by Mitch Kokai
Senior Political Analyst, John Locke Foundation
This has always been a rather lopsided economic expansion. For example, auto sales surged to 16.9 million in June, a very good number. And the energy sector has been strong for many years. But consumer spending actually fell in April and May. And long-term business investment — a huge job creator — remains in the doldrums.
The latest Business Roundtable survey shows a slowdown in capex spending plans. The National Association for Business Economics predicts only a bit more than 3 percent business-investment growth. And the National Federation of Independent Business (NFIB) says only 24 percent of small-business owners plan capital outlays in the next three to six months.
The paradox is, while companies seem more willing to hire, they are not willing to make long-term investments in the economy. It’s not hard to guess that this corporate caution stems in large part from tax and regulatory uncertainties, and frankly, a White House that is anti-business.
A recent Wall Street Journal op-ed by UCLA economics professor Lee Ohanian and Nobelist Edward C. Prescott points to the large decline in the creation of new start-up businesses as a major factor in the lack of business fixed investment. The authors argue that policies hampering entrepreneurs need to be changed. They point to immigration reform that increases the pool of skilled workers, tax reform that reduces the corporate income tax, and changing Dodd-Frank financial regulations to make it easier and cheaper for small businesses to get loans.
I continue to believe that slashing business tax rates (and ultimately abolishing the corporate tax) would be the single most important economic-growth policy right now. And importantly, small business S-corps must be allowed to take advantage of any lower C-corp tax rate.
A recent study from the Tax Foundation, using a dynamic simulation model, argues that cutting the federal corporate tax rate from 35 to 25 percent would over ten years raise real GDP by more than 2 percent, increase private business-capital investment by more than 6 percent, boost worker wages by 2 percent, and increasetotal federal revenues by nearly 1 percent.