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Using Tax Breaks and Welfare Reform to Rebuild America's Inner Cities

Updated on June 19, 2013

Do you think we can have sustainable economic growth without also having a strong manufacturing sector in the mix?

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Industrial economy vs. the service economy

When it comes to U.S. Representative Betty Sutton (D-OH), there is little I find myself agreeing with her on. But a statement she emphasized about the state of manufacturing in the United States, being that I am strong proponent of the restoration of the American manufacturing sector, where she said that in 2010, on average, 23 manufacturing facilities permanently shut their doors each and every day, really caught my attention. It throws up all sorts of red flags for me. We have a serious problem here, and based on many aspects of the economy—not only where we've been, but where we are since the declared end of the Great Recession in 2009, we're not over the hurdle yet. When it comes to economic growth, it has been a slow crawl to be sure, and manufacturing is still at the back of the list, I think, when we think about part of the path to really getting somewhere better. It is clear that we need the manufacturing sector in order to have real sustainable growth and prosperity in our economy. After all, what created the start of robust economic times, in my opinion, and created the middle class, was in fact manufacturing. What ended it was the replacement of wages with credit as we slowly but decisively turned our back on the manufacturing sector to become a new service based economy.

People could earn less and spend more since they could access money like never before, and I think this created a false sense of prosperity which we have now been having to muddle through ever since. Just like a robust stock market will cause investors to place less emphasis on dividends, when the stock market isn't doing so well, dividends return to favor. We get it. We need both growth and income to keep the wheels well greased and turning smoothly if we want to get to point "B." In the boom time economically, so long as we could continue to earn something, and so long as even despite stagnant wage growth during the same period, we could still buy things, we were okay with the status quo.

But it's not just about manufacturing vs. the service industry when you really get to the heart of things. It's about who gets left behind? For example, not everyone is college bound. Not everyone has access to the resources to get there. Moreover, not everyone should need to be college bound.

I think of the economy sort of like I think of some aspects of the ecosystem. Things can go seriously awry if any part of that delicate system gets taken away. Imagine what would happen if the locust had no predators, or fewer predators? What would happen to the crops? What would happen to the part of the ecosystem that relied on those crops as a valuable food source? When the locusts start eating up more of the crops than can be saved, you have to reintroduce something to eat the locusts, or all is lost.

It's an extreme example. But when the manufacturing sector was tossed out of the equation, the system went severely off kilter, and who suffered the greatest, I believe, was the inner cities.

An anecdote to consider before we move on

Forget for a moment that during the same time we had great economic growth, and stagnant wages, that executive pay grew to an astounding average of 350 times the average wage earner in the country. This is just something to keep in the back of your mind when it comes to thinking about parts of the puzzle when it comes to why the American manufacturing industry fell out of favor. I only throw this figure in anecdotally as I do not intend to discuss the effect of unions, globalization, or other factors as they relate to where these manufacturing jobs went, nor why. It is simply too complicated a discussion than I have space for here. It is only to suggest that the cost of labor is not the only reason we lost these jobs.

Do you think the current welfare system is really helping people get out of poverty?

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Tax breaks and welfare reform

There are two parts to what I think would help to increase economic growth and prosperity, especially in America's inner cities. The first part comes down to tax incentives. It is always funny to me how the liberal side will always cite how taxes can be used to influence behavior on the lower end of the totem pole, but they fail to understand that the same thing happens at the higher end—when it comes to spending.

If we are to be led to believe that if you give a lower tax rate to the little guy, he will spend more, then why would giving a lower tax rate to the guy on the higher end not also have a similar effect? Moreover, if we lowered the tax rates on the companies who create jobs, why would they not build more plants? Spend more on benefits? Increase wages? Not all in one fell swoop. But down the road all of these things, I contend, would happen. There would be a reason to do it. Companies, and rich people in general, invest their money into things that provide the best returns. If that means putting more money into their businesses to increase their profits, why would they not do this, and why would this not help the little guy? Perhaps I am missing something here?

Likewise, I also believe that putting greater restrictions on welfare recipients would also change their behavior.

Between tax breaks and welfare reform, I think we could actually do much to improve the way our economy gets back in check. Between tax breaks and welfare reform, we could reduce the locusts destroying our crops, and put some balance back into the delicate system. The locusts can eat, and so can those who rely on what they don't eat.

Tax breaks

Granted, my "plan" is probably too simplified. But I think it is at least a good place to begin the discussion as to how we encourage any manufacturer to build factories in America's inner cities, whether those companies be headquartered in China, or right here in the United States.

