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Streetcar Line
Recovery Two-Step
The easy way to economic good times.
Getting the economy back on track, and quickly, would be easy. It would take just two steps. First, rescind, in one fell swoop, all $251 billion (as of Jan. 15) of "stimulus" funds that remain unspent from last year's gargantuan package. Second, eliminate the corporate income tax, for U.S.-based companies, entirely and forever.
Businesses anticipating a return to health would immediately start reinvesting. Companies that have outsourced business to foreign climes would rush to return their operations to the United States. Foreign companies would establish American subsidiaries, and hire American workers, to take advantage of the no-tax opportunity. Long-term market investors worried about exploding national debt, or about the worth of the dollar, would take heart from the elimination of stimulus spending and would start buying again.
The economy would skyrocket like a July 4th display on the Capitol Mall. Unlike Independence Day fireworks, though, the light would not dissipate. The positive effects would be long-lasting.
The left would complain about the supposed loss of "stimulus" from rescinding the projects. The left would be wrong. No harm would be done. None.
Up until this point, $172 billion of the "stimulus" has been spent, with another $157 billion "in process" of being spent, according to ProPublica. Another $93 billion worth of specially targeted tax cuts also have taken effect. (Word to the wise: Targeting tax cuts for specific functions rarely works. All it does it provide more incentives for people to game the system. Broad-based tax cuts are just about the only tax cuts worth doing, from a macroeconomic standpoint.) Yet more than a net 3 million Americans are jobless now than were jobless before Barack Obama became president. And that doesn't count the chronically underemployed or those who have left the workforce. The stimulus hasn't worked. The Associated Press, in a story by superb, Pulitzer Prize-winning reporter Brett Blackledge along with Matt Apuzzo (with whom I need to become more familiar, I guess), absolutely exploded the idea that the stimulus package has had demonstrably beneficial effects.
And if the whole idea for the stimulus was to catalyze an immediate jolt to the economy, then the very fact that $251 billion still hasn't even become "in process" of being spent yet, a year later, is evidence that it is ill-designed for the stimulus purpose in the first place -- even if the stimulus would work -- which, as the AP showed, it didn't.
So if the unspent stimulus funds remain unspent, AND the "cost" of much of the $119 billion in yet-unused tax cuts is also made moot because most of them are business tax breaks that would be absorbed within the "cost" of eliminating the corporate income tax (about which, below), then we're talking about a one-year savings of approximately $350 billion -- and, of course, all the interest payments on that $350 billion in the out years down the road.
The corporate income tax brought in about $339 billion in 2009. We thus see that for at least the first year, the loss of corporate income tax receipts would be covered by the savings from rescinding the whole remaining stimulus package. And, as I have argued elsewhere several times, eliminating the corporate income tax would come close to paying for itself even without putting undue faith in supply-side nostrums. (Please do read that linked column, to allow me not to repeat all the arguments.) It also would be a pro-labor policy, both become of all the jobs in-sourced instead of outsourced and for all sorts of other technical reasons that led the Congressional Budget Office to note that "domestic labor bears slightly more than 70 percent of the burden of the corporate income tax."
I took most of my arguments from a now-dead blog called The Conservative Compact, which cited
a respected left-leaning numbers cruncher [and former Democratic staffer] who puts evidence ahead of ideology. Here are the bullet points he gave me for what such a major policy change would accomplish:
- And, of course, the increased economic efficiency from corporations doing things because they make economic sense rather than because of the tax advantages will be a huge boon to the economy.
- Eliminate about 2/3 of IRS, the part involved with collecting corporate taxes.
- Eliminating corporate taxes and tax preparation costs means much higher profits for most corporations. Higher profits means higher prices on Wall Street for their stock. That should result in a dramatic and sudden increase in the value of pension fund holdings and retirement plans.
- Corporations will finance their operations with equity instead of debt because debt will no longer be deductible (nothing to deduct it from). That means fewer corporate bonds.
- Fewer corporate bonds mean an increasing demand for government debt. That will decrease the interest rates on federal bonds, bills, and notes so federal interest payments should drop significantly.
