shelters
This is a politically unpopular idea with the business community. They argue that they need to pay as few taxes as possible in order to create jobs.
In reality, very few corporations invest much of their profits in creating new jobs. Instead, they either invest that money in bonds or overseas accounts, or they use the money to buy back shares of their own stocks.
Many growing companies reinvest some of their profits in new buildings, equipment, and jobs. But the older, more well-established companies reach plateaus in their growth. To keep investors happy they must find ways to maintain higher stock prices. And the decisions that lead to higher stock prices are made by executives who earn most of their compensation in stock grants and options.
Allowing corporations to buy their own stocks and use them to compensate executives is a kind of tax shelter. They can write off these portions of their profits as expenses. If instead of buying back stock companies had to pay their executives taxable salaries and their investors taxable dividends, the federal government would raise more tax revenue without raising taxes.
Better yet, stock prices would fall to more accurate valuation levels because demand for them would not be driven by stock buybacks.
Other methods corporations use to avoid paying taxes including using accelerated depreciation rules to write off expenses, transferring profits to foreign subsidiaries, and lobbying for federal tax benefits.
By closing these loopholes, the government can force corporations to pay their employees higher wages, invest in new buildings and equipment more often, and to pay dividends to shareholders instead of buying back stocks.
3 – Companies can Buy American
Thanks to international treaties like NAFTA, American corporations have moved millions of manufacturing and research jobs to other countries. Truthfully, there have been some benefits from these strategic decisions. Millions of new distribution and sales jobs were created as a result of moving manufacturing operations outside of the United States. But many of those jobs pay less than the manufacturing jobs they replaced.
American corporations often outsource their labor to companies in other countries. Instead of outsourcing jobs to less expensive foreign service firms, companies should use American sub-contractors. They won’t save as much money as they do with foreign sub-contractors, but they’ll help create more higher-paying jobs for American citizens. Those higher-paid workers will pay more in federal income taxes.
By the same token, American corporations have outsourced materials and equipment to other countries. It would take time to nurture native specialty industries again, but U.S. companies could prioritize acquiring materials and equipment from American manufacturers. Again, this kind of economic activity would create more jobs and thus increase income tax revenue.
4 – Corporations Could Pay More for Infrastructure
To some extent everyone does this already. If you pay for your water, electricity, and sanitation services then you are paying fees to use infrastructure. But many types of infrastructure are funded by bonds and paid for by existing tax structures (income taxes, usage fees, and sales taxes).
Corporations could agree to make willful 1-time contributions to national infrastructure projects.
Those contributions would then be written off as expenses – and thus not subjected to further taxation. An infrastructure payment could be structured as a 1-time voluntary corporate tax. Corporations make charitable and political donations every year, and they are all tax deductible.
So why not ask corporations to contribute to infrastructure trust funds under the same circumstances? The contributions could be made in shares of stock, and thus corporate stock buybacks could be used to finance infrastructure without directly impacting investors’ wealth.
5 – Prioritize Hiring Only American Employees
Many technology companies hire employees from other countries. They claim these employees have skills that cannot be found among American workers. That’s not true.
Millions of aging American workers have been forced out of technology industry jobs because they are too expensive. They have the skills their employers need – and they can usually be retrained to learn new skills. But because they already have years of experience they have earned too many raises, thus making them more expensive than less experienced foreign laborers.
Every H1-B visa could be taxed at the difference between the new employee’s salary and the highest previous salary of the employee he or she replaces. By making gratuitous H1-B visa employment more expensive, the federal government would discourage abuse of the system while allowing companies to hire foreign workers who truly possess skills and expertise not found among American workers.
Also, for every job a company moves to another country, they must pay a 10-year tax equal to the difference between what they pay the overseas worker to replace an American job. If the cost of labor is the only reason why an American company moves its operations overseas, then this incentive will disappear.
6 – Loan More Employees to Charitable Events and Organizations
Some companies allow employees to volunteer their paid services to worthy charitable causes. By expanding these programs American industry would create more jobs. Thousands of American corporations could hire 1 or more full-time employees to replace the employees on temporary leave to help charitable causes.
By loaning their experienced, knowledgable workers to local and national charitable organizations, the corporations would be eligible to write off the expenses of paying these workers. The charitable organizations would in turn receive expert help without having to pay for it.
7 – Donate Old Patents to Non-profit Organizations
Many companies eventually retire product lines and associated patents when profits from those products and patents decline. Instead of discontinuing once popular products for which sustained but diminished demand persists, corporations could donate those product lines to non-profit organizations.
This way the American economy would continue to produce viable products that might otherwise be displaced by foreign manufacturers. Non-profit organizations are less driven by the need to grow profits.
Although non-profit organizations struggle to find competent executives, who often turn to for-profit employers for better compensation, corporate America could foster closer relations with non-profit partners. Executive turnover might not diminish, but the non-profit organizations would benefit from business partnerships that include mentoring employees and technical assistance.
Conclusion
The single-minded pursuit of profits among U.S. corporations has weakened the U.S. economy in many ways. American manufacturers have become so dependent upon foreign components that every time there is a disruption in overseas supply lines American consumers and workers pay the price.
Meanwhile, political discussions center around the issue of raising taxes. By changing U.S. corporate priorities to emphasize creating more high-paying jobs, the political discussion around taxes need not be so divisive. And by all accounts, a majority of America’s wealthiest families would not object to earning a little less wealth if the country benefits.