  • Offer any company who builds a manufacturing facility that will employ 75 workers or more zero taxes for the first 7 years, and also offer assistance in developing the land and erecting the facility.
  • Any company who wishes to be eligible for a zero tax rate and other tax subsidies for building and hiring in the inner city must have a worker development program in place. The company must have extensive training and development programs in place, taking workers from entry level to full trade level—this system would work similar to an apprenticeship program, but unionized labor would not be a requirement to be eligible for tax exempt status.
  • Companies would be required to offer a company matched 401k plan or other retirement plan which employees would be fully vested in after five years of employment. Due to the nature of economic conditions in the inner city, employees would be required to participate in the plan even if they only contribute 1% of their earnings (provided this could be worked out according to the law). Even if employees were not required to participate, a company must offer the benefit, and an annual training session should be conducted which describes the plan, its benefits to employees, and other information useful to employees in making good retirement decisions regarding their participation.
  • Companies would be required to offer health insurance benefits to employees immediately following the end of any probationary period set by the company, not to exceed one year of employment.
  • Any company receiving this status must pay their workers at least $1 more than the current state minimum wage.

After the period of 7 years would expire for complete tax exempt status, the company would continue to receive tax breaks based on maintaining these criteria.

I will also grant you that there are any number of questions that probably need to be answered in creating a plan such as this. One big one being, what if the plan does not work and the company determines that the plant is unprofitable after the taxpayers have forked over the money before the 7 years is up? And, What if the pool of workers is too limited to allow the plant to be proftiable and efficient? Is the problem in the inner city a lack of good jobs, or a culture?

One nice thing about the format of HubPages is that while this is an opinion based article, it allows for some of the problems to be hashed out and discussed. As Bill O'Reilly often asks about an opinion he puts forth, "Where am I going wrong," we can have that same exchange here.

Welfare reform

Again, likely oversimplified. But here is where I think the discussion needs to begin with the thought in mind that one big way to get people off of welfare, is to make it more difficult to stay on welfare. This being said, the initiatives on the left are key, I think, it making this process more effective since there are more infrastructure alternatives in place that make this more possible to accomplish.

  • Require that people who receive benefits receive benefits for a period of no more than 24 months.
  • Anyone who receives welfare benefits MUST be seeking work, and MUST attend programs designed to train them on how to interview for a job, how to write a réesumé, and must perform at least 8 hours of community service such as picking up garbage on the streets, maintaining city managed garbage cans in parks and along walkways, and other functions that would be determined beneficial.
  • ALL welfare recipients must undergo regular drug testing. If they test postive they lose their benefits.
  • Extensions of benefits beyond 24 months would ONLY be granted if it were deemed to be due to circumstances beyond the recipients control. But the requirements for receiving extended benefits would have the same requirements.

As drug testing tends to be an area of controversy in any discussion surrounding benefits, whereas most often the argument is, "the benefits are really for the kids," I only offer the following set of thoughts.

If the parent tests postive for drugs, is it really in the best interest of the child to be exposed to drugs? Is it in the best interest of the child to be exposed to drug dealers? Paraphanalia? How well can the parent take care of the children if they are either doped upn on drugs, or cannot take care of basic financial needs of the children due to their being doped up on drugs? What money is being used in lieu of properly caring for the children to buy the drugs? Will the parent who is doped up on drugs ever going to be able to get gainful employment, or will the taxpayer have to support the recipient forever. How can we be assured that this lifestyle will not perpetuate in the case of the child? Will the child also become involved with drugs? Will the child only become another ward of the state, either through continued welfare, or imprisionment due to irresponsible parenting?

Even with this plan, there are unanswered questions. I look forward to discussing some of them in detail. On both counts I think, however, that some progress could be made. Open opportinities for those who receive welfare and provide incentives to get off of welfare while also providing incentives for companies to provide an alternative to welfare that makes sense.


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    • Springboard profile imageAUTHOR


      5 years ago from Wisconsin

      That really is the big issue. How do you get people to have more of an incentive to take care of themselves? The system, I think, the way it is structured now, simply makes it too easy to slide by. Something has to change there, and dramatically. I fear that once the population who is supported by the government becomes the majority, it will be hard to turn around from that.

    • drbj profile image

      drbj and sherry 

      5 years ago from south Florida

      I like your ideas about tax breaks and welfare reform, Jim, but changing our present entitlement culture will take concerted effort on the part of ALL of our political representatives. You made an excellent point when you wrote ... 'one big way to get people off of welfare, is to make it more difficult to stay on welfare.' Amen.

      Your comic graphic says it all - why look for a job where you have to work when you can live off the government without working!

      Thanks for the link to my 'doctor' pun.


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