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A Tale of Two Cities: Jobs Programs in DC versus Zug, Switzerland

By: William McBride

The latest jobs proposal from Team Obama:

“The White House is considering more infrastructure spending, taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. incentives to spur hiring, a reduction in the employer portion of the payroll taxA payroll tax is a tax paid on the wages and salaries of employees to finance social insurance programs like Social Security, Medicare, and unemployment insurance. Payroll taxes are social insurance taxes that comprise 24.8 percent of combined federal, state, and local government revenue, the second largest source of that combined tax revenue. credit and changes to unemployment insurance to subsidize worker retraining for inclusion in a jobs plan Obama is to announce next week, said a person familiar with the discussions.

Joel Prakken, senior managing director of Macroeconomic Advisers LLC in St. Louis, said he doesn’t “have high hopes — really any hopes” of a significant boost to economic growth from Obama’s new jobs agenda.

Still, Greenstone said, “The right test is not whether they will solve the overall unemployment crisis but whether they will improve the lives of hundreds of thousands of families, and these programs can do that.”

A $5,000 tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. for new hires combined with a five- percentage-point reduction in payroll taxes on the net increase wages paid by a business would stimulate 900,000 additional new jobs, according to his analysis. The tax break would also wind up subsidizing about 5.1 million new hires that Greenstone forecasts will occur without the incentives. Consequently, the cost per additional job would be about $35,000 apiece, he said.

The White House hasn’t disclosed how a tax incentive for new hires would be structured, and its impact and cost would depend on details such as the amount of a credit.”

Compare this to Zug, Switzerland:

“If Switzerland is the world’s most famous tax haven, Zug amounts to a haven within a haven. It has the highest concentration of U.S.-dollar millionaires in Switzerland, a country where nearly 10% of households meet that standard, according to Boston Consulting Group. The highest personal income tax anyone in Zug has to pay is 22.9%, and companies pay an average of just 15.4%-rates lower than Switzerland’s average and far below top rates in the U.S.

Zug long was a poor farming region, but in 1947 its leaders began to trim tax rates in an effort to attract companies and the well-heeled. In Switzerland, two-thirds of total taxes, including individual and corporate income taxA corporate income tax (CIT) is levied by federal and state governments on business profits. Many companies are not subject to the CIT because they are taxed as pass-through businesses, with income reportable under the individual income tax. es, are levied by the cantons, not the central government. The cantons also wield other powers that enable them compete for business, such as the authority to make residency and building permits easy to get.

Zug’s tax policies didn’t bear much fruit until the 1960s, but then its fortunes began to soar as businesses moved in, many establishing regional headquarters. Over the past decade, the number of companies with operations of some sort in the canton jumped to 30,000 from 19,000.

The number of jobs in Zug rose 20% in six years, driven by the economic boom and foreign companies’ efforts to minimize their taxes. At a time when the unemployment rate in the European Union (to which Switzerland doesn’t belong) is 9.4%, Zug’s is 1.9%.”

The article goes on to explain that Zug now deals with such problems as too many Ferraris and a booming real estate market.

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