Stimulus projects and higher taxes: Are jobs really created and sustained?

John Hildebrand

As we headed into the most recent election cycle, I engaged in many discussions with folks on both sides of the issues. The single largest issue for many in this election was — and still is — job creation. The questions are: How are jobs created? How are those jobs sustainable? 

The two options from our current leadership seem to be either government stimulus or raising taxes to redistribute wealth. Let’s take a look at these two options and see what make sense.

Under the current model, government stimulus largely means civil projects — roads, bridges, infrastructure or our own federal building projects.

I work at a payroll company that processes payrolls for companies that work on civil projects. What you might not know about is the wages associated with those contracts. Under the Davis Bacon Act passed in 1931, construction contractors working on federal contracts over $2,000 must pay no less than the local prevailing wages and benefits paid on similar projects.

That sounds fair enough, and it was. At the time the Davis Bacon Act was passed, there was a good deal of wage discrimination aimed at minority workers on civil projects. The legislation was enacted to ensure they were paid at a fair wage. Now, however, the government sets wages that are typically double the wages common in a particular market. 

My son worked for a specialty construction company that worked on government and privately funded projects. His regular wage was $12.50 an hour, typical for an entry level worker in the industry. When my son worked on a government-funded job, though, he received $26.50 an hour, the wage required by federal guidelines for that type of work. We’re talking about a 21-year-old at an entry level construction job making $55,120 a year if he worked that job full time.  

For selfish reasons, I wasn’t displeased for my son. But in giving this just a little thought, it’s clear that any work dune under these guidelines costs double the actual prevailing wage. Another way to look at this is if the guidelines allowed contractors to pay market wages, twice as many people could be employed with the same dollars. Alternatively, the work could be accomplished for half the price.

You decide: Who really wins?

Tax increases on the “rich” might sound good to those who aren’t not considered “rich” by the new tax code that’s coming. The “rich” benchmark seems to be about $200,000. So let’s look at a real world example of how this works. 

The payroll company at which I work needs to expand its work area. We have about 900 square feet of unfinished area in our current location. We’re growing and out of desk space. The cost to finish this area is roughly $75,000. We don’t want to take out a loan to do this, so we’ll save for it. Saving for a business means not spending profits.

As owners, we choose to forgo the enjoyment of spending those profits to create a space to hire a new person and create a job — actually, it’s space for six work stations. We choose not to drive a new car or go on the “dream vacation.” Don’t get me wrong, we live well. But we could live “higher” on the hog, to spend that money on ourselves and not create more jobs. 

We decided instead to risk those profits to expand and hire more people. If coming tax increases mean we’ll pay an additional $10,000 or $20,000, this will come out of profits. Guess what? It means someone won’t be getting a new job.

You decide: Who really wins?

When business owners are allowed and encouraged to make a profit, they hire more workers. It’s what entrepreneurs do. Granted, they make more money in the end, but more people have the opportunity to work in the process.

I believe in opportunity earned by work, not entitlement. Let’s incent people to work hard and reward them when they do. If we punish those who create jobs and risk so much of what they’ve earned, do we really believe this will create greater opportunity for those on the way up?

You decide: Who really wins?