My left-leaning friend added a couple of points in person that he didn't include in the written bullet points. First, this really would come close to being the proverbial "tax cut that pays for itself." Three factors make it so. Eliminating about two-thirds of the IRS would save about $6 billion. Cutting federal interest payments would save tens of billions of dollars annually. And the "huge boon to the economy" from all the bullet points combined would vastly increase federal tax collections in other areas, including for capital gains, dividends, and personal income taxes. Second, corporations wouldn't merely pocket all their windfalls as profits, but would instead be likely to cut a lot of prices as well. So as labor unions (and virtually all workers, for that matter) would benefit from the higher pension fund values, consumers obviously would benefit from the lower prices.
Obviously, too, if the Obamites do not move to extend the expiring Bush tax cuts on capital gains, the government's extra-added receipts from that tax also will help the corporate income tax elimination move closer to "paying for itself" -- and, because the businesses will gain far more from eliminating the corporate income tax than their shareholders will lose from a 5 percent hike in capital gains and dividend taxes, there won't be any move at all away from the market even if those latter two taxes do rise.
The point of all this arithmetic is that it makes no sense to say that the government "can't afford" to eliminate the corporate income tax. The truth is that in some ways, it can't afford not to do so. And if it rescinds the remaining stimulus funds, affordability even by static budget scoring becomes almost moot.
….. Now, since we in this column are living in a world of What-Should-Be rather than of what the Obama-Pelosi-Reid Axis actually will do, then if we just combine the one-two prescription outlined above with conservative health-care reforms, Rep. Paul Ryan's budget, a sound-dollar policy at the Federal Reserve and at Treasury, a combination of the G.W. Bush and Fred Thompson Social Security plans, and some serious discretionary fiscal discipline -- well, then, presto! -- we will have both a booming economy and a balanced budget again before private citizens Sasha and Malia Obama are even in college yet.
And with the economy booming along, President Mike Pence will be able to concentrate on eliminating terrorists and securing world peace….
About the Author
Quin Hillyer is a senior editor of The American Spectator and a senior fellow at the Center for Individual Freedom.
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Merlin| 2.4.10 @ 7:52AM
Dreamer.
I hope this one come true.
Great artical as usual.
LQQKY| 2.4.10 @ 8:35AM
To paraphrase a popular comment: "from Merlins fingers to G-d's eyes!
Anastasia Mather| 2.4.10 @ 9:36AM
Oooh, I like that!
Eric Cartman| 2.4.10 @ 10:07AM
Start the countdown for another brilliant dissertation on taxes and the economy from Bob - with graphs, charts, links, pointers, internalized rebuttals, a stern lecture on logic and epistemology, assurance of his brilliance as he retails us with tales from running 137.2 Fortune 137.2 companies, Obama magic, more brilliance, your beta score, his beta score, cures for my aunt's bunions, her beta score - the list is long - how he save his platoon in SE Asia, how the ingrates gave him an atomic wedgie, how he saved AIG and how THEY gave him an atomic wedgie - ingrates - and how, if given a chance, YOU may give him an atomic wedgie - 'cause you're an ingrate, too - and why its useless to waste his time and talent on you. Ya dumb rube!
Eric Cartman| 2.4.10 @ 10:13AM
Er, that's regales, not retails - which, if you knew anything, would know that retail numbers are up, okay?! And that will lead us out of the recession since 70% of our economy is consumer spending! But why waste my brilliance on you, you rube! You don't . . . oh, wait. Sorry. I was channeling Bob.
blackwatch| 2.5.10 @ 1:23AM
that's the funniest rant I have read in months!
excellent work sir!
Walking Horse| 2.4.10 @ 8:45AM
There is no reason to believe the democrats are capable of contemplating such a move.
The current leadership has driven this overloaded wagon, the US economy, into a ditch. Rather than getting off the wagon, unloading the excess baggage, digging out the wheels, and pushing the thing back onto firm ground, their solution is to shoot the horse.
Ken (Old Texican)| 2.4.10 @ 9:00AM
Thanks, Quin.
Your article once again reminds us that the "doomers" are simply wrong.
