BARACK OBAMA HAS BEEN ELECTED president of the United States in the midst of the worst financial crisis in decades. Economic stimulation has been intense: The Troubled Asset Relief Program has used up $350 billion, and credit facilities from the Federal Reserve have injected more than $1 trillion into the economy. (One of the only bright spots: The $100 decline in the price of oil since last summer saves Americans $2 billion per day.)
Now President-elect Obama is proposing a stimulus package that could reach $775 billion over the next two years; about $300 billion could come in tax cuts to individuals and businesses. Obama says the government could run trillion-dollar deficits for years.
Some are concerned, however, by the fact that the government is trying to address a crisis caused by too much debt—by borrowing even more, possibly creating even greater problems in the future. Indeed, the new debt will be with us for decades to come.
Yet the causes of the current economic crisis have been building up for decades. Our economic condition is the result of bad corporate decisions—such as AIG’s massive credit-default swap plays—and poor political policies.
Therefore, the economy needs real change now. The best course is to promote growth and recovery by permanently removing taxes on business, particularly through the elimination of tariffs and the corporate income tax.
This would stimulate the economy, help the middle class, create jobs in America, make theUnited Statesmore globally competitive and reduce corruption in Washington.
Tariffs are an antiquated legacy of the 19th century. They reduce economic efficiency and provide limited government income. Tariffs are used more to protect industries that lobby Congress successfully for special treatment than to increase government revenues.
The U.S. government worsened the Great Depression when it passed the Smoot-Hawley Tariff Act in 1930. In an ominously similar way, the World Trade Organization’s current Doha Round has failed to create a new agreement on freer trade. To set the right example, the U.S. should sidestep the negotiations and eliminate tariffs unilaterally. In 2007, customs duties and fees were $26 billion, or about 1% of federal government receipts. Removing tariffs would have a small impact on government revenues, but would show that the U.S. is not going to repeat the mistakes of the 1930s. Eliminating tariffs would promote global trade and competition, and it could show the world how to survive the economic crisis and profit from globalization. It would benefit the U.S. and the whole world.
As for corporate income taxes, the U.S.
was a leader and now it lags. The 1986 tax
reform lowered the top corporate tax rate
from 46% to 34%, giving the U.S. one of the
lowest rates in the developed world. Since
1986, other countries have reduced their corporate
taxes, and today the 34% rate is one
of the highest in the world.
Most Americans see the corporate income
tax as a way that corporations bear the
cost of government services. However, corporations
treat the tax as a cost of business,
which is passed on to consumers in the form
of higher prices, to workers in the form of
lower wages, and to shareholders in the
form of lower dividends.
In other words: Corporations don’t pay
taxes, people pay taxes.
The corporate income tax also imposes
billions of dollars in compliance costs on corporations
and distorts their spending, investment
and financing decisions as they find
ways to reduce their tax liabilities.
Even worse,most corporate tax breaks and
subsidies provide special benefits to some corporations
and some industries at the expense
of their competitors. The Corporate Welfare
Information Center estimates that corporate
subsidies and tax benefits total $150 billion annually.
Eliminating the corporate income tax
and tariffs would put thousands of Washington
lobbyists on the unemployment line.
The greatest problem with eliminating the
corporate income tax is the revenue loss. Since
2000, federal revenue from the corporate income
tax has averaged $229 billion a year.
The only way of making up these revenues
would be to increase personal income taxes.
The Bush tax cuts are due to expire in 2010
anyway, so this tax increase would replace
most of thelost revenue from the corporateincome
tax. Only the top 5% of
taxpayers would face
higher taxes. The remaining
95% of taxpayers would
reap the benefits ofeliminating
the corporate income
tax with no increase in their
If corporations pay $229
billion less in taxes each
year, that is $229 billion that
would be redistributed to
consumers in the form of
lower prices, to workers in
the form of higher wages, to
workers through new jobs
resulting from more profit
and investment, and to
shareholders in the form of
capital gains and higher dividends.
At zero, the U.S. would
have the lowest corporate
tax in the world. This
would attract U.S. and foreign
firms to invest in the
U.S. The economic distortions of the corporate
income tax would be removed, as would
the corrupting influence of the corporate income
tax on politics.
Eliminating both the corporate income
tax and tariffs would constitute real change
for America, for the economy and for the
world. It would provide tax reform, not tax
redistribution; reduce corruption, not encourage
it; provide long-term solutions, not
short-term fixes; attract new capital and investment
into the United States; and increase
jobs, raise wages and lower prices.
Americans are tired of Wall Street and
Washington working together at the expense
of Main Street. Barack Obama
should seize this opportunity to provide
America with much-needed corporate and
economic reform. Now more than ever, we
need real change.