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….
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