Make the Tax System Work for the Working Class

What's the single best idea to jumpstart job creation?

The most important thing the United States can do to create jobs is strip away outdated policies that no longer support companies or the people who work in them. To do so, we have to recognize that the way people work is undergoing fundamental changes.

Let's start with social costs, many of which show up as payroll taxes. The sheer magnitude, of course, is a steep barrier to hiring. But it's not just the amount that's the problem. The way we collect and distribute these social benefits also needs an overhaul. For example, we've made the employer the primary provider of health care benefits. As a result, we now have a bewildering array of options and an incredibly inefficient system. We've done much the same thing with retirement benefits.

The Great Jobs Debate: An Atlantic/McKinsey Report

This tendency to put the employer--rather than the employee--at the center is based on a model in which individuals worked for most of their career in a single, large, stable enterprise that the government used as a delivery mechanism for benefits. But that employment model was actually an aberration that grew up during the period of industrialization sparked by World War II. In earlier periods, more people worked for themselves or for small enterprises.

Increasingly, they're doing so again. Job life cycles have become incredibly short. These days, a job--or even a whole category of jobs, such as bank tellers--can appear and disappear rapidly, perhaps migrating to a lower-cost locale on the other side of the globe. This is forcing workers to become free agents. These are the independent contractors and part-time employees who move in and out of the work force as opportunities and their personal circumstances warrant. Such free agents already make up 25 to 35 percent of the work force. I believe they'll make up half in a decade. Right now, these workers miss out on benefits that are tied to length of service as they move from job to job. If we're going to tie social benefits to work, they need to be based on employment rather than on an employer. It shouldn't matter where you work or for how long.

We also need an approach to income tax that recognizes these shifts. There is no murkier area in the tax code than independent contractors. How they interact with the government in terms of taxes and how they go about reporting revenue is difficult and inefficient. Our system of making companies the administrators for tax collections is outdated.

One solution would be a value-added tax instead of an income- or revenue-based tax. We should be looking at a tax structure that's based on the amount of value created by companies as they innovate and produce products, rather than how many people they employ.

None of these steps is easy. But making sure that people who want to work can actually find jobs is a moral imperative. I'm optimistic that ultimately, we will put our political differences aside and meet the challenge of making a better world for our children.

Follow the debate here.