Republicans rightly understand that the voter passion that carried them to a historic victory in last November’s election was driven largely by concerns about federal spending and Obamacare. And so it makes some political sense that in the early days of the 112th Congress, the Republican leadership has focused on a package of spending cuts and scaling back the health care legislation.
But cutting government spending, however important, won’t do much to directly stimulate economic growth and job creation. Businesses won’t decide to build a new plant, purchase new equipment, or hire new employees because the federal government returns spending to 2008 or 2006 levels. Investors won’t decide to invest more in the U.S. because Congress decides to defund all or part of Obamacare.
No, only changes in tax policy and restraints on the regulatory state will encourage the investment necessary to stimulate economic growth.
High marginal tax rates, as well as threats of even higher taxes, discourage capital formation and investment in this country, and encourage jobs and capital to be directed overseas. Don’t blame China and India when our own tax policies place a stiff premium on investment and job creation in the U.S.
If Congress, and indeed the Obama administration, really want to stimulate economic growth, it will take more than a speech to the Chamber of Commerce. Policies must be put in place that cut corporate tax rates and reduce taxes on capital, such as capital gains taxes and estate taxes. Depreciation rules should be modified so that business expenses can actually be expensed, rather than maintained as tax liabilities for as long as 37 years.
Regulators must stop making it increasingly expensive to produce goods and services in our economy. And it wouldn’t be a bad idea to move a handful of trade agreements that have been shunted aside since Mr. Obama became president.
The danger to Republicans is that they invest enormous political capital into rolling back spending and stopping Obamacare—two good things—yet do nothing to get the economy going. To the American people, jobs are job #1, and should be job #1 for Republicans, too.
********************************
Today's TaxByte was written by IPI President Tom Giovanetti.