Congress and the administration tied themselves in knots over a two-month, 2% reduction in payroll taxes. This titanic struggle ranks right up there with Gulliver's Lilliputians warring over the proper end from which to eat a soft boiled egg! Can our politicians get any more ridiculous? This may have seemed good "politics" for the contending political parties but we could flip a coin for all the substantive difference this legislation will make in getting our economy back on track and people back to work.
We are in fierce competition with the rest of the world for capital, investment, and job creation. The cheaper the capital and greater the amount of investment we can attract to our shores, the faster our economy will grow, the higher our standard of living will rise, and the more jobs we will create.
History demonstrates that we already possess significant advantages. We have huge scale: the world's most productive economy, most abundant and least costly access to capital, and largest domestic market. We have an inspired constitution, highly evolved public and private institutions, an entrepreneurial immigrant-driven culture, a high degree of individual freedom, and unmatched individual access to opportunity and upward mobility. We live in relative peace and despite our infantile divisions over the irrelevant, we are a comparatively unified people. We need to get serious about using our advantages and competing to restore the vitality of our economy. While there are many things we could do to spur growth, there are a few essentials that would make a big difference:
First, we should forget about catering to Wall Street. Wall Street financial executives don't make anything and much of what they do is parasitic. Simply make them obey the law; prosecute fraud and malfeasance; and let them fail just like anyone else when they take ill advised risks. There is no such thing as too big to fail. If an institution is such a colossal failure, we would be better off without it.
Second, overhaul the domestic corporate income tax structure so that it is at least "competitive" with other industrial countries. The purpose is NOT to favor corporations but to offer a level playing field that attracts new investment to the United States. To further jump start our stagnant domestic capital investment, we should consider allowing all businesses for a period of ten years to expense their new capital investments. Rather than write a new factory off over twenty-five years, investment in a new plant and equipment could be immediately written off for tax purposes. This would create a stampede to produce real "shovel-ready" domestic investment and jobs.
If the above seems to create an "unfair" windfall for stockholders or short term diminution of tax revenues, raise the capital gains rates. All this nonsense about the sanctity of the capital gains rate is bunk. Whether capital gains rates for the United States are the present 15%, restored to 20%, or rise to 25% is not going to dissuade people from making investments particularly if the prospects for economic growth are boosted. What else are they going to do with their money?
Third, the U.S. economy and consumers have been shellacked by the increase in the cost of energy and the outflow of capital to foreign energy providers. The cost of a gallon of gas has risen a whopping 75% from $1.84 to $3.25 just over the past three years. Exploiting our energy resources would involve massive new investment in equipment and employment, reduce the debilitating cost of energy for the American people, stop the hemorrhaging of capital to foreign suppliers, and eliminate any further dependence on the volatile Middle East.
Stifling energy development as a back door means of hastening the end to fossil fuel use or as some perceived means of influencing the climate is self-destructive and disingenuous. Until and unless cheaper and abundant non fossil fuel energy sources are developed, we will have to continue using fossil fuels. We might as well have Americans benefit from their extraction rather than others. Further, subsidizing clearly non-cost-effective alternative energy sources today does nothing but waste financial resources that could be put to more productive use. We should use the energy resources that we have until better alternatives are developed not pay through the nose to import other people's resources and subsidize the cost of inferior substitutes.
Fourth, we must trim back the amount of resources consumed by the government and inject them into the private economy. Under the eight-year presidency of Bill Clinton, government spending as a percent of our Gross Domestic Product was 19.8%, and a comparable 19.4% under the presidency of George W. Bush. It has been 24.8% during the past three years. Governments in general are inefficient and corrupted spenders and allocators of capital. The federal government is now spending and allocating a 25% greater share of our national wealth than it did from 1992 - 2008. Concurrently there has been an upsurge of costly regulations. While the increased spending and regulations undoubtedly have positive intent, they are inhibitors of economic growth and job creation.
We must be honest about the tradeoffs involved. Either we are serious about strengthening our domestic economy and creating jobs or we are willing to sacrifice them for other priorities.
Al Checchi is chairman of Join Together America, the former chairman of Northwest Airlines, and a former candidate for Governor of California. His new book is The Change Maker.