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.

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