U.S. growth agenda must broaden beyond tax cuts

January 14, 2011

U.S. Treasury Secretary Timothy Geithner’s meeting with chief financial officers further suggests the White House may push for corporate tax reform. But with unemployment high, President Barack Obama’s efforts to boost growth shouldn’t stop there. More government investment in research and infrastructure is also warranted.

Trend GDP growth of 3 percent will little improve the nation’s dire jobs situation. The broadest measure of unemployment — which includes part-timers who would prefer full-time work — is double pre-recession levels, as is the percentage of the unemployed jobless for 27 weeks or longer. Clearly government must do more to foster long-term growth and job creation while also keeping an eye on the public purse.

Cutting the top corporate tax rate to a level more competitive with other advanced economies could boost investment, hiring and worker wages. Congressional Republicans like the idea so much they will push it even if Obama doesn’t. And as long as the rate reduction is paid for by reducing market-distorting corporate tax breaks and subsidies, Democrats may play ball, too.

The GOP, which opposed Obama’s 2009 stimulus plan, has been cool to any notion of using spending to juice growth. That may be short-sighted. For instance, government funding of basic research can have a significant economic payoff. But a plan by House Republicans to roll back non-defense discretionary spending to 2008 levels could result in an 11 percent cut to the National Science Foundation’s already skimpy budget. Republicans should instead listen to Newt Gingrich — a possible 2012 GOP presidential candidate — and triple NSF funding.

Republicans, as General Electric Chief Executive Jeffrey Immelt noted this week, have also shown little enthusiasm for Obama’s idea of creating a national infrastructure bank to prioritize and financially seed projects around the country. But there’s no ideological reason that a Republican shouldn’t support such a plan. Even Tea Partiers mostly want to shrink government rather than abolish it.

And it’s really not that much money. Dramatically boosting research and infrastructure spending would cost roughly $75 billion a year, or 0.5 percent of GDP. Anyway, the major cutting needs to come in entitlements and defense, which combined account for 70 percent of the budget. All spending isn’t alike when it comes to boosting the economy and putting people back to work — a lesson Obama has a chance to teach.

Comments

The EFFECTIVE corporate tax rate is under 20%. The nominal 35% is generally paid by small companies that ironically are the job growth machine in this country but don’t have the political clout and tax accountant teams to hide money in off shore havens.

For example, Google’s effective tax rate in 2009 was 2.5%. Many years Exxon pays no federal tax. Real estate investors pay no capital gains tax if the proceeds go back into real estate within 6 months (531 exchange). The list goes on and on.

Conservatives keep on ranting for a FLAT TAX, but just for personal income tax. What they should rant for is a FLAT TAX on all Corporations, private incorporations, etc. Congress should not favor one industry or sector over another with special tax breaks. This is part of the reason the US economy is falling behind its peers.

What puts US corporations at a big disadvantage to world competition are 1) no national health coverage such as in Germany, 2) abysmal secondary education and lack of trade schools, 3) deteriorating national infrastructure, 4) Federal subsidies in no growth industries such as agriculture, mining, etc.

Posted by Acetracy | Report as abusive
 

[...] (ocregister.com) Will we spend or will we save the extra money in our paychecks? (cleveland.com) U.S. growth agenda must broaden beyond tax cuts (blogs.reuters.com) IRS offers tax tips for flood victims (bizjournal.com) Letters: Be honest: [...]

 

Acetracy is absolutely incorrect about the worlds largest and most profitable publicly traded company Exxon Mobil.

In 2007 Exxon paid 29,800,000,000 in taxes.
In 2008 Exxon paid 36,500,000,000 in taxes.
In 2009 Exxon paid 15,100,000,000 in taxes.

Hopefully that will put to bed the well established myth of big oil getting a free ride. The years when Exxon paid no taxes were the years that they lost money as a company when oil was $22/barrel instead of $92 where it is today!

Posted by y2kurtus | Report as abusive
 

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