Last month’s dismal jobs report underscored what many across the United States have known for sometime — the economic recovery remains damagingly substandard. With unemployment at 8.2 percent — and real unemployment (counting those who have left the labor force) in double digits — confidence in the economic prospects for 2012 are reaching new lows, while uncertainty among America’s businesses and jobs creators is at an all-time high.
Adding to the gloom is the dismal situation in Europe. The European Union’s recent decision to bail out Spain’s troubled banking sector with an injection of $125 billion underscores the depth of the ongoing financial crisis in Europe. Spain, whose economy is the fourth-largest in the eurozone, joins Greece, Ireland and Portugal in requesting assistance and highlights the systematic troubles in the European economy.
What is frustrating is that with elections looming in November, the administration seems interested only in politics, despite having many policy options at its disposal that would immediately boost economic certainty and aid job creation.
Three such economic policies that Congress should enact this year to improve the economy and make American businesses more competitive are extending bonus depreciation, reforming dividend tax rates and reducing the corporate tax rate.
Since 2010, both Congress and President Obama have supported bonus depreciation or expensing, which allows businesses to defer paying taxes on money invested on capital expenditures in the United States. When a 100 percent expensing provision was enacted as part of the economic package two years ago, it immediately led to a boost in business investment. However, the provision expired at the end of 2011, reducing the expensing rate from 100 percent to 50 percent. Since then, investment has suffered. In the first quarter of 2012, investment grew by just 3.1 percent compared with the last quarter of 2011, when investment was above 5 percent. Purchases of equipment and software grew at 3.5 percent compared with 7.5 percent during the same time frame.
Both Mr. Obama and a strong bipartisan group in Congress have expressed support for restoring 100 percent expensing this year. Enacting it would spur businesses to invest immediately — stimulating the economy, creating more jobs and increasing purchase orders from small businesses.
The second issue that Congress should address this year is the taxation of dividends. In 2003, the dividend rate was set at 15 percent, matching that of capital gains. America’s shareholders, including senior citizens, many union pension funds and almost anyone with a 401(k), realized dividend income of nearly $337 billion compared with just $103 billion before the rate cut.
Under the president’s 2013 budget proposal, dividend tax rates would go to a crushing 39.6 percent. Add to this frightening number the 3.8 percent investment surcharge in Obamacare set to go into effect next year for high earners and you get to almost 44 percent. The end result is that dividend-paying stocks, shareholders and pension funds will take a tremendous hit at a time when the stock market and economic confidence remain shaky at best. Congress must act this year and pass legislation that keeps the dividend rate low.
Lastly, it has been 25 years since President Reagan overhauled the corporate tax rate. Since that time, America’s competitors have steadily lowered their corporate tax rates. Now the United States finds itself with the highest corporate tax rates in the industrialized world and has one of the most complicated tax codes imaginable. In order to improve the competitiveness of U.S.-based businesses, we must lower the corporate tax rate from its current 35 percent to a rate that is, at worst, in line with the Organization for Economic Cooperation and Development average of 25 percent.
Other reforms are desperately needed, but these three no-brainers would attract immediate bipartisan support.
Mr. Obama; House Ways and Means Committee Chairman Dave Camp, Michigan Republican; and, most recently, Senate Finance Committee Chairman Max Baucus, Montana Democrat, have all called for a reduction in the corporate tax rate along with the simplification of the tax code. Congress should ensure that America’s “world-leading” corporate tax rate is reduced this year.
The U.S. tax code is out of step with the rest of the world, and its complexities result in businesses spending billions of dollars a year simply to comply with the code. These are wasted resources that could be spent on investment, job creation or paying higher salaries. In fact, since 2000, the United States has lost 46 Fortune 500 company headquarters. Japan, the country with the second-highest corporate tax rate, has lost 39. Because capital is the most mobile of all economic factors, U.S. businesses are at a competitive disadvantage to countries with lower and simpler tax codes.
Unlike the Greeks, Spanish and Portuguese, America cannot request a bailout to plug its economic holes. Instead, our elected officials must enact pro-growth policies that will allow the United States to regain its economic footing, compete internationally and create jobs at home. We cannot wait until the November elections to start improving the economy. Leadership from the president and Congress is needed today.
Steve Forbes is chairman and chief executive officer of Forbes, and editor-in-chief of Forbes magazine.