I read an article over at NRO this morning that should be a companion piece to yours. Check it out.
The ONLY thing wrong with our country present or future are the communists', (pardon the shorthand), driving us into the ground....on purpose.
I want to thank you guys again for closing the loop in our thinking out here. Also, thank you all for continuing to shine sunshine up the communists' ,(pardon the shorthand), hineys.
ftm| 2.4.10 @ 9:08AM
OK, I like what I read. Where's the political candidate proposing to put this plan into action?
Ken (Old Texican)| 2.4.10 @ 10:45AM
ftm,
Lots of 'em, sir. I have had the opportunity to visit with some of them.
Several of them are in Nashville...right this minute, at the Tea Party convention.
(most have gone there to listen rather than speak.)
Bostonian| 2.4.10 @ 9:43AM
The rationale for having taxes on dividends and capital gains lower than those on salary income is to reduce double taxation resulting from taxes at both the corporate and individual level. Arguably one could eliminate the corporate income tax and recoup some of the revenue by taxing capital gains and dividends from corporations as ordinary income. The tax treatment of corporations and partnerships would be the same.
Reinhard| 2.4.10 @ 9:43AM
This will never happen. It makes too much sense.
Besides if Obama followed this advice, his followers would scream because it would seem that he's helping the evil corporations and not "the American people".
Oldefarte| 2.4.10 @ 10:39AM
It's amazing when you liberal arts majors start recommending financial/fiscal solutions to the accounting/business problems of government. Governmental accounting has two elements [receipts/taxes and expenses/spendatures]; whereas proviate/non-governmental accounting has three [receipts/sales, expenses/cost of sales, and owners' equity/profit]. Politicians [and non business experienced individuals] IGNORE the governmental expense side of the accounting ledger; which is where the fiscal problem lies. Government MUST CUT ITS EXPENSES, and the only question is how much, what percentage, and what programs. It should start with sizable reductions of foreign aid, farm aid, wasteful military hardware, and SOCIAL WELFARE. Acorn's recent criminal activities that have been highlighted are just a drop in the governmental bucket of social programs needed to be defended/cut by government. When expenses are cut [with reduced receipts now present], the deficit/debt then begins to become closer to becoming balanced [and taxpayers benefit from the lower taxes needed by government to fund it reduced operations from expense cuts]!!!!!
Mike| 2.4.10 @ 12:30PM
Good proposal as far as it goes. Its result might be a revving up of the "economy"--the aggregated statistics that are a product of the money supply (not going to be a problem there!) and the velocity of money (which your proposal addresses).
The problem is this does not address the tough part--the enormous drain on actual production, that is, on the private sector (the sector that actually benefits non-politicians, non-bureaucrats, and non-academics) imposed by federal, state and local on- and off-budget spending.
Trying to have your cake (actual growth in wealth, actual economic progress) and eat it, too (maintaining the stultifying welfare state) is not going to be accomplished by superficial tinkering.
Pat| 2.4.10 @ 2:44PM
This author should cling to his day job with the tenacity of a hungry crocodile fastening on to his latest dinner at the watering hole, he's obviously not cut out for either economics or "real politik" thinking. The chances of rescinding the corporate income tax rival the chances of Global Warming occurring on the predicted schedule - no one would be more surprised than the climate scientists should that happen, just as no one would be more surprised than the business community should Congress rescind the annual tax on business income.
Besides needing to tax victims who aren't allowed to vote, the corporate income tax has always been a "populist" driven movement of "make those fat cats scream". Americans won't give up taxing corporations, those rich bloodsuckers, any more than they would give up taxing the previously taxed estates of the wealthy and recently decesased. It just seems "right" to most Americans, many of whom don't pay any income tax themselves, to retain this tax. Even while they're milling around outside their recently shuttered factories demanding that companies on the brink of going out of business should be forced to do something for "them", Americans just won't accept economic reality, they refuse to get "it".
