The GOP Jobs Plan Vs. Obama's


ACRU Staff


October 30, 2011

This column by ACRU General Counsel and Senior Fellow for the Carleson Center for Public Policy (CCPP) Peter Ferrara was published October 28, 2011 on

Senate Republicans have taken the lead in proposing a Jobs Plan alternative to President Obama’s, in the form of the Jobs Through Growth Act, led by Senators John McCain (R-AZ), Rand Paul (R-KY), and Rob Portman (R-OH). Republicans are remarkably unified behind these economic and jobs growth ideas, with House Republicans having already long supported or even passed several components of that plan.

The 28 components of their program add up to exciting prospects for finally sparking the long overdue economic recovery, based on proven economic logic, and proven experience concerning what works in the real world. Most important are the proposals for both corporate and individual tax reform, closing loopholes in return for reducing the rates.

Lower marginal tax rates are the key to providing the necessary incentives for economic growth and prosperity. The marginal tax rate is the rate on the next dollar to be earned from any investment, enterprise or productive activity. That is the key because it determines how much the producer is allowed to keep out of the next unit of what he or she produces.

At a 50% marginal tax rate, the producer can keep only half of any increased production. If that rate is reduced to 25%, the portion the producer can keep grows by 50%, from one half to three fourths. That powerfully increases the incentive for more productive activity, such as savings, investment, starting new businesses, expanding businesses, creating jobs, entrepreneurship, and work.

The Republican Jobs Plan involves closing the special interest loopholes that enable Obama corporate cronies such as General Electric to get away with paying no taxes on $14 billion in corporate profits, in return for reducing rates to internationally competitive levels. The U.S. suffers virtually the highest corporate tax rate in the industrialized world, nearly 40%, with a 35% federal rate, and another nearly 5% in state corporate rates on average.

Even Communist China enjoys a 25% corporate rate. In the supposedly mostly socialist European Union, the corporate rate on average is even lower than that. In formerly socialist Canada, the federal corporate rate is 16.5%, going down to 15% next year.

The GOP Plan would reduce the federal 35% rate to 25%, which is the minimum reduction to restore international competitiveness for American companies. Note that closing loopholes may well raise the average corporate rate, on which Democrats and liberals have focused, but it is the marginal tax rate that drives the economy, as discussed above.

The GOP Jobs Plan also includes reducing the top personal, individual income tax rate to 25% as well, in return for closing loopholes. The Ryan budget already passed by the House would apply that rate to family incomes over $100,000, with a 10% rate applying to incomes below. Those rate reductions would powerfully boost incentives as well, as proven by the dramatic response to the Reagan tax rate reductions in the 1980s, discussed further on.

Another component of the plan would eliminate the double taxation of U.S. corporate profits earned abroad by the U.S. “worldwide” corporate tax code, which adds U.S. taxes on top of the taxes on foreign profits by the host country. The GOP plan calls for adopting the “territorial” tax code of most our international competitors, which allows profits to be taxed in the country where they are earned, and not again when they are brought home. That would unlock for reinvestment in the U.S. the $1.4 trillion in American corporate profits earned overseas that remain parked there to avoid U.S. double taxation.

The GOP Jobs plan also recognizes the enormous problem of excessive, runaway regulation, which increases the cost of production, and so further discourages it. Reducing such costs would consequently increase production, economic growth, and jobs.

Step one in the plan to reduce such regulatory burdens is to repeal Obamacare, with its employer mandate adding to the cost of each job by requiring employers to buy more expensive, politically driven health insurance coverage for every employee. That repeal would also reduce future taxes and spending by trillions as well.

Further critical relief would result from the GOP Jobs plan plank to repeal Dodd-Frank, which is threatening to squelch credit for businesses and consumers essential to jobs and recovery. The GOP proposal cites research showing that higher costs for financial services resulting from Dodd-Frank would cost the economy nearly 5 million jobs by 2015.

Another critical area of overregulation is energy. The Republican program would require the Interior Department to move forward in order to free up leasing and development of drilling on public lands onshore. It also eliminates EPA foot dragging on air permits necessary for offshore drilling, and removes EPA authority for unnecessary and burdensome greenhouse gas regulation altogether. This deregulation would ensure a steady supply of low cost energy, essential to booming economic growth.

Also in the proposal is the REINS (Regulations from the Executive In Need of Scrutiny) Act, which would require Congressional approval of all major federal regulations imposing more than $100 million a year in costs. This will reestablish the original Congressional check on Executive power, and democratic accountability for regulatory burdens, so politicians can no longer hide behind faceless bureaucrats to evade public scrutiny for regulatory drains on our freedom and prosperity. This would provide an important solution to excessive regulatory burdens and costs across the board.

The Tea Party will favor the plan’s plank for a Balanced Budget Amendment to the Constitution, which would include necessary tax and spending limitations in the Constitution. Also included is a statutory line item veto, giving the President more power to cut spending. Reduced government spending, deficits and debt will reduce the government drain on resources in the private economy needed to create jobs and growth.

