Can’t we all just get along?
This question lately has inspired my friend Tim Browne, a Californian who is active in the free-market think-tank movement. Tim has helped me ponder how both parties can escape the deteriorating fiscal-cliff crisis. Democrats want to shield the middle class from tax increases. Republicans want the top 2 percent to keep creating jobs and expanding the economy without being burdened by tax hikes. Tim suggests: Let’s do both!
The Republican House of Representatives should adopt this proposal and send it to the Democratic Senate for its immediate consideration:
Cut the 10, 15, 25, and 28 percent tax rates by one-tenth each, to 9, 13.5, 22.5, and 25 percent. (Those rates cover single people up to $180,800 and married couples up to $225,550.)
The two top income-tax rates, 33 and 35 percent, would stay the same. So, the GOP would sponsor a middle-class tax cut and leave rates intact for top filers, many of whom own businesses.
Deductions would stay untouched, avoiding a Republican-led backdoor tax hike that would siphon from the tanks of those who invest in companies, hire workers, and purchase products manufactured and marketed by people with more modest incomes.
How much would this cost?
Experienced Washington budget analysts consulted an economic model popular among Fortune 500 companies. Their preliminary estimate finds that such a tax cut would cost $332 billion between 2013 and 2022. However, the dynamic economic activity it would trigger would generate $88.6 billion in federal revenue, so this policy’s net cost would be $243.4 billion.
How would Republicans pay for this?
The GOP should finance this reform by welcoming home corporate profits stranded overseas. The leaders of U.S. multinationals hate to pay America’s 35 percent corporate tax, even after they receive credit for foreign taxes. Thus, Bloomberg News estimates that “U.S. companies have more than $1.6 trillion outside the country.” Every billion that languishes in Brussels or Bangkok is a billion that is not hiring workers, opening factories, or performing R&D in Buffalo or Birmingham.
Bloomberg surveyed 70 top multinationals in March and found that they accumulated $187 billion overseas last year. Extrapolating that through 2022 would add $1.9 trillion to today’s $1.6 trillion stockpile. A long-term, 7 percent “welcome home” tax on this $3.5 trillion would finance the GOP’s $243 billion middle-class tax cut. This repatriated money would help companies reinvest, increase payrolls, or even pay dividends — all of which would propel economic growth.
At the same time, says National Taxpayers Union executive vice president Pete Sepp, “Congress would get a real-time history lesson about why and how to approach an overhaul of the whole corporate tax system, which could free tens of billions more dollars that companies now spend trying to figure out hopelessly complex laws.”
Key Democrats support deploying this capital in America.
Former Clinton undersecretary of commerce Robert J. Shapiro has said that “the repatriation of overseas profits would certainly be in the economy’s interest.” Clinton’s former economic adviser Laura D’Andrea Tyson co-authored an October 2011 New America Foundation study on repatriation. It forecast that this strategy would boost GDP by $178 billion to $336 billion and create between 1.3 million and 2.5 million jobs. Senator Kay Hagan (D., N.C.) has co-sponsored repatriation legislation with Senator John McCain (R., Ariz.).
Even former Service Employees International Union president Andy Stern has admitted that “though there are many honest debates about how much of a shot in the arm bringing back overseas earnings would give our economy, no one can seriously dispute that this is a better option than leaving the $1 trillion overseas in other countries.” Last year he suggested in Politico, “Let’s agree that the question is not whether $1 trillion is needed in the U.S. and start discussing the details on how best to get the money home.”
With this Gordian tax knot elegantly unraveled, Congress and the White House should agree to extend everything else into 2013. This would give both parties breathing room to handle entitlement reform and program terminations without conducting such complex maneuvers near a swiftly approaching precipice.
If President Obama balks at this GOP legislation, he can explain to middle-class Americans why he denied them a tax cut that Republicans authored.
This approach also would help House speaker John Boehner (R., Ohio) regain the confidence of nervous free-marketeers. Boehner rattled tax fighters when he recently said, “There are ways to limit deductions, close loopholes, and have the same people pay more of their money to the federal government without raising tax rates.”
Supply-siders have been disturbed to see Boehner and several other wobbly Republicans accept Obama’s premise that what America needs is for successful people to send more money to Washington, albeit through limiting write-offs rather than raising rates. The damage would be the same: Less money for free enterprise and more money for government.
“Speaker Boehner should focus more on pro-growth tax reform, as opposed to giving the government more money to spend,” says Barney Keller, spokesman for the pro-market Club for Growth. “We should be measuring legislation by whether or not it increases economic output. That should be the first standard for any budget deal.”
To that end, Boehner should embrace the words of none other than Barack Obama — the president agrees with the mainstream GOP position in this controversy.
Or at least he did. Obama told NBC on August 5, 2009, “The last thing you want to do is to raise taxes in the middle of a recession, because that would just suck up — take more demand out of the economy and put businesses further in a hole.”
When Obama expressed this piece of economic common sense, America was no longer “in the middle of a recession.” While Americans may feel otherwise, the Great Recession technically ended in the third quarter of 2009. As Obama spoke, output was expanding at the rate of 1.4 percent. But by that October, GDP was advancing at 4 percent. So, if tax hikes were unwise then, they surely are ill advised now, with GDP growing at just 2.7 percent.
A Republican middle-class tax cut, coupled with importation of marooned corporate profits, recognizes a simple fact on which every American should meditate.
A rapidly rising star of the Right expressed it beautifully: “The way we’re going to move ahead is not by making rich people poorer. It’s by making poor people richer,” Senator Marco Rubio told Fox News Channel’s Bill O’Reilly on Wednesday evening. “The only way forward for us is rapid economic growth. Not new taxes. We need new taxpayers.”
— Deroy Murdock is a New York–based Fox News contributor, a nationally syndicated columnist with the Scripps Howard News Service, and a media fellow with the Hoover Institution on War, Revolution, and Peace at Stanford University. He has addressed several gatherings organized by the Club for Growth and the National Taxpayers Union.