President Obama and Congress can help spur real economic development and job growth – instead of redistribution – by investing in policies that encourage greater market freedom. More specifically, we should keep taxes low, cut the corporate tax rate, reform entitlements, and expand educational freedom.
By extending the 2001 and 2003 tax cuts for as long as possible, Congress has the ability to introduce some much-needed certainty into the marketplace. With an estimated $500 billion in new spending planned, the threat of tax increases loom large. That’s why to encourage real economic recovery the Democratic leadership ought to limit uncertainty by preventing a tax increase during this turbulent period.
Congress can also take this opportunity to cut corporate tax rates. It’s often overlooked, but the U.S. tax rate on corporate profits is the second highest in the world – and much higher than competing EU nations. With a statutory corporate tax rate of 39 percent, U.S. businesses are at a serious disadvantage and have incentives to relocate in lower-tax burdened countries.
No less important to restoring confidence in the economy is long-term entitlement reform. Before Congress passes a nearly $1 trillion stimulus package, they should tackle the Social Security, Medicare, and Medicaid storm looming on the horizon. With nearly 80 million Baby Boomers set to start retiring in the coming decades, the cost of these programs threatens to more than double as percentages of GDP from 8.4 percent to 18.6 percent. Without eliminating every other government program – an obviously unrealistic expectation – economists estimate taxes would have to increase by more than $12,000 per household.
Finally, creating jobs that can’t exist without government support is massively wasteful. If our long-term goal is to ensure that the country remains productive, we must provide people with the best opportunity to prepare for a rapidly changing global economy. That’s why expanding educational freedom is another way President Obama and Congress can help jump start this economy.
Not only does school choice provide children with a better education – it can save state and local governments already facing severe budget shortfalls billions of dollars over the next decade. (Read what experts at the Cato Institute are saying here; and read more about what experts at the Manhattan Institute are saying here.)
The fact is, politicians almost inevitably respond to one crisis – often one they’ve helped create – by introducing more government spending, programs, and burdensome regulations. If President Obama really wants to enact change, he would follow Occam's razor: “All other things being equal, the simplest solution is the best.”
In this economy, the simplest solution is the one that requires the least amount of government. And that’s a policy proposal that would truly help everyone.