Keep the tax addicts out of the White House

Donald Lambro
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Posted: Aug 02, 2007 12:01 AM
Keep the tax addicts out of the White House

WASHINGTON -- The good news last week came from the economy growing at a robust 3.4 percent annual rate in the second quarter -- disproving the gloom-and-doomers who predicted that the United States was heading into a recession. But bad news came from House Democratic leaders who were trying to raise corporate taxes on a lot of businesses that have contributed to that strong growth rate. It was a stark reminder that their addiction to taxes would sandbag the economy if they won back the White House in 2008.

The faster growth rate in the last three months, beating the consensus forecasts on Wall Street, proved that neither the decline in the housing market nor the rise in oil prices seem to have spilled over into the larger economy. Thus far, it seems that banks and other lenders -- who were making money hand over fist when the housing market was hot -- have been able to absorb the rising mortgage foreclosures. We still have not seen how much further the housing crunch has to go, but the evidence suggests that housing sales should begin turning around sometime in the last half of the year. So where was all this growth coming from?

No one encapsulated its component parts better than Edward Lazear, chairman of the Council of Economic Advisers: "I would say it can be summarized as follows," he said at a White House press briefing last week. "We got one point for consumption, we got one point from nonresidential construction and equipment and software, we got a point from exports, a point from government spending, and we lost half a point on housing. So a very balanced picture this time."

A closer look at the respective parts of the second quarter growth rate shows an economy -- despite its temporary housing illness -- running along at a healthy clip. Consumer spending grew at 1.3 percent. Exports grew by 6.4 percent. Nonresidential structure investment grew at 22.1 percent, federal spending was up by 6.7 percent and state and local government spending was up by 2.9 percent.

The numbers overall paint a brighter picture of the American economy than the negative picture we get on the nightly news shows. Yes, residential housing is in a slump, but nonresidential building is cruising right along at a hefty pace as businesses, plants, office buildings and the like continue their expansion. One of the most welcome economic forces spurring growth is the rise in U.S. exports and the narrowing trade deficit. The U.S. economy is being propelled in large part by a stronger global economy and, thanks to a number of free-trade agreements, we're making more and selling more in markets around the world. You don't hear very much about that on the nightly news, either.

"I can't think of any time in my business career where I've seen such a strong global economy. And we're really benefiting from that in terms of exports," Treasury Secretary Henry Paulson said last week. Increasingly, future growth in the U.S. economy will be due to a global economy that is breaking all records, and the U.S. is benefiting from it big time, both here and abroad.

But last week House Democrats announced that they were going to pay for a bloated, waste-ridden farm bill by raising taxes on "in-sourcing" companies operating in the United States, mostly nonunion businesses that employ Americans who pay the bills in this country and keep the U.S. economy humming. Foreign firms doing business in the U.S. employ more than 5.1 million Americans in high-paying jobs (like Toyota, Honda and BMW) that on average pay their workers $63,428 annually, 32 percent more than other U.S.-based jobs. That's why Paulson stressed at his briefing last week "how important (direct foreign investment) is to us, to our country. This is key. We have 5 million jobs in this country that are directly related to (foreign) investment. We've got another 5 million that are indirectly related to that."

Talk about killing the goose that lays the golden egg. The Democrats' tax hikes on these companies, and indirectly their workers, will endanger their livelihood and invite retaliation against U.S. investment abroad. In a blistering letter to House Speaker Nancy Pelosi and Democratic leader Steny Hoyer, Jay Timmons, senior vice president of policy and government relations for the National Association of Manufacturers, warned that higher tax rates would put these jobs "at risk by forcing many companies to rethink their plans to do business in the U.S.

"Foreign investment is particularly important to U.S. manufacturing. One out of every eight factory workers in the U.S. is employed by a foreign-owned company, and their jobs could be jeopardized by these discriminatory taxes," Timmons said.

Why raise taxes on a key part of the economy that employs millions of Americans in good paying jobs? That is the question that these workers should be asking the Democrats.