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.