No matter what President Barack Obama and the Democratic Congress put in their still-unfinished economic stimulus bill, there is a strong chance this recession will persist. The president knows this, and he also knows that his honeymoon with the American people will not endure too many months of bankruptcies, foreclosures and rising unemployment. Thus, his request for Republican help in crafting at least part of the stimulus bill is not only magnanimous and statesmanlike, but also extremely clever. Should the bill fail to revive the economy, its bipartisan character would inoculate the new president from sole responsibility for what Republicans could otherwise brand “The Obama Recession.”
But if the stimulus package Obama signs into law is anything like the draft recently reported in the media, long-term economic pain will indeed be on his hands. Last week, word leaked that Team Obama’s package would total $775 billion, including $300 billion in tax relief. That $300 billion is the bait Obama hopes will lure congressional Republicans to vote in favor of the stimulus package, and thus share responsibility for its potential failure. A close look at the details of the proposed tax cuts, however, exposes the president’s strategy as short-sighted, artificial and insubstantial: junk food for our starving economy. We don’t need another check-in-the-mail debacle, business credits that expire after a single year or special-interest corporate welfare.
Republicans who embrace these ineffectual tax cuts will deserve the inevitable consequences they suffer at the polls. Conservatives need to snap out of their November blues: We lost an election, after all, not our minds. It’s not too much to ask that the largest economic stimulus bill in history actually stimulate the economy.
Certainty about the future is essential for economic growth, and the current recession will be prolonged if we continue to allow the government to arbitrarily and unpredictably intervene in the private marketplace. Republicans should insist on predictable, long-term tax relief. I believe the two-part strategy put forth by economists J.D. Foster and William Beach of the Heritage Foundation is exactly what our economy needs right now.
First, we must protect the fragile economy from the massive tax hikes coiled to spring on us in 2011, when the 2001 and 2003 tax cuts expire. Extending those rate reductions at least to 2013 will provide the economy with the long-term stability and predictability necessary to encourage new hiring and investment, consumer spending and entrepreneurial risk-taking.
Once the 2011 tax bomb is disarmed, we should take the next logical step and lower marginal tax rates across the board on individuals, small businesses and corporations. Our plan will call for a 10-percentage-point cut in the top rate (from 35 percent to 25 percent) and comparable reductions for the lower brackets —reductions to be maintained also through 2013 at least.
These tax cuts would soften the recession and expedite the recovery to the tune of 500,000 new jobs in 2009 and 1 million new jobs in 2010 and surpass by 2012 the president’s stated goal of 3.5 million new jobs.
On the other hand, any jobs created by government make-work programs will be slow to arrive, quick to disappear again, fewer than promised and minimally stimulative to the broader economy as they largely substitute government-based jobs for true private-sector jobs. Remember, 10 years into the Great Depression — 10 years of predatory tax increases, relentless New Deal “recovery” spending (not to mention overwhelming Democratic congressional majorities) — unemployment remained above 20 percent.
The cost of our plan will be substantial, $670 billion over five years, but unlike the $775 billion in new federal spending and the now-you-see-’em-now-you-don’t gimmicks in the current stimulus bill, broad-based tax rate cuts will create a more predictable business climate. Long-term corporate, small business and family tax relief will work. John F. Kennedy’s 1963 tax reductions led to 9 million new private-sector jobs in five years. Ronald Reagan’s 1981 tax cuts led to 7 million in the same period. Five years on, the 2001 and 2003 tax cuts have created 6 million new jobs.
Meanwhile, all four of these long-term tax cuts spurred the creation of a broader tax base and ultimately higher federal revenues — no small point considering this year’s projected $1.2 trillion deficit works out to approximately $16,000 of new debt for every child in America to pay back.
If Obama is serious about wanting a truly bipartisan bill that creates jobs and ignites economic growth, he can prove it this month by including in his package the proven stimulus of long-term, across-the-board tax relief. And if Republicans are serious about winning back the trust of the American people and leading our nation through these difficult times, we can prove it by demanding he do just that.
Mr. DeMint, a Republican, represents South Carolina in the U.S. Senate.
