Kerry-nomics
On Tuesday night (September 14) in New York City, I had the opportunity to debate lefty economist Robert Kuttner on which presidential candidate has the better economic policies. It was a lively, but civil, exchange.
Interestingly, Kuttner was far more interested in attacking President George W. Bush’s agenda than in defending Senator John Kerry’s policies. Indeed, I presented more details on Kerry’s plan than Kuttner did.
Ah, but the very next day, Senator Kerry himself penned an op-ed in The Wall Street Journal titled “My Economic Policy.” So, what did Kerry have to say and what would be the impact on entrepreneurship and the economy?
First, Kerry declared that “taxpayers spend $12 billion a year to subsidize the export of jobs.” What the heck is he talking about? Well, Kerry does not bother to explain. But he does say he wants to stop it, while also cutting corporate tax rates by 5%.
Specifically, Kerry wants to stop the tax “deferral” on foreign profits earned by U.S. corporations, though offering a one-year lower tax rate of 10 percent on earnings repatriated by such firms. He also would reduce the corporate tax rate from 35 percent to 33.25 percent. Kerry ignores that U.S. corporations operate at a distinct competitive tax disadvantage when it comes to their international competitors. The U.S. corporate tax rate ranks among the very highest among industrialized nations. In addition, American corporations face double taxation, with U.S. profits taxed abroad, and then taxed again when brought back to the U.S. Meanwhile, most other nations, including European countries, provide rebates for the taxes corporations pay outside the country. Corporations would benefit from the small reduction in the corporate tax rate, but double taxation would hit international players hard, even providing an incentive for some firms to move abroad altogether.
Next, Kerry declares that Bush’s tax cuts “would be extended and made permanent for 98% of Americans” during his administration. That means, of course, he is going to hike taxes in class warfare fashion. The top rate on personal income would rise from 35% to 39.6%, on capital gains from 15% to 20%, on dividends from 15% to 39.6%, and the death tax would not be repealed. That’s bad news for investment and entrepreneurship, which means economic growth and job creation would suffer.
Kerry also proposes more federal government in health care. That includes more federal subsidies, and an attack on pharmaceutical companies by supporting the “importation of pharmaceuticals from countries like Canada.” So, the Senator from Massachusetts would jack up health care costs by accentuating the problem of third-party payments (that is, costs rise when someone else – like the taxpayers – pick up the health care bill). He would cripple the pharmaceutical industry, and destroy incentives to research and develop new medicines by importing price controls.
Kerry goes on to reveal that he fails to understand that economic growth comes from the private sector, through investment, entrepreneurship, invention, innovation, greater efficiency, and more productivity. He, instead, proposes that taxpayer dollars should be used on assorted speculative ventures.
Finally, Kerry talks about the budget deficit and spending. He offers a few interesting ideas, such as a cap on discretionary spending – except for security and education – at the rate of inflation, advocates a line-item veto, and calls for a commission to cut corporate welfare. At the same time, though, one has to take all of this with a heavy dose of skepticism as Kerry failed to mention that his new spending programs would add hundreds of billions to trillions of dollars in new spending to the federal budget over the coming decade.
For good measure, there were some important items that Kerry failed to mention about his economic agenda in the Journal. For example, the Kerry agenda would increase regulatory costs, and throw up serious obstacles to advancing free trade.
In the end, Kerry tried to put the best face possible on an anti-growth policy package built on higher taxes and bigger government.
Raymond J. Keating serves as chief economist for the Small Business Survival Committee.
