There may be a temptation to dismiss the variation on the “grand bargain” proposed by President Obama [last week] in Chattanooga. The components, a reduction in corporate tax rates and a modest jobs package, are familiar, part of past proposals of the president. Present, too, are the usual politics, the White House looking to position itself as fiscal showdowns come in the fall, notably the question of raising the debt-ceiling.
And sure enough, Republicans on Capitol Hill immediately dismissed the idea, maneuvering in their own familiar way. A spokesman for Speaker John Boehner asserted, with little evidence, that the combination would end up “leaving small businesses and American families behind.”
All of this is too bad, because both components would benefit the overall economy. Take the jobs package. The economy could use a boost, the growth rate exceeding expectations in the second quarter, yet at 1.7 percent still anemic. The rate for the first quarter was revised down — to 1.1 percent. Add the 0.9 percent pace of growth in the final quarter of last year, and the economy has been practically stagnant for nine months.
At recent congressional hearings, Ben Bernanke, the chairman of the Federal Reserve, emphasized, again, that Congress with its tight fiscal policies poses the greatest risk to growth. The misguided sequester, automatically reducing defense and domestic discretionary spending, already has slowed the recovery. The Congressional Budget Office now calculates that next year, the sequester will cost 900,000 jobs and shave 0.7 percentage points from the growth rate.
Know that increased government spending played a key role in the stronger recovery of the 1980s (yes, the Reagan era). The Obama White House wants to route additional spending to public works, school modernization and worker training, plus for small business a write-off of 100 percent on the purchase of new equipment up to $1 million. All of this is designed to spur economic activity and lower a jobless rate at 7.6 percent.
The president would cover the one-time expense through a one-time flow of money from reshaping corporate taxes. To enhance its competitiveness, the country must lower its corporate tax rate (as other countries have done). The president proposes a drop from 35 percent to 28 percent. He also has called for erasing various tax breaks, one resulting in companies returning profits from overseas, at which point they would be taxed, generating the money for the jobs program.
This lesser “grand bargain” should have wide appeal, with elements for Republicans and Democrats, aimed at bringing energy to a sluggish economy. Unfortunately, in Speaker Boehner’s House, something so sensible doesn’t have a chance.