Finally, the plan even includes a provision for free trade, giving the President renewed fast track authority to negotiate further trade agreements eliminating foreign trade barriers and opening new markets for American goods. For nearly 3 years, President Obama failed to even send to Congress free trade agreements President Bush had negotiated with South Korea, Colombia and Panama. But that didn’t stop him from political rhetoric blaming Congress for failing to pass them, though Congress did approve them within weeks of Obama finally submitting them. That abusive rhetorical style veers into dishonorable.

This GOP program is an exciting, comprehensive strategy for creating another generation-long economic boom. It includes all the components of Reaganomics under Congressional control – lower tax rates, deregulation, and restrained spending. Besides the economic logic of each of these components discussed above, the experience with Reaganomics proves the plan will work within a year or so of adoption to get the economy booming again.

After Reaganomics was adopted in 1981, the economy took off on a 25-year economic boom in late 1982, what Art Laffer and Steve Moore have rightly called the greatest period of wealth creation in the history of the planet. Twenty million new jobs were created in the first 7 years alone, even while an historic inflation was tamed. American economic growth during the 80s was the equivalent of adding the third largest economy in the world, West Germany, to the American economy.

By contrast, Obama’s Jobs Plan is recycled, brain dead, Keynesian economics already tried and failed throughout the Obama Admini
stration, and all around the world for decades before wherever it has been tried. It is about half the size of Obama’s nearly one trillion dollar 2009 so-called stimulus plan, but contains otherwise the same policies. That 2009 stimulus didn’t stimulate anything except runaway government spending, deficits and debt

Part of the jobs plan is devoted to increased government spending on supposed infrastructure, which only recalls the laughable “shovel ready” jobs of Obama’s 2009 stimulus (even Obama has joked about it). Another part is increased spending to bailout spendthrift Democrat states, which Obama calls hiring more teachers, firemen and cops (a state and local government function, not a federal function).

But economic growth is not based on increased government spending, a fallacy which Wall Street Journal senior economics writer Steve Moore has rightly labeled “tooth fairy” economics. That is because the money for such spending needs to come from somewhere, and so drains the private sector to the extent of such increased government spending, leaving no net effect in any event.

What drives economic growth and prosperity is incentives for increased production, as Reaganomics proved. Obama’s assault on such incentives is why trillions are sitting on corporate and bank balance sheets, and America is suffering a capital strike and capital flight. The Occupy Wall Street protestors in threatening property and profits are just further undermining incentives and contributing to that capital strike and capital flight, which only contributes further to extended and increased unemployment.

The other half of the jobs plan includes temporary payroll tax cuts, which are a continuation and expansion of temporary payroll tax cuts Obama convinced the December, 2010 lame duck Congress to adopt for this year. But such temporary tax reductions do not stimulate economic growth and jobs either, as permanent cuts and incentives are necessary for permanent jobs. That was just proved by the failure of this year’s temporary payroll tax cut to promote the long overdue recovery.

But even worse than the 2009 stimulus is that this current half stimulus echo is accompanied by Obama’s proposal for $1.5 trillion in permanent tax increases. That now includes Obama’s support for a 5% millionaires’ surtax. Those permanent increases only further reduce incentives for production, and only contribute further to economic downturn and stagnation under any economic theory.

Those tax increases, moreover, would come on top of all the tax increases Obama has already enacted under current law for 2013, which major media institutions as well as most of the public are unaware. In that year, the Obamacare tax increases go into effect, and the Bush tax cuts expire, which Obama has refused to renew for the nation’s job creators, investors, and more significant small businesses. Under those tax increases, the top tax rates for every major federal tax, except the corporate income tax, already virtually the highest in the industrialized world, with no relief in sight under Obama.

In sharp contrast to Reaganomics, such Keynesian Obamanomics has already failed miserably to generate a timely recovery consistent with the history of the American economy. Before this last recession, since the Great Depression, recessions in America have lasted an average of 10 months, with the longest previously lasting 16 months. But here we are 46 months after the last recession started, and still no real economic recovery, with unemployment still over 9%, the longest period of unemployment that high since the Great Depression.

Moreover, it cannot be said this is because the recession was so bad, as the experience in America has been the deeper the recession the stronger the recovery. Based on these historical precedents, we should be nearing the end of the second year of a booming economy right now. In this crisis, for Obama to now just advocate more of the same, with only new, warmed over rhetoric, is a complete abdication of leadership. Moreover, at this point, outdated economists still peddling hoary Keynesian fallacies should be subject to civil liability for fraud.

As I explain in my new publication just out this week from Encounter Books, Obama and the Crash of 2013, more likely than recovery is a renewed double dip recession in 2013, with all the tax rate increases, regulatory burdens building to a crescendo, rising interest rates by then, etc. resulting from Obamanomics. Congressional Republicans should just tell Obama thanks, but no thanks, on his Jobs Plan, and pass their own plan proven to work. Then they can insist he explain to the public why he stands in the way.



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