Prime Minister Thatcher had it right when she said: "the problem with Socialism is that you eventually run out of other people's money". As the healthy companies dwindle in both number and annual revenue, Americans will demand we raise, not lower, corporate income taxes. Whoever said "you can't get blood out of a stone" never met the current breed of "entitled" Americans.
blackwatch| 2.5.10 @ 1:35AM
now that moody's is going to drop the feds credit rating and we have unfunded liabilities up the whauzoo the time is right to strike the lizards hard and fast. if we can't starve the federal beast to make it shed unneeded programs then we will need a "Vince Flynn" round or two of term limits to rid ourselves of the progressives.
Pingback| 2.4.10 @ 3:35PM
Summary of Personal Values and Management Ethics « Lblhmm's Blog links to this page. Here’s an excerpt:
martin j smith| 2.4.10 @ 4:04PM
Here is what a brave Republican should do: He should get up join him or her in supporting whatever it takes to get the economy moving and increase job growth. That means you know what with taxes... And say that if the Democrat Party wants to be bi-partisan for good of the nation this is your opportunity. It will be a chance for the Demcrat Party to reverse course and even reverse their election problems. But, what is really more important to them actually--the nation or their Left agenda. This would be a telling moment.
John II| 2.4.10 @ 6:44PM
I can distinctly recall President Ronald Reagan dropping a passing remark during an interview that the corporate tax is economically insane but nonetheless untouchable (because of the cultural climate created by the envy-politics of Democrats and nurtured as well by clueless Republicans--he left out this parenthetical part, easy enough to fill in by listeners with IQs higher than 95).
Corporations do not pay corporate taxes except pro forma. WE do through the higher prices that cover not only the tax itself but the salaries of legions of tax lawyers otherwise completely disconnected from the productivity of the corporations. It's a no-brainer, but brains never had anything to do with the morally vacuous imposition of corporate taxes.
John3| 2.4.10 @ 6:44PM
Add a third step: Proclaim to every American what an Abortion is; encourage everyone to have large, productive families and once and for all, expose the lie that is Population Control--that this is really a way towards the extinction of the American people as a nation. See: http://www.demographicwinter.com/index.html
NO NATION WITH A DECLINING AGING POPULATION HAS BEEN ABLE TO SUPPORT ECONOMIC GROWTH. Hopefully, this economic decline is not the first signs of this demographic winter.
Pingback| 2.4.10 @ 8:57PM
Debt Elimination – Inter Pipeline Fund Announces February 2010 Cash Distribution – St links to this page. Here’s an excerpt:
blackwatch| 2.5.10 @ 1:44AM
so it comes down to this: the communists utopia dream that is bankruoting our nation OR WE MAN UP AND DO WHAT IS RIGHT. POUND THE CRAP OUT OF THE PROGRESSIVES & NATIONAL SOCIALIST MEDIA.
START WITH THE CORPORATE TAX ISSUE. Get the labor unions on board--they want jobs and 50% of all union members are actually conservatives.
Next national security and energy security are twins. Let's have true energy independence. the whole lying posse of scum sucking ALGORE/UN whores needs to be lynched/burned at the stake and send those Commie Bitches all the way back to hell--where rumor has it the temperature is always rising.
I need to stop now and take my meds.
Pingback| 2.5.10 @ 3:15AM
Debt Elimination – Credit Card Debt Relief Bailout Has Arrived for U.S. Consumers – M links to this page. Here’s an excerpt:
Pingback| 2.5.10 @ 8:32AM
TaxVox: the Tax Policy Center blog :: Assume a Can Opener | Tax Finance Wisdom links to this page. Here’s an excerpt:
Drew| 2.6.10 @ 8:37PM
What an amazing piece of economic nonsense.
First, some numbers. Total Federal receipts of corporate Income taxes come to approx. $370 billion (2007)
Repealing the corporate income tax would therefore create an immediate $370 billion (or so) addition to the deficit. Fiscal conservatism strikes again, I guess.
Secondly, the author seems to be under the impression that business decisions are made primarily on the basis of tax rates. They aren't. If a business can make an extra $1 in profits, it will make whatever investments or hiring decisions it believes necessary to do so - regardless of the rate at which that extra dollar will be taxed.
