Politics & Policy

Hill Stimulation

Nancy Pelosi and Harry Reid appear determined to do something to stimulate the economy, leaving us more than a little apprehensive about what that “something” might be. The most popular idea on the Democrats’ side of the aisle — tax rebates, to be offered in the hope that the country will spend its way out of trouble — is unlikely to be effective: Such rebates have in the past been saved rather than spent, and consumer spending is not the cause of our economic troubles in the first place.

Virginia Republican Eric Cantor has introduced a bill in the House that would stimulate growth by cutting taxes on businesses. We like Cantor’s proposal, but Republicans should supplement it with middle-class tax relief.

The centerpiece of Cantor’s plan is a permanent, across-the-board cut in the corporate tax rate, from 35 to 25 percent. The United States has one of the highest corporate tax rates in the developed world. The best way to keep companies from “shipping jobs overseas” is to remove incentives for them to do so, and cutting the corporate tax rate is an important first step down that road.

Cantor’s plan includes commendable tax breaks on new business equipment and other capital costs. The idea here is to keep businesses growing and expanding through any downturn, so that it is as short-lived as possible. Cantor’s plan would also expand tax credits and tax-deductible losses, reducing the burden on businesses that might otherwise resort to downsizing. The Democrats have talked about expanding unemployment insurance as part of their package, but it’s better to prevent layoffs in the first place. To that end, Congress should also consider cutting the 35 percent corporate capital-gains tax.

The press is already hard at work telling a story in which Republicans are the friends of the corporations and Democrats are the friends of the workers. (Does it know how to tell any other kind?) Conservatives will have to explain how tax relief for the engines of job creation is crucial to the economy’s growth and, consequently, the health of the American worker. But their job will be easier if they offer struggling middle-class families direct tax relief, such as an expanded tax credit for children.

Bad public policy usually follows an economic downturn as surely as The Tonight Show follows the late-night news, but that doesn’t have to be the case this time. It won’t be, if Republicans focus on keeping businesses strong and offer some common-sense middle-class tax relief.


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