January 2011

A Business Solution for Economic Recovery

by John Hendrickson

The Business Roundtable has recently issued a “Roadmap for Growth,” a policy proposal that offers recommendations for economic growth.[1] The Business Roundtable, an association of chief executives of leading corporations, has offered policy recommendations in the areas of fiscal policy, taxation, trade, education, regulation, energy, and the environment.[2] The economy, even with the likelihood of having the Bush era tax cuts renewed, is struggling to fully recover from the “Great Recession.” The chief concern is the rising unemployment rate which currently stands at 9.8 percent and the fiscal crisis concerning the nation’s $13 trillion national debt and growing budget deficits. The recommendations offered by the Business Roundtable represent a substantial proposal that will revive the national economy. Economic revival can only be achieved by unleashing the private sector of the economy through policies rooted in limited government and free enterprise.

The recent National Commission on Fiscal Responsibility and Reform reported that “spending is rising and revenues are falling short, requiring the government to borrow huge sums each year to make up the difference.”[3]  The Commission reported that in “2010, federal spending was nearly 24 percent of Gross Domestic Product, the value of all goods and services in the economy.”[4] The budget deficit for 2010 is expected to be at least $1.3 trillion and the continuing growth of entitlement programs provides for a bleak fiscal outlook that must be addressed. Spending on entitlement programs — Social Security, Medicare, and Medicaid — “currently accounts for 56 percent of total federal spending,” which will continue to increase until these programs “would consume the entire budget so that other national priorities, such as defense, would be entirely paid for by deficit spending.”[5]

This does not include the fiscal impact of the Patient Protection and Affordable Health Act, or health-care reform, which is expected to cost trillions in addition to the implications it will have on businesses across the nation. With the national debt being already over $13 trillion and “if the unfunded liabilities of Social Security and Medicare are included, it actually tops $100 trillion,” which is not sustainable.[6] Government spending must be cut and entitlement programs must be reformed. The Business Roundtable is recommending that policymakers not only bring reform to entitlement programs, but also reduce the growth of government spending and restore market forces to health care.[7]

Tax reform is another crucial area that policymakers must address in order to bring about economic recovery. Although it appears likely that the Bush era tax cuts will be renewed, taxation is still hindering economic growth. Sustainable job creation must come from the private sector of the economy and “to increase the pace of economic growth and decrease unemployment, American businesses must have the confidence to invest and hire.”[8] Policymakers must include further tax reduction as a policy remedy, including the implementation of a flat tax. Reducing the corporate, death, and capital gains taxes, among others, will also have an economic benefit for business growth and job creation.

“In 2010, the combined federal and state corporate tax rate in the United States is 39.2 percent, the second highest in the developed world and 50 percent higher than the corresponding 25.3 percent average statutory rate among other Organization of Economic Cooperation countries,” noted the Business Roundtable.[9] Reducing the corporate tax would provide an incentive for businesses, which will not only benefit the economy but also create jobs. By reducing the corporate tax to 25 percent The Heritage Foundation estimates that “the number of jobs in the U.S. would grow on average by 581,000 annually from 2011 to 2020, with 531,000 on average being created in the private sector each year.[10] Further tax reform, along with renewing the Bush era tax cuts, would provide additional certainty for businesses to start investing, expanding, and hiring additional workers, while allowing for opportunities of entrepreneurship. These reforms must be long-term rather than mere temporary tax reductions. History has demonstrated that across-the-board tax cuts have worked to bring economic growth.

In an editorial The Washington Times recently wrote that “the country needs rollback — smaller federal budgets, reduced taxes, and a brake on adding to the catastrophic debt piled up during the first two years of Obamanomics.”[11] This rollback should also include unnecessary and restrictive regulations and the repeal of the Patient Protection and Affordable Care Act. The Business Roundtable noted that “a host of new laws and regulatory actions are restricting their ability to help our economy recover.”[12] This is what is causing the current uncertainty in the economy and the 9.8 percent unemployment. The solution is not more Keynesian-style stimulus or quantitative easing by the Federal Reserve, but perusing policies that are rooted in constitutional limited government. These are the policies that can solve the current fiscal crisis and end the uncertainty over the economy.

Patrick J. Buchanan noted that Presidents “Harding, Coolidge, Kennedy, and Reagan all bet on the private sector as the engine of prosperity. All succeeded.”[13] With the exception of President Kennedy all three were conservatives who utilized limited government means to create economic growth and prosperity — all policies that are needed now to restore economic confidence, address the fiscal crisis, and reverse the 9.8 percent unemployment.

John Hendrickson is a Research Analyst at Public Interest Institute.

The 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 citizenry.

[1] Business Roundtable, “Roadmap for Growth,” December 8, 2010, <http://businessroundtable.org/studies-and-reports/roadmap-for-growth/> (December 9, 2010).

[2] Ibid.

[3] The National Commission on Fiscal Responsibility and Reform, The Moment of Truth, December 2010, p. 7.

[4] Ibid.

[5] Robert E. Moffit and Kathryn Nix, The Future of Health Care Reform: Paul Ryan’s “Roadmap” and its Critics, Backgrounder, No. 2495, December 3, 2010, The Heritage Foundation, Washington, D.C., p. 2.

[6] Michael D. Tanner, “GOP’s Budget Cowardice,” Cato Institute, November 17, 2010, <http://www.cato.org/pub_display.php?pub_id=12562> (December 9, 2010).

[7] Business Roundtable, “Roadmap for Growth-Fiscal Policy: Competitive Taxation and Deficit Reduction,” December 8, 2010, <http://businessroundtable.org/studies-and-reports/roadmap-for-growth-fiscal-policy-competitive-taxation-and-deficit-reduction/> (December 9, 2010).

[8] Ibid.

[9] Ibid.

[10] Karen A. Campbell and John L. Ligon, The Economic Impact of a 25 Percent Corporate Income Tax Rate, WebMemo, No. 3070, December 2, 2010, The Heritage Foundation, Washington, D.C., p. 1.

[11] Editorial, “What tax cut, Mr. Obama,?” The Washington Times, December 8, 2010,  <http://www.washingtontimes.com/news/2010/dec/8/what-tax-cut-mr-obama/> (December 9, 2010).

[12] “Roadmap for Growth.”

[13] Patrick J. Buchanan, “Obama’s Choice: FDR or Reagan,” Buchanan.org, January 9, 2009, <http://buchanan.org/blog/pjb-obamas-choice-fdr-or-reagan-1344> (December 9, 2010).