Tuesday, August 30, 2011

Explosive Incentives for Both Job Creation & College Education Loan Reduction

College graduates are getting a double whammy. First, they can’t find good paying jobs, or even any, for that matter, after they graduate. And second, they have huge college education loans, to boot.....now that's what I call starting out your working life in a deep hole.

And there are now more than $1 trillion of college education loans outstanding.

And when you think about it, these college education loans are somewhat similar to what's happened with underwater housing mortgage loans.

Kids are pushed to go to college, and they take out tons of education loans. They are also told not to worry about their education loans since the value of their education will keep rising, just like US citizens were told not to worry about their mortgage loans, since home prices would keep rising.

But you know what? Given the horrible US economy, with the US Government both so broken and so devoid of problem solving creativity on financial matters, especially the Republicans in the US House, the value of education has not risen. There presently are little in the way of good job prospects for college graduates.

In all fairness, the country indeed should bail out US citizens with underwater home mortgages.

But in all fairness, the country should also take steps to help US citizens with underwater education loans.

And these education loans are economically more damaging to US citizens than home mortgage loans, because education loans cannot be eliminated in bankruptcy.

There are two ways to significantly improve the underwater status of US college graduates, and even ones who have education loans but are not college graduates.

First, the long-term job situation can turn around, adding value to the college education asset. And second, the US citizens' education loans can be wisely reduced.

This proposal does both.

My proposal here is that for every net full-time job addition by a business for the rest of 2011, and all of 2012, if the new hire has a college education loan outstanding, this new hire can choose to use up to 25% of his annual earnings for 2011, 2012, 2013 and 2014, to reduce a like amount of his outstanding education loan.

Also under my proposal, the amount chosen to be used to reduce education loans would not be taxable income to the new hire for US federal income tax purposes in any of those four years 2011 to 2014. Further, this portion of annual earnings used to reduce college education loans would not be subject to either employee or employer payroll taxes in any of those four years 2011 to 2014.

The business employing this person would withhold from the employee’s pay the amount to be used to reduce the college education loan. The business would then submit this amount withheld to the organization holding the college education loan.

The business would get a federal income tax deduction in each of the four years 2011 to 2014 for the entire wages of the new hire, including the portion of his wage that the new hire chooses to apply to his outstanding college education loan.

But as a very attractive added incentive, the business would also get a bonus tax deduction in the four years 2011 to 2014 for the amount of the wages the new hire elects to apply to his outstanding college education loan.

How could this very attractive program get wisely paid for?

Well first, if the business doing the hiring is a multinational corporation, this business would be eligible for the tax benefits under this program only if it also elects to say double fund it with a foreign earnings repatriation tax, given an attractive discounted US federal income tax rate incentive, such that it yields additional US tax receipts of twice the tax benefits the multinational corp receives each year under the new hire proposed program.

Second, all of the businesses, both multinational corps and domestic companies, taking advantage of the tax benefits of this program for late 2011 and all of 2012 new hires, would get all of their tax benefits recaptured, both the payroll tax holiday and the bonus federal income tax deduction for the education loan reduction amount, if the business didn’t at least retain the increased total full-time payroll counts through the end of 2014.

This tax recapture aspect means that the US Government is guaranteed to get their tax cost outflow back some way. They either get it with the additional people employed through 2014, with the resultant higher incremental US federal income tax receipts and payroll tax receipts, from the wages on the higher number of people employed. Or, the US Government gets it back by obtaining recapture tax, in situations where the business doesn’t keep its increased total full-time payroll count at least intact through the end of 2014.

Further, the US Government gets additional money back from the double funding of the program related to multinational corps due to the extra foreign earnings repatriation tax it is guaranteed to receive.

Thus, the way it is creatively designed, there should be some excess funding to the US Government under this proposal. This excess funding should be used to fund wisely-designed, fairly-chosen, and quickly-implemented US infrastructure projects.