It is believed that an economic slowdown and maybe a recession is on the way in the United States in 2016. The stock market is off to a rocky start and that’s often a lead indicator of trouble ahead for business and jobs. Profits are down, business investment is poor, and consumers are hunkering down again.
The Congress should get ahead of the storm, pass a recession-insurance stimulus policy and cut the business tax rate to 15%, The American Spectator commented Monday.
Democrats Hillary Clinton and Bernie Sanders are spouting off economic nonsense of late—break up the banks, put Wall Streeters in jail, raise tax rates to 50% or more, spend another multiple trillion dollars. If the economy starts to tank they will want another debt-laden government spending plan.
But where is the Republican growth message? The Grand Old Party runs the House and Senate, but still no sign of a growth package to offer up a contrasting vision from the Bernie and Hillary show.
If the economy does sink into negative territory this year, the Democrats will surely demand more infrastructure spending, unemployment assistance, job training, and a panoply of “stimulus” budget busters that didn’t work in 2009 and won’t work now.
What could be done right now to stimulate growth, investment, and investor confidence almost immediately? The answer is a business tax rate reduction. Pass a rate cut to 15%, with full capital expensing and a 5% voluntary repatriation tax on the $2 trillion owned by US multinational firms that is parked abroad to avoid the high corporate tax.
This won’t cost the treasury much in lost revenues. It may raise money over five years through the money and businesses repatriated back to America. Apple and GE might bring back tens of billions of dollars for assembly plants and research centers on these shores.
Hurting Growth
The current US rate of 39% (with state rates added) is the highest of all the nations US compete with. The rest of the world is at a rate closer to 25%, with some nations like Ireland as low as 12.5%.
The 35% rate is hurting growth. Companies like Burger King, Medtronics, Pfizer, and dozens more left the US in search of lower tax rates. More companies will scamper out if this isn’t fixed—and they take jobs with them.
The international average has come down from almost 40% in 1990 to 25% today. For two and a half decades the US rates haven’t budged, while the rest of the world keeps chopping. US is the only country that seems to want to put a tariff on the country’s goods and services.
Study after study reveals that the corporate tax at 35% is a loser. The American Enterprise Institute has found that wages rise much slower, if at all, in nations with high corporate tax rates. This happens because of less investment in the high tax nations, which means lower paying jobs. In other words, it’s not the rich fat cat shareholders, but working class Americans who suffer the most.
Reconciliation
Even President Barack Obama’s own tax reform commission, headed by former Fed chairman Paul Volcker, found “deep flaws” in the corporate tax. It concluded that the corporate tax “acts to reduce the productivity of American businesses and American workers, increase the likelihood and cost of financial distress, and drain resources away from more valuable uses.”
Republicans are preparing their budget plan this week. They should use a process that Ronald Reagan used and called Reconciliation to make room for a corporate tax cut jobs stimulus. This means the Republicans in the Senate will need only 51 votes to pass it once the House does so by a wide margin. It is possible that several Democrats in red states joining the GOP for this growth stimulus.
