Tinkering with the corporate tax code isn’t enough to turn around the economy.
President Obama recently offered Republicans a “grand bargain” — lowering the corporate tax rate, apparently from 35 to 28 percent, and closing some loopholes in return for new “investments” in jobs.
The economy unquestionably needs help. Unemployment is 7.6 percent and economic growth is stuck below 2 percent. But the president is offering an inadequate reform in exchange for a damaging one.
The shiny bauble Obama is holding out to Congress — the prospect of reducing the corporate tax rate by seven percentage points — isn’t enough to turn around the dismal economy. With one of the highest corporate tax rates in the developed world, the United States needs much more comprehensive reform than a moderate reduction in corporate taxes.
On the business side, I have proposed gutting the corporate tax code and switching to a consumption tax that treats all companies equally regardless of size; allows 100 percent expensing in the current year; taxes all non-expensed income at a 25 percent rate; and eliminates all credits, special deals, and loopholes. This sweeping reform would create powerful incentives for entrepreneurs to start new companies and for existing businesses to expand and hire new employees.
On the individual side, we need to cut taxes so that hard work and success are encouraged and rewarded. Perhaps equally important, the government must drastically simplify the tax code. The impossibly complex, 74,000-page federal tax code is easily manipulated by big business at the expense of smaller competitors. As detailed in recent congressional hearings, it has also become a tool for IRS bureaucrats and their political paymasters to intimidate grassroots organizations they don’t like.
The price President Obama demands for his magnanimous corporate tax cut is more investments in jobs. “Investments,” of course, is this administration’s laughable euphemism for government spending. Having compiled an additional $6 trillion of federal debt since taking office, and having refused to reform our entitlement programs as they careen toward insolvency, and having approved a near-trillion-dollar stimulus program that failed to improve the economy as promised, and having wasted billions more on Cash for Clunkers, home weatherizations, and other ludicrous “green” programs whose results are eminently forgettable except for Solyndra, President Obama understandably wants to begin calling spending by some other name.
But renaming spending programs won’t make them work. The president is wedded to the notion that clever government planners can capably direct the economy and achieve better outcomes than the free market can. In fact, in recent speeches in Illinois and Tennessee, he outlined a new raft of spending proposals: universal preschool for four-year-olds, a “community college to career initiative,” opening more “manufacturing-innovation institutes,” forming “partnerships” to improve poor neighborhoods, and “doubl[ing] down” on green fuel and electric cars.
How much would all this cost? It’s hard to say — the president didn’t mention a price. The only reference he made to the national debt was in accusing Republicans of avoiding discussion of the economy and “shift[ing] the topic to out-of-control government spending, despite the fact that we’ve cut the deficit by nearly half as a share of the economy since I took office.”
So apparently we shouldn’t worry about trivialities like our $17 trillion national debt or the fact that our entitlement programs face tens of trillions of dollars in unfunded liabilities. Some argue that these unsustainable debts drag down the economy, erode confidence in our government, depress domestic and foreign investment, and threaten the dollar’s position as the world reserve currency. But according to Obama, we should trust his budgeting because of his unassailable record of fiscal rectitude.
Revealingly, a local paper, the Times Free Press, greeted Obama’s arrival in Chattanooga by excoriating a stimulus-funded, $112 million federal loan made to EPB, Chattanooga’s government-owned electric monopoly, supposedly to boost energy efficiency and create jobs. EPB used the money to build a needless “smart grid” that, according to the paper, failed to improve service but succeeded in burdening EPB with hundreds of millions in debt, which will likely force the company to raise electricity prices.
This example captures Obama’s entire approach to job creation — a government-centric undertaking in which the dim prospect of creating jobs is lazily cited to justify spending hundreds of millions of taxpayer dollars in pursuit of one of the administration’s ideological priorities.
It’s not enough to pair the same old failed spending plans with minor tax-code tinkering. If we’re going to get the economy out of its rut, we should go with a bold, comprehensive reform program that has a real impact: Revamp the corporate and individual tax codes, reform entitlements to reestablish their solvency, and cut spending to balance the budget.
Thank you, Mr. President, for your generous offer, but we’ll have to decline and opt for something that actually works.
— Devin Nunes (R., Calif.) is chairman of the Ways and Means Trade Subcommittee and a member of the Permanent Select Committee on Intelligence.