Want to bring the economy back to life? Pass tax reform
WASHINGTON — No single labor statistic speaks more loudly, or more painfully, than the announcement that the Obama economy created a puny 88,000 jobs last month.
Even more shocking was the Bureau of Labor Statistics report that 500,000 long-suffering Americans gave up looking for work and thus were no longer counted among the unemployed, falsely shrinking the jobless rate to 7.6 percent.
A stunned White House had little to say about it. Gene Sperling, assistant to the president for economic policy, blamed the minuscule numbers on the budget cuts, and by implication the Republicans, but could not bring himself to admit the dearth of new jobs was due to chronically weak economic growth under the president’s harmful policies.
The embarrassed silence from Democratic leaders on Capitol Hill was palpable and shameful — though some privately grumbled that if Obama didn’t turn the economy around soon, their party was going to get clobbered in next year’s midterm elections.
The network news anchors, who’ve been telling us for months that the economy was picking up, gloomily reported the dreary statistics, then dropped the story from their later broadcasts.
Democratic analysts say this is “the new normal,” and we’d better get used to it. Jobs aren’t being created in the kind of numbers we’re seen in previous recoveries, we’re told. They blame job-replacing mechanization and other technological advances, a declining manufacturing base, ATM machines (Obama’s favorite excuse), self-service gas stations and budget cuts.
To which I say, “Baloney.”
The U.S. economy, the largest in the world, should be running at a 4 percent to 5 percent growth rate and pounding the unemployment rate down to 6 percent or lower. It is fully capable of performing at that level with the right fiscal and tax-reform incentives for capital formation and investment; new business creation, the well-spring of most new jobs; opening new export markets; approving the U.S.-Canada oil pipeline; and ending rampant business uncertainty, which is the biggest obstacle to risk-taking and growth.
We’re in the fifth year of Obama’s presidency, and the American economy has slowed to a crawl because it has uncertainty written all over it. The economic growth rate in the last three months of 2012 was a barely-breathing 0.6 percent.
Consumers are more cautious. Businesses are reluctant to hire and are using more temporary, part-time workers, because they fear being hit by higher taxes and costlier payroll benefits under Obamacare.
Economic growth is not in the administration’s lexicon, nor in its policies. Obama rarely mentions the term, and if he does, it’s in a Platonic sense. He wants it, but doesn’t know what creates it or what eliminates it.
He insists he must have higher tax revenues in order to bring down the deficit, but doesn’t understand that you can have higher revenues without raising tax rates by growing the economy and by putting more people to work full-time and becoming taxpayers again.
But two parallel fiscal developments are taking place on either end of the Capitol that may breathe new life into our economic future:
I reported earlier this year that House Republicans are at work on reforming the nation’s costly and dysfunctional U.S. tax code, eliminating corporate welfare and special-interest loopholes, exemptions and deductions.
That would bring in enough new revenue to cut the tax rates (without adding to the budget deficit) and boost economic growth to boot.
Now we learn that Democratic Sen. Max Baucus, the chairman of the tax-writing Senate Finance Committee, is also at work on what is described as “the first full-scale rewrite” of the 5,600-page tax code.
It isn’t entirely clear what the Montana Democrat will propose in terms of tax rates, but last month he was one of only four Democrats who voted against the tax-raising Senate budget — telling reporters that its “$1 trillion in tax increases is too much.”
Moreover, Baucus has been meeting with Rep. Dave Camp of Michigan, his tax-writing counterpart in the House who chairs the Ways and Means Committee. Camp says he and Baucus both agree that the purpose of reform is to lower tax rates to spur growth.
When Baucus called his committee colleagues to a closed-door meeting last month, they were confronted with a clear symbol of the kind of tax changes he is thinking about, reports The Washington Post’s Lori Montgomery.
“Senators arrived in a Finance Committee conference room to find crystal bowls filled with green and white M&Ms imprinted with pictures of President Ronald Reagan, as well as Democratic Rep. Dan Rostenkowski and Republican Sen. Bob Packwood, the committee chairs who engineered the last tax overhaul in 1986,” she reported Tuesday.
Baucus wanted to remind the committee members that Reagan ran for re-election in 1984 on the kind of revenue-neutral reform he’s thinking about, which would bring down the rates. Reagan not only achieved his tax cuts, lowering the top rate to 28 percent, but he won bipartisan support, including Democratic leaders such as Rep. Dick Gephardt of Missouri and Sen. Bill Bradley of New Jersey.
The ’84 election was, in effect, a referendum on Reagan’s 1981 tax cuts that ended a severe recession in two years and sent the economy soaring. Compare Obama’s fourth-quarter 0.6 percent growth rate to Reagan’s four quarterly percentage rates in 1984: 8.5, 7.9, 6.9 and 5.8.
Reagan carried 49 states and nearly won Minnesota, the home state of former Vice President Walter Mondale, who ran on raising income taxes. Baucus wants his party to remember that painful lesson and follow Reagan’s lead.
“‘I don’t dispute’ that the White House has shown little interest in comprehensive tax reform,” Montgomery quotes Baucus saying. “‘But it’s irrelevant. Because I’m just going ahead.’”
Twenty-four years after Reagan left office, his tax-reform policies are still looked upon as the gold standard for stronger, job-creating economic growth.