Secondly, there is no economic history to suggest that a cut in tax rates will encourage businesses to invest or hire. The problem businesses are facing right now is an aggregate lack of demand - not that their tax rates are too high. A business that is profitable, but sees no net growth in the demand for its products, will simply either hold onto the extra cash as retained earnings - or pay it out to its stockholders in the form of dividends. (Dividends are typically taxed at a much lower rate than ordinary income.)
The problem with either of these scenarios is that retained earnings and dividends typically have a much lower economic multiplier than either wages paid to employees, or Government spending. If you don't know what a multiplier effect is, then you really have no business debating this topic.
Next, the author needs to consider the fact that a significant portion of the "unspent" stimulus spending is in the form of tax relief for average Americans. Simply "clawing back" that tax relief will in turn further reduce the demand for all companies' products and servcies. Oops. And a further large portion of the stimulus funds are in the form of payments to States to fund things like Police, teachers, and firefighters. Take away the Stimulus funding, and those states have to either lay off those teachers and cops (more unemployment) - or raise state tax revenues. Again, further reducing demand for those poor corporation's products and services.
With the level of econmic ignorance, stupidity, and outright recklessness displayed by the author of this piece, to say nothing of the majority of the commenters on the AS site, is it any wonder that the Bush administration's conservative policies led our nation into (simultaneously) the worst economic crisis in fifty years - while setting the stage for massive budget deficits into the foreseeable future.
Get this through your thick heads, Conservatives: Reckless corporate tax cutting ain't good for either the economy, or the budget. You tried that for the past eight years - it didn't work.
Oldefarte| 2.7.10 @ 11:15AM
While I agree with much of what you've said, Drew, it's entirely obvious that you are one of those Obama/Holder political counter-bloggers that are now operating out of the Department of Justice. That said, you are either ignorant or politically stupid in saying that the current administration's governmental welfarism is working. Are you aware that unemployment has gone from 6% to now 10% [or more likely 15%]; that our deficit/debt has quardripled since in Obama's year of control; that available bank/financing credit is being dominated by the public sector [to the detriment of the private sector]; that governmental employment is substantially increasing while non-governmental employment is substantially decreasing [the 10-15% unemployment represents solely PRIVATE/NON-GOVERNMENTAL jobs lost]; that credit bureaus are on the brink of downgrading America's debt obligations/bonds due to Obama's/Democrats' reckless spending [instead of finding ways to decrease our deficit/debt],etc? While you make valid arguments to this article, Drew, don't let your partisan 'tingle down your leg' enthusiasm for THE CHOSEN ONE blind you to the truth!!!!!!!!!
Drew| 2.7.10 @ 2:18PM
Quote: "the current administration's governmental welfarism is working. Are you aware that unemployment has gone from 6% to now 10%"
Just about every reputable economist - including the guy who advised the McCain campaign - recognizes that without the stimulus the economy as a whole would be in far worse shape, if not total meltdown - without the stimulus.
Did Obama "screw up" with his "not above 8% unemployment" statement in early 2009? Maybe.
But as President, he has to walk a fine line. Make things sound too bleak, and he could have sparked a real panic in the markets/economy. That wouldn't have been a good idea. And secondly, I don't think anyone knew exactly how bad things were in January '09. The Govt. is still updating economic statistics from a couple of years ago. Thats just the way economic statistics work.
Secondly, you need to understand there is a huge difference between "deficit" and "debt." The national debt grew by over $4 trillion during GW's eight years as President (and remember, back in 2001 Bill Clinton left him a surplus of about $300 billion a year.) The debt has increased under Obama - but since most of that was due to the $1.2 trillion deficit bequeathed him in the 2009 budget (which was the last Bush budget) - its sorta hard to hold Obama totally responsible for that. It certainly is true that Obama pushed the roughly $700 billion stimulus (see above for why that was necessary) - but most economists will tell you that, if anything, it was too small. And, of course, we do have the latest economic figures that show that the economy grew at the fastest rate in some years last quarter. Not much comfort to the millions that are still unemployed - but then it should be remembered that employment is generally a lagging indicator. In other words: Companies wait till they have more orders than they can fill before they hire additional workers.
