Al Hunt: To improve the economy and help create more jobs, Washington needs to walk and chew gum at the same time. That means providing short-term stimulus while also shaping a long-term deficit reduction package.
Both are likely to fall victim to the part-political, part-ideological, and persistently petty environment that has enveloped Washington. Yet a comprehensive deal could work, and it could even help both political parties. We should start with a two-year, $1 trillion stimulus: some temporary tax cuts, such as extending the payroll tax holiday to spur hiring, and some smart investments in infrastructure and financial assistance to states so they can avoid laying off teachers and cops. This would be farther-reaching than what President Barack Obama proposed on Sept. 8.
Any stimulus will have to be accompanied by a $4 trillion-plus deficit reduction starting in 2014, when the economy will—presumably—be chugging again. A small slice of those cuts will have to come from discretionary domestic spending, a little more from the Pentagon. The most significant would come from slowing the growth of entitlements: raising the retirement age for Social Security recipients and giving less to wealthier recipients, as well as reining in health-care spending.
Almost half of any package should come from higher revenues. This could be achieved even while reducing the top tax rate for corporations and individuals by 10 percentage points, to 25 percent and 29.6 percent, respectively. But it will work only if the tax base is broadened by eliminating or curtailing individual or business loopholes, enacting a small value-added tax, and boosting the gas tax to finance more infrastructure.
Such a megadeal would offer businesses the clarity and certainty they need to stop sitting on their cash and start expanding, investing, and hiring.
— Al Hunt is an executive editor for Bloomberg News in Washington, D.C.
Caroline Baum: President Obama could start helping business by ceasing his attacks on successful companies. That’s just common sense and good manners. Whether his target is insurance companies, banks, or entrepreneurs—all those “millionaires and billionaires” making over $200,000 a year—Obama needs to understand that economic and job growth begins and ends with business.
The Administration and Congress need to act boldly. Everyone complains about the loophole-ridden tax code, with its perverse incentives (tax avoidance instead of economic growth) and carve-outs for pet projects. Yet no one does anything about it.
The time has come for real tax reform: eliminating tax breaks—an estimated $1 trillion a year—and reducing tax rates. Over the past 60 years, the federal government has snagged an average of 18 percent of gross domestic product whether the top marginal tax rate was 28 percent (1988-89) or 91 percent (1950s). That tells you it’s ineffective to target special interest groups and tweak tax rates to get a little spending here, a little investment there, with the ultimate aim of getting reelected. Instead, in tax matters Washington should adhere to the three Fs: flatten it, fix it, and forget it. More certainty about future rates would help executives assess the viability of long-term investments and spur hiring.
Alas, the decisions of one Congress aren’t binding on the next. And the power to tax is the first of 18 enumerated powers granted to Congress in the Constitution: a power run wild with the introduction of the income tax in 1913. Real tax reform requires real staying power in the form of a constitutional amendment to ensure tax uniformity (no targeted taxes or tax breaks). But that’s not going to happen. Lawmakers like doling out tax favors in exchange for campaign contributions, a system that breeds inefficiency and impedes economic and job growth.
— Caroline Baum is a columnist for Bloomberg View in New York.