The ongoing sell-off in financial markets worldwide is a sign
that
nobody sees anything going on that promises real economic
growth. While there is good reason to insist that debt stop
growing (and then start shrinking), the sole focus on accounting
misses the bigger picture. The bigger picture is that economies
won’t grow unless the private sector invests in them, and that the
private sector won’t invest if it foresees too little return, or
even no real return, on those investments.
The surest way to turn around the private economy is to
unshackle it from heavy, complicated, and redundant taxation.
Toward that end, I have
been advocating for more than three years the complete
elimination of U.S. corporate income taxes. Much of the money would
be made up, even without economic growth, via increased tax
receipts on dividends and capital gains. But, of course, the
economic growth would be substantial. Companies would suddenly have
profits a third bigger than before, which would cause a combination
of stock market gains, price cuts, and re-employment.
So far, the best proposal for economic growth, by far,
comes from presidential candidate Rick Santorum, who
calls for cutting the overall corporate income taxes in half,
completely eliminating them for manufacturers, and instituting a
tiny, five percent repatriation tax to entice companies to bring
their profits home to the United States.
If such policies could be instituted with the snap of a
finger, I absolutely guarantee the stock markets would skyrocket
virtually overnight. As they did, housing would recover as well,
because the half of the country with stock holdings would,
relatively quickly, start to feel like they have a greater amount
of disposable holdings. Something approaching a trillion dollars
would come “off the sidelines,” back into the markets and into
equipment purchases, research and development, creating a
multiplier effect of real wealth.
These are lessons we should have learned from Ronald
Reagan, Jack Kemp,
Milton Friedman, and others — including, of course, John F.
Kennedy, whose otherwise incompetent presidency at least put into
serious play the two great insights of the needs for civil rights
and for growth economics.
Granted, it is also true that too many conservative
ideologues insist that tax cuts are the cure for all problems. They
forget that the Laffer Curve is,
indeed, a curve, and that at some point it is absolutely true that
lower tax rates will significantly erode government revenues, even
below a reasonable rate of sustainability. It is especially
frustrating to see conservatives fail to understand that some tax
cuts are far more productive than others, and that broad incentives
within the tax code usually are far more productive than are
narrowly targeted tax “breaks” and loopholes.
But those warnings are merely a necessary caveat. They do
not apply to the call for lower corporate income taxes. With
corporate tax rates among the two highest in the developed world,
the United States clearly is at the highest, most unproductive end
of the curve. A cut in half, as Santorum proposes, might even bring
in more revenues to government, and thus cut government
debt. A complete elimination of corporate income taxes, as I
propose, of course would bring in not a dime in that form of taxes,
and thus not appear on the curve at all. But common sense alone
suggests that most of that money would be recouped throughout the
rest of the tax code, which still will have all sorts of ways —
more efficient ways, at that, without anywhere near the paperwork
burden — to siphon revenues from economic transactions.
As noted earlier, corporate income taxes effectively
double-tax profits that also are taxed through levies in dividends
and capital gains. They double-tax profits that otherwise would
show up, and be taxed through, higher wages for more workers. They
double-tax profits that already, at some levels of government, are
eroded by sales taxes. And they act as a dam on economic activity
of all sorts, interrupting the free flow of commerce.
Yet one need not buy into the idea of completely
eliminating corporate income taxes for one to understand that a
significant reduction in those rates can spur a serious economic
recovery here in the United States. And, as the United States
recovers, the rest of the world also will stabilize, because the
world’s reserve currency (the dollar) will again seem solid rather
than shaky, and thus increase confidence in markets around the
globe.
Budget-cutting is important. Growth economics is crucial.
Conservatives should start clamoring for it, and rewarding
candidates who embrace it.