Its pretty clear to me that you seem confused not only by the difference between debt and deficit - but also the basic facts of how our government is funded; and the actual economic history of the United States.
There is little I can do about the latter. I would suggest you spend time reading sources other than the American Spectator and Fox News for your information. I'd also suggest going to a used bookstore and pick up a copy of a college level Econ. 101 textbook. Things will be a lot clearer to you once you read it.
Bennet Cecil| 2.6.10 @ 9:59PM
The economy and interest rates have to get much worse before Democrats will agree to across the board corporate tax cuts. When interest rates, unemployment and inflation rates are all above 12% there will be more interest in pro-growth government policies.
I think we should meet the left half way now to try to prevent the carnage to working families in America. I propose that we have zero capital gains tax for ten years for all new manufacturing jobs in the US. Build it here and pay no tax on your profit. This would give a real market incentive to US and foreign capital to invest in America and hire American workers. We would stabilize and grow our manufacturing base, hire our idle workers and increase tax receipts from the income tax on new workers. As you know, income from the manufacturing sector supports and grows the service sector too.
My proposal does not cost the taxpayer a dime. Maybe once it is clear that incentives bring in more tax revenue, we can lower the corporate tax rate on other businesses. The US needs to grow its way out of its government overspending. We cannot tax and spend our way to prosperity.
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Oldefarte| 2.9.10 @ 11:19AM
You've stepped in it now! Subsequent to attending four years in undergraduate school [with a major in accounting and a minor in economics]and graduate business school; I worked for 33 years for a major corporation in the business/insurance field; so please do not attempt to suggest that I read Eco 101 books from a library, okay? Regardless of the fact of your being a mouthpeice for the current administration [ie Obama/Democrats], let me inform you that [1]economists usually do not know squat about financial matters, and are just liberals arts majors with a college education attached. Obama's mis-termed 'stimulus' was about as stimulating as his street-hustling, community organizing type daily speeches; and represented nothing more than a waste of taxpayer money! The economy [and employment] are still in the toilet post his stimulus plan [and huge costs to taxpayers]; and the only HOPE/solution is for the voters to get him and his cronnies out of office this year and
2012. What's needed is a substantial reduction of governmental expenses [including the welfare that he's been supplying, via stiumulus, for a year]. Your proclamation about his being left with an economic problem by Bush is more of Obama's/Democrats' canned BS coming from your mouth. The only thing needed to turn around the economic/financial recession [when Obama assumed office] was the TARP program to keep the banks from closing their doors [which Bush instituted pre-Obama; and which accompolished/stabilized the situation]; and then Obama should have reduced governmental expenses [but instead he increased them by his stimulus and added governmental employee hirings]. Your [and Obama's and Emmanuel's] desire to not let a crisis be ignored for political purposes, was the reason his non-stimulus was enacted [and it was simply rob from the rich WELFARE, not stimulus]; and the reason why it failed to stimulate anything [since it was nothing but welfare]. Most of us are aware of the difference between the deficit [negative receipts less expenses] and debt [interest debt of thsi country]; and both have quardrupled in amount since Obama took office. Bush had nothing to do with same, and to blame him is STUPID/IMBICILIC! As to the employment, if Obama had instituted needed budget reductions instead of his welfaric stimulus [which maintained
public/government employment instead of reducing same similar to what's faced private non government industries], the employment situation would now be increasing [since a reduction of governmental expenses would have reduced governmental borrowing costs and freed up needed bank credit for private industry]. Obama has instead saddled this nation with huge debt that future generations will have to pay for, all so that his indigent constituents can receive more governmental welfare. So maybe you should get your head out of your rear, and take a few Eco 101 classes yourself, instead of being a brainwashed mouthpiece for Obama!!!!
Oldefarte| 2.9.10 @ 11:24AM
PS---my above comments were directed to 'Drew' only !!!!!
explosion proof light| 11.15.10 @ 8:59AM
Obama's stage props, the guys with the white jackets, are here to take you away, to the funny farm, where everything will be alright.
Converse| 8.12.11 @ 3:54AM
is good
wholesale| 9.27.11 @ 2:07AM
A good post.