The Senate is
currently considering an amendment that would expand Trade
Adjustment Assistance, which provides aid and retraining to those
whose jobs have been displaced by trade, to service workers. This
would be an empty gesture, however, as service workers are eligible
to receive similar assistance from other programs. Even worse, the
amendment is likely to delay the corporate tax bill, which will
prolong WTO-blessed tariffs on U.S. exports; drain vitality from
one of the most robust sectors of the economy; and undermine a
health care tax-credit program. Instead of playing political
football with jobs, the Senate should make U.S. exporters more
competitive by reforming corporate taxation.
Wyden/Rockefeller/Coleman amendment aims to offer TAA coverage to
workers in services and related sectors such as law, accounting,
software, and advertising. It would lower the age requirement for
workers who are eligible to participate in the "wage insurance
program" from 50 years to 40 years and older. The amendment also
has provisions to establish TAA for communities. In all, the
amendment could double the number of workers covered by
But an expanded TAA
would aid few displaced workers because it would be duplicative.
Currently, workers who do not qualify for TAA are eligible to
receive assistance under the Workforce Investment Act.
expanding TAA would be costly. Current proposals-which include
extended unemployment benefits, training benefits, relocation
expenses, and health care subsidies-would cost more than $5 billion
from 2005 through 2014.
Of even greater
concern, the amendment is hampering efforts to lower tariffs for
U.S. exporters. The WTO ruled against the U.S. preferential tax
rate for export related income (FSC/ETI), stating that such
treatment is a subsidy, and the EU began levying tariffs on a
variety of U.S. goods in March. These tariffs are set to increase
every month through March 2005 when they will reach 17 percent.
Tariffs put U.S. exporters at a comparative disadvantage and could
soon cost U.S. jobs. Legislation to comply with the WTO's ruling on
U.S. tax policy and end the tariffs is being delayed in the Senate
by efforts to expand TAA.
TAA for the Service Sector
Expanding TAA into
the service sector may drain vitality from a sector of the economy
in which American workers and firms hold substantial advantages
over their competitors in terms of education, skill, and
creativity. TAA benefits, which include health insurance and
retraining, may serve to delay the re-entry of workers into the
workforce in those situations where foreign trade is found to be a
factor in the loss of a job.
In particular, the
job-retraining portion of TAA could lure service sector workers out
of what may still be potentially lucrative careers. TAA retraining
of manufacturing workers has a rational purpose because
manufacturing jobs have generally been decreasing. Retraining will
often be the best choice for unemployed manufacturing workers. But
service sector jobs, in spite of new international competition,
have been increasing.
For all the talk of
"outsourcing" of service sector and high tech work, the number of
such jobs lost to overseas competitors remains small in comparison
to the overall American labor market-the largest estimate of jobs
that might be "outsourced" amounts to less than one percent of
expected job losses. The last thing the government should be doing
is encouraging high-tech and service sector workers to "bail out"
by offering them a special training program.
amendment would also make changes to the newly established health
care tax credits (HCTC). Today, individuals who are eligible for
TAA and certain individuals whose pensions are administered by the
Pension Benefit Guarantee Corporation have access to refundable,
advanceable tax credits worth 65 percent of the cost of their
health care premiums. These credits can only be applied to certain
government-designated coverage options: three automatic coverage
options, for which not all workers qualify, and several state-based
options, which states elect to offer.
surveys already exist on the HCTC experience, efforts to change the
conditions and parameters of the HCTC at this time would be
premature and potentially disruptive. As proposed, the amendment
would increase the tax credit amount and add to the conditions and
requirements of coverage.
Proponents of these
changes suggest that increasing the tax credit would assist those
individuals who find the remaining 35 percent of the premium too
costly. However, increasing the credit amount may still not solve
the problem. HCTC recipients who are on a fixed budget with little
disposable income will continue to face competing demands for their
limited financial resources.
policies available to the HCTC recipients are already limited and
stifled by government regulation. Efforts to add complexity to
available state-opted coverage options, while perhaps well
intentioned, may actually undermine and disrupt existing coverage
and deter other states from offering these coverage
Instead of adding
layers of regulatory complexity, policymakers should focus on
making the coverage options simpler-by making the requirements more
realistic, with respect to the current marketplace, and by ensuring
that the broadest range of coverage options are available for the
tax credit. Allowing each HCTC recipient to decide which coverage
option is the best value and choice for him or her would be a much
better way to guarantee satisfaction and results.
There is still much
to learn from the HCTC experience. Preliminary observations are
helpful in identifying potential difficulties and key areas to
monitor. However, policy changes should be considered after
further analysis has been undertaken, in order to better understand
the HCTC experience and its full policy implications.
The Senate should
promote free trade and U.S. competitiveness by complying with the
WTO's ruling and reforming corporate taxation. Advancing free trade
in this way will help the American economy. In contrast, a larger
TAA would aid few workers, increase government spending, and be a
drag on the economy.
is Policy Analyst in the Center for International Trade and
Economics, Paul Kersey is Bradley Visiting Fellow in Labor
Economics, and Nina Owcharenko is Senior Policy Analyst in the
Center for Health Policy Studies, at The Heritage