Posted By RichC on August 14, 2011
I’ve been reading a few of the ideas being toss around by congress as a way to stimulate the economy and “create jobs” (as I recall that was job #1 about three years ago?) The school of thought for most Republicans (at least the last couple years) is to lower tax rates and cut both the size and excessive spending in Washington … as well as their borrowing. The conservatives at least believe lower taxes, reducing regulations and shrinking government is a the way to encourage the private sector to hire and companies to both locate and expand in the United States. Democrats have leaned to the Keynesian approach believing the government and Fed needs to take a more active approach in stimulating the economy. They also desire to advanced social programs as well as implemented and mandated new legislation requiring higher taxes in order to fund this philosophy. Unfortunately for all of us the last 3 years are proving that the later has not effectively pulled us out of our recession, created many “private sector” jobs, or stimulated the economy; it most definitely has not reduced our debt. Democrats say that the government didn’t simulate enough and need to raise more taxes in order to try more of the same.
I also notice that a few surprisingly liberal Democrats are actually suggesting selectively cutting tax rates … sort of a surprise … but one which would offer a “tax holiday” to U.S. corporations in order to repatriate overseas profits. New York Democratic Senator Chuck Schumer recommends that companies pay a lower rate that the current 35%, probably in the range of 5.25% for a year – hence the “gimmickry” hinted at in the subject line. The downsides is that while this may bring some cash back to the U.S., it isn’t an incentive for corporations to do anything with it … except perhaps increase their dividends? On the upside, the cash does come back to the United States. Job problem solved? I think not.
One flaw in the “if we bring cash back to U.S. we’ll create jobs” plan, is that corporations are already “sitting” on hoards of cash but have no reason to expand their U.S. operations due to 1) low demand in a slow economy, 2) uncertain taxes and regulations (think Obamacare) and 3) a workforce that is far costlier than their operations overseas. o, unless some longer term changes are made, just offering a tax incentive for global corporations is not going to be the change we need to create jobs and a robust world leading economy.
If congress is going to do something, they need to tackle this with some big changes … like restructuring and simplifying he tax code, reducing the excessive regulation saddling businesses large and small and dealing with the size and spending in Washington DC even if it means modifying entitlement programs (Dems) and making some cuts that impact our military (Repubs).