Inflationomics

Enterprise “Zones” for Chronically Unemployed Individuals

Special Economic Zones (SEZ), or enterprise zones are known the world over for their ability to stimulate business.  In China, they were begun in the 1980s as a way to increase foreign direct investment.  Why not adapt them to reduce unemployment?

In some U.S. states, SEZs have been used to encourage economic growth and investment in especially-depressed communities.  Other states have tried to curb population flight out of inner cities.  While the goals may vary, in general, incentives are given to businesses locating within the zone boundaries to invest capital and create jobs.

Since 1981, SEZs have been implemented in 43 states around the United States—because they work.  While some SEZs are more effective than others (some places were screwed up so badly that they were beyond help), the theory is clear.  Fewer costs increase the likelihood that a business will earn a profit and be able to hire more employees. SEZs that at least lower the tax burdens imposed by governments may make an area that is otherwise competitive, survive financially.  Whether they prosper is another matter.

Flash forward to 2010, a year in which 46 out of 50 U.S. states could be facing bankruptcy.  Jobs are needed (and I don’t mean unproductive government jobs!) more than ever!  Perhaps it’s time to apply the same principles that allow SEZs to work to chronically unemployed labor.  In other words, why not let the chronically unemployed laborers be SEZs?  Why not exempt the unemployed folks who have exhausted their unemployment compensation from income taxes?  They don’t have any income anyway!  Give them an additional incentive to get to work.

What does the state have to lose by exempting them from income tax?  Taxes to be paid on the unemployment benefits they (the unemployed) receive from the state?  Is it any worse than exempting businesses that move into an SEZ?  Is it any more difficult to keep track of an SEZIndividual (SEZI) than it is to keep track of any other taxpayer?  Computers already keep track of who pays and who doesn’t pay these days.  It’s just a matter of setting up a new tax-exempt category for a small group of tax-privileged individuals.  In fact, it should be easier than keeping track of individuals on probation, a job the state already performs.  Unlike other taxpayers, the state won’t have to keep track of these individuals at all.  They will be “free” to earn as much as they can, provide jobs for other tax-burdened individuals, and invest capital in that state.  What better way to attract and keep individuals than to label them as SEZIs?  I know I wouldn’t want to leave such a state!

Obviously, employers will have to establish a tax-exempt category on their books as well, but anything that cuts costs will surely be welcomed by businesses.

How high does unemployment have to go before we apply the principles that work for businesses to individuals?  We need SEZIs yesterday!

Robert Jackson Smith

P.S. Clearly, equal treatment under the law is best, however, the United States is well beyond that. We no longer have equal treatment by governments—think taxes, unions, environmental laws, banking, businesses, etc. Setting some people "free" from taxes would be a first step back to freedom for all. Like China, when some people taste freedom, it gets harder and harder to hold everyone back. Eventually the dam will burst and freedom will reign supreme.

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