Middle-class tax cut could dodge 'fiscal cliff'
Thursday , December 06, 2012 - 3:16 PM
NEW YORK — Can’t we all just get along? This question lately has inspired my friend Tim Browne, a Californian who is active among free-market think tanks. Tim has helped me ponder how both political parties can escape the deteriorating "fiscal cliff" fiasco. Democrats don’t want automatic tax increases to hurt the middle class. Republicans don’t want tax hikes to prevent the top 2 percent from creating jobs and expanding the economy. Tim suggests: Let’s do both!
The Republican-led House of Representatives should adopt this proposal and send it to the Democratic-led Senate for its immediate consideration:
Cut the 10, 15, 25 and 28 percent tax rates by 10 percent each: to 9, 13.5, 22.5 and 25 percent. Those rates cover single people up to $180,800 and married couples up to $225,550.
The two top income-tax rates -- 33 and 35 percent -- would stay the same. So, the GOP would sponsor a middle-class tax cut and leave rates intact for top filers, many of whom own businesses.
Deductions would stay untouched, avoiding a Republican-led, back-door tax hike that would siphon the tanks of those who invest in companies, hire workers and purchase products manufactured and marketed by people with more modest incomes.
How much would this cost?
Experienced Washington budget analysts consulted an economic model popular among Fortune 500 companies. The preliminary estimate is that such a tax cut would cost $332 billion between 2013 and 2022. However, it would trigger dynamic economic activity generating $88.6 billion in federal revenue. This policy’s net cost would be $243.4 billion.
How would Republicans pay for this?
The GOP should finance this reform by welcoming home corporate profits stranded overseas. Even after credit for foreign taxes, CEOs of U.S. multinationals hate paying the balance: up to 35 percent for America’s corporate tax. Thus, Bloomberg News estimates that "U.S. companies have more than $1.6 trillion outside the country." Every billion that languishes in Brussels or Bangkok is a billion that is not hiring workers, opening factories, or performing R&D in Buffalo or Birmingham.
Bloomberg surveyed 70 top multinationals in March and found that they accumulated $187 billion overseas last year. Extrapolating that through 2022 would add $1.9 trillion to today’s $1.6 trillion stockpile. A long-term, 7 percent "welcome home" tax on this $3.5 trillion would finance the GOP’s $243 billion middle-class tax cut. This naturalized money would help companies reinvest, increase payrolls or even pay dividends -- all of which would propel economic growth.
With this Gordian tax knot elegantly unraveled, Congress and the White House should agree to extend everything else into 2013. This would give both parties breathing room to handle entitlement reform without conducting such heavy maneuvers near a swiftly approaching precipice.
If President Barack Obama balks at this GOP-initiated legislation, he can explain to America’s middle class why he denied them a tax cut that Republicans authored.
Obama once accepted Republican thinking on this subject. As he told NBC on Aug. 5, 2009, "The last thing you want to do is to raise taxes in the middle of a recession." When Obama expressed this economic common sense, America no longer was "in the middle of a recession." While it may feel otherwise, the Great Recession technically ended in the third quarter of 2009. As Obama spoke, output expanded at 1.4 percent. But by that October, GDP advanced at 4 percent. So, if tax hikes were unwise then, they surely are ill advised with GDP growing at just 2.7 percent today.
A Republican middle-class tax cut, coupled with importation of marooned corporate profits, recognizes a simple fact on which every American should meditate. A rapidly rising GOP star expressed it beautifully:
"The way we’re going to move ahead is not by making rich people poorer. It’s by making poor people richer," Sen. Marco Rubio, R-Fla., told Bill O’Reilly of Fox News. "The only way forward for us is rapid economic growth. Not new taxes. We need new taxpayers."
Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with Stanford University’s Hoover Institution on War, Revolution and Peace. Email Deroy.Murdock@gmail.com.