Taxes, Less Spending and Regulation is Essential to Restoring
By John Hendrickson
recent letter to President Barack Obama’s former Budget Director
Peter Orszag, the Business Roundtable and The Business Council
stated that “many regulations and legislation — both existing and
proposed — exacerbate the uncertainty created by today’s volatile
The policy agenda of President Obama and the Democrat-controlled
Congress is causing much uncertainty in the market, which has a
negative impact on the economy. In order to bring stability to the
economy and find solutions to the financial crisis in government
spending, policymakers need to establish an agenda that includes
both tax and spending reform.
report issued by the Business Roundtable and The Business Council is
alarming because it demonstrates a clear signal from the private
sector that many business leaders are faced with anxiety over the
Administration’s policy agenda:
massive new health care law and financial reform legislation
looming, companies are more worried than ever about the impact new
regulations and legislation will have on their operations and their
bottom line. Not knowing what to expect from these pending
regulations, businesses are acting cautiously to forestall any
negative impact. These actions are squelching economic growth and
job creation, as companies are forced to freeze investments and
hiring until they understand how they will be affected by these new
Chamber of Commerce of the United States also echoed the concerns of
the Business Roundtable and The Business Council. In a recent open
letter to President Obama, the Congress, and the American people,
the Chamber addressed the need for sound economic policies and how
anxiety over current policies is causing uncertainty. In regard to
the policies of the Administration and Congress the Chamber states:
of continuing their partnership with the business community and
embracing proven ideas for job creation, they vilified industries
while embarking on an ill-advised course of government expansion,
major tax increases, massive deficits, and job-destroying
regulations. This approach has failed to turn our economy to a path
of robust growth, which is a critical prerequisite to significant
private-sector job growth. In some cases, wrong policy choices are
actually eliminating good job opportunities for American workers. By
straying from the proven principles of American free enterprise,
policymakers are needlessly prolonging the economic agony of the
recession for millions of Americans and their families.
heart of the uncertainty is what will happen with tax rates. In
January 2011 the tax cuts initiated by Congress during the
administration of President George W. Bush (Bush Tax Cuts) are set
to expire, which will cause tax rates to rise. Larry Kudlow, an
economist and former economic adviser to President Ronald Reagan,
noted that “we are facing one of the largest tax hikes in U.S.
on investor capital and business will go up significantly. So will
individual-income tax rates,” noted Kudlow.
Writing in The Wall Street Journal economist Arthur Laffer
stated that when the Bush tax cuts expire “the highest federal
personal income tax rate will go to 39.6 percent from 35 percent,
the highest federal dividend tax rate pops up to 39.6 percent from
15 percent, the capital gains tax rate to 20 percent from 15
percent, and the estate tax rate to 55 percent from zero.”
In an increasingly globalized economy the national corporate tax
must also be reduced. “Most economists understand that the corporate
tax is one of the most destructive forms of taxation because it is
an additional tax on the factors of production, capital and labor,”
noted Richard Rahn, who is a Senior Fellow at the CATO Institute.
rhetoric from President Obama and his advisers such as Secretary of
the Treasury Tim Geithner that the capital gains rate will only
increase back to 20 percent, along with promising to further
free-trade agreements, still leaves uncertainty whether or not the
policies will return to a more pro-business approach.
The fact remains that the Administration and the Democrat Congress
has not addressed the need for a reduction in government spending
and reform of entitlement programs. The Keynesian approach —
illustrated by the $862 billion stimulus — has failed to solve
unemployment. Both the national debt ($13 trillion) and deficit
($1.5 trillion) are expected to increase and entitlement programs,
unless reformed, threatened to consume the federal budget, which
would result in major tax increases that would cripple the economy.
Shlaes, a Senior Fellow in economic history at the Council on
Foreign Relations and author of The Forgotten Man: A New History
of the Great Depression, writing in Bloomberg called for
a more humble economic policy to encourage the private sector.
The first policy recommendation that Shlaes offers is “permanently
set tax rates lower for all,” which includes dividend, income,
capital gains, and corporate taxes.
Shlaes also recommends passing the American Roadmap plan of
Representative Paul Ryan (R-WI), which “advocates abolishing taxes
on capital gains and dividends, and reduces the top marginal rate on
income taxes to 25 percent.”
Among the other “humble” policy recommendations that Shlaes
recommends include reducing regulation, jettisoning stimulus
spending, and reforming entitlement programs.
Chamber recommends renewing the Bush tax cuts, which would
“substantially boost investor, business, and consumer confidence and
would infuse our economy with fresh momentum.”
In addition the Chamber argues that “Congress
should also reduce the U.S. corporate tax rate, which is among the
highest in the world, and address the fact that the United States is
the only major economy that double taxes overseas earnings.”
policy ideas would encourage business confidence and address the
need to reform entitlements and cut government spending. “Economic
recovery must be lead by the private sector, both large and small,
if we are going to create jobs and reduce the unemployment rate.”
The uncertainty of tax and regulatory policy, followed by excessive
government spending and new entitlements will not produce economic
recovery nor will it solve the national fiscal crisis. “In assessing
all regulations, the goal should be to reduce uncertainty, fear, and
overall cost impact while creating a regulatory system that is
business-friendly, cost-effective, and encourages efficiency.”
As the Chamber argues:
Uncertainty is the enemy of growth, investment, and job creation.
Through their legislative and regulatory proposals — some passed,
some pending, and others simply talked about — the Congressional
majority and the Administration have injected tremendous uncertainty
into economic decision making and business planning. This is why
banks are reluctant to lend and why American corporations are
sitting on well over a trillion dollars. It is why America’s small
businesses and entrepreneurs, the engines of innovation and job
creation, are starving for capital and are either struggling to
survive or unable to expand.
Excessive regulation and taxes have hurt the American economy.
Columnist Patrick J. Buchanan recently noted that the Financial
Times reported that in 2011, “China will surpass the United
States as the first manufacturing power, a title America has had
since surpassing Great Britain around 1890.”
In order to reverse the economic decline and address the fiscal
crisis policymakers must focus on a pro-business agenda that
includes across-the-board tax cuts, reduction in government
spending, paying off debt, and encouraging entrepreneurship. These
policies would result in a moving toward a more constitutional
limited government, creating economic prosperity, encouraging
business and market confidence, and restoring the “Arsenal of
Hendrickson is a Research Analyst at Public Interest Institute.
views expressed herein are those of the author and not necessarily
those of Public Interest Institute or Tax Education Foundation.
They are brought to you in the interest of a better-informed
Business Roundtable and The Business Council, Policy
Burdens Inhibiting Economic Growth, Washington, D.C.,
June 21, 2010, p. 1.
Chamber of Commerce of the United States of America, “Jobs
for America: An open letter to the President of the United
States, the United States Congress, and the American
people,” Washington, D.C., July 14, 2010.
The Heritage Foundation, “Obama’s Tax Plan Bad for Economic
Growth,” Fact Sheet No. 68, July 13, 2010.
Chamber of Commerce, “Jobs for America.”
Business Roundtable and The Business Council, p. 4.
Chamber of Commerce, “Jobs for America.”