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  • Stimulate the Weak Economy by Cutting Corporate Taxes

    This week’s disappointing news on the progress of the economic recovery has some Democrats and their allies yearning for more fiscal “stimulus.” But continuing the failed policies of the recent past would be the wrong response. Instead, Congress and the President should pursue fiscal policies that stimulate the engines of economic recovery and growth.

    The rise in the May unemployment rate coupled with Federal Reserve Chairman Ben Bernanke’s statement on the weak economic recovery is fueling liberal cries for more federal spending. The New York Times reports:

    Recent signs that the economic recovery is flagging have introduced a new tension into the bipartisan budget negotiations, giving rise to calls especially from liberals to limit the size of immediate spending cuts or even to provide an additional fiscal stimulus.

    President Obama is riding this liberal spending bandwagon, declaring at Tuesday’s press conference with German Chancellor Angela Merkel that his trump card for avoiding a double-dip recession is to continue existing policies:

    One of the things that I’m going to be interested in exploring with the members of both parties in Congress is how do we continue some of these policies to make sure we get this recovery up and running in a robust way.

    While a double-dip recession doesn’t seem likely, what is much more concerning is the President’s announcement that instead of pursuing real recovery and growth policies, he would rather continue the failed stimulus policies of the recent past. The President’s position is especially troubling as the direness of America’s fiscal state and its gloomy prospects call for strong leadership to tackle the out-of-control deficit and debt.

    Heritage fiscal policy expert J.D. Foster explains what Congress and the President could do instead to stimulate the economy toward faster growth in the recession’s aftermath:

    They can do so by improving incentives to produce and to work: for example, by reducing regulations and tax distortions. They can do so by reducing the uncertainties surrounding future policy. They can do so by expanding foreign markets for domestic goods and services. Recent efforts to stimulate the economy have been unsuccessful because they did little or none of these things. Regulations have increased. Uncertainty has increased. Tax distortions have been left in place or even increased in some areas. And efforts toward free trade have been anemic, at best.

    One example would be cutting the corporate income tax rate from its uncompetitive high of 35 percent down to 25 percent. This would provide entrepreneurs with much-needed incentives and certainty to expand and grow their businesses and hire more workers. As the Heritage Center for Data Analysis estimated, the number of jobs in the U.S. would grow by an average of 581,000 annually over the next decade given a 25 percent corporate income tax rate.

    The ailing economy should signal to Congress and the President that it is high time to change course and to pursue those fiscal policies that in fact spur economic and job growth.

    Posted in Economics [slideshow_deploy]

    7 Responses to Stimulate the Weak Economy by Cutting Corporate Taxes

    1. George Colgrove, VA says:

      Since corporate tax is essenitally an expense, that cost is passed onto the customer. So it can be argued that the customer pays the tax. Reporting to the federal government is one of the most expensive administrative work any corporation does. To simplify business, ELIMINATE the corporate tax and ELIMINATE the reporting. Free up the large sums of cash corporations use up on both to lower prices. This will spur growth as people who have little to begin with will have increased purchase power. Money will begin to flow which will allow for real jobs to be created.

    2. Bobbie says:

      What does the president hope to accomplish if not hardship on everyone? Which he has and continues? His way is tried and fails!! yet he plays dumb and refuses the many solutions to what works for the will of the people. Obama's policies are for the will of Obama, and the like minded.

    3. Heywood Jablome, Mar says:

      Continueing what George Colgrove said above: By eliminating the corporate taxes and loosening regulations, companies from all over the world would flock to our shores to build their plants. Unemployment would be unheard of in less than a year. Most likely companies would have difficulties finding ENOUGH qualified people to hire. Any loss in revenue from the current tax code would be made up in personal taxes ten times over. This is one of the main tenants of the FairTax.

      On the negative side, if Obama actually was the one to institute this plan, it would probably be enough to get him re-elected.

    4. Veronika Morris (Las says:

      I'm not sure why we are calling the stimulus plan a failure. It seems to me, it did just what it was intended to do; it prevented a total collapse of the financial system. I'd like to know where these financial regulations are that will prevent these banking institutions from repeating the risk taking behaviors that created the crisis in the first place.

      Let's lower the corporate tax rate and make all corporations pay taxes too. The loopholes and the accounting shenanigans create an effective tax rate that is considerably lower than what you have published. Let's make it low, fair, and uniform.

    5. John Pennington, San says:

      Yes, the corporate tax rate should be reduced. But it would do nothing to stimulate the economy because no corporations pay the 39% rate. The majority pay no taxes at all.

    6. Kevin H, college par says:

      I can't believe any companies would flock to our shores because of a cut in corporate taxes. Even with massive corporate tax cuts, there is nothing America can do to compete with manufacturing overseas where they allow children to work in sweatshops for next to nothing. We have to face it, we'll never be abel to compete with manufacturing – we need to adapt and advance towards a future where we can create jobs in other fields – medicine, alternative energy, etc…

      Cutting taxes does nothing to stimulate the economy – it has never worked to pull out of a recession, why on earth would anyone think it could work now?

    7. Allen Heffler, Willo says:

      This upcoming election should be an easy one for voters. It will be a stark contrast. Both sides agree that we have substantial problems. One side sees the solution as higher taxes and more entitlements. The other side sees the solution as lower/maintaining taxes with reduced spending.

      How about this way to look at it. What state has been doing better during this recession? Corporate friendly Texas or Entitlement wacky California?

      Being a Medicare Advisor, I do see things through a Medicare Insurance lense. Or to make it even simpler, is government the solution or the problem?

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