Economists Questioning Obama and Democratic Leaders Refusal to Lower Corporate Tax Rates
The testimony of the Chairman of the Federal Reserve, Paul Bernanke, today does not give a lot of hope that the current economic slowdown will improve anytime soon. In fact according to the New York Times he supported a second round of an economic stimulus package go forward.
The Congressional Democrats and Presidential Candidate Senator Barack Obama are advocating for “an additional $300 billion package of spending measures that would include a big increase in spending on infrastructure projects; an additional extension of unemployment benefits; and increases in spending for food stamps, home heating subsidies and state Medicaid programs.”
Mr. Bernanke warned that continued job loss and slow if any economic growth is likely for the “next several quarters.”He is asking for government policies that will at the same time reduce the effect on increasing the government deficit.
Republicans are strongly advocating a reduction in the corporate tax rate as way to stimulate growth given the fact that no one seems to be predicting that with monetary policy alone there will be any improvement in less than a few years. The CATO Institute released a report by Jack Mintz, Chair of Policy Studies at the University of Calgary, that stated “the U.S. corporate tax policy is an important barrier to economic growth.” In his analysis, he noted that the United States effective tax rates from both Federal income tax and local taxes put the United States at a rank of 8th world wide in highest tax rates. By reducing the corporate tax rate by 10 percent as well as local taxes, an incentive for multinational corporations to invest in the United States would be created. The economic stimulus from this new business would increase revenues over any lost by reducing the tax rate.
House of Representatives Committee on the Budget that in addition to stabilizing the housing market, additional tax rebates, extending unemployment insurance, rebuilding infrastructure, and aiding state and local economies that the United States has a “higher marginal tax rate than countries with which we compete”. He added that business tax changes may be necessary.
The Democrats have harnessed the anger that the American public is feeling towards government officials and corporate executives whose misjudgments and misdeeds ravaged our pocketbooks. However, government by itself cannot and will not be able to solve the current financial crisis. The private sector of commerce must be allowed to develop new business and jobs or there will be no economic recovery. Even supporters of Mr. Bernanke’s plan are saying that any idea of reducing the deficit will have to take a back seat to stimulating a recovery.
Mr. Obama and the Democrats must act to give private enterprise a real chance to spark the economy. His current plan penalizes the whole business community for the acts of the finance sector of Wall Street which represents but a tiny part of the whole of American business. Criminal and civil punishment must be dealt to those that are guilty and regulatory rules changed to prevent a recurrence. However, failure to act on putting American business on an even platform with other countries by equalizing the corporate tax rate to that of our competitors will paralyze our economic growth and actively disinhibit investment in our recovery.