The Private Sector Stimulus Agenda

by Douglas Holtz-Eakin

The remaining legislative debate for 2011 will focus on extending unemployment insurance, extending and/or expanding the payroll tax holiday, and (less likely) patching the AMT. Too bad. There are two very good options for stimulus on the table that share two key characteristics: (a) they are private-sector driving, and (b) they have bipartisan support.

One of the bright spots in the remaining debate is the president’s proposal to free up more than 500 megahertz of spectrum. The federal government owns much of this needed bandwidth, including 61 percent of the most “usable” spectrum (between 174 MHz and 4 GHz), which is no longer acceptable with unemployment hovering near 9 percent. It’s inexcusable to make an entire industry wait on the sidelines with unused business capacity.

If the entire usable spectrum were auctioned tomorrow, it would be gone in a heartbeat, and with that would come billions in increased investment and thousands of new jobs. U.S. mobile traffic is projected to grow 21-fold by 2015.

So, to create jobs in a jobless recovery, free up spectrum. In the last ten years, employment for direct carriers in the telecom world has increased by roughly 66,000 employees, or 26 percent, and that was a period largely without smart phones, tablets, and streaming video. Imagine what the next ten years could look like if the federal government does what it says must be done: start selling and reallocating spectrum.

The other opportunity lies with repatriation. One proposal, the House Freedom to Invest Act, would reduce the tax on repatriated dollars to a maximum of 5.25 percent (from 35 percent). A similar bill was introduced in the Senate yesterday by Republican John McCain and Democrat Kay Hagan; it would let companies bring profits back to the U.S. at an 8.75 percent tax rate, 5.25 percent if they increase their payrolls by a specified amount.

Repatriation can be thought of as a private-sector approach to stimulus. The Obama administration’s proposed stimulus would use federal-government cash flows to support new hiring, purchases of investment goods, and research and development. In the same way, a reduced tax on repatriated earnings would generate cash flows that would put resources in the hands of workers, their families, and companies.

A repatriation tax policy is desirable from several perspectives. First, cash otherwise trapped overseas — perhaps even permanently — would flow back into the U.S. JPMorgan Chase & Co. has estimated that at least $1.4 trillion in undistributed foreign earnings is locked up abroad; Moody’s warns that U.S. tech companies might hold as much as 79 percent of their cash overseas by 2013. I estimate that the short-run stimulus provided by repatriated dollars would speed the pace of economic recovery, increasing GDP by roughly $360 billion and creating about 2.9 million new jobs.

More rapid economic growth should be the top national priority, and the consensus in Washington is that the focus should be on private-sector initiatives. Putting more spectrum in the hands of the private sector and putting more American dollars in the hands of Americans are two bipartisan steps in the right direction.

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