Congress is packing up to go home for the summer, and among the many things left hanging in the air is a so-called "grand bargain" offer from President Obama; something he sees as a way to cut corporate taxes while rebuilding infrastructure and creating jobs. He is touting it as a compromise that ought to appeal in part to Republicans.
Republicans, however, have assailed this plan as more of the same liberal nonsense, noting that the overall effect of it would be to raise revenue. The president, in turn, has assailed Republicans as being hard-wired to simply say no to whatever he proposes.
We hope this predictable exchange is just the opening salvo in what eventually will become a genuine effort toward compromise. Of course the president's plan is weighted toward furthering his own political ideology. Why should Republicans expect anything different? And of course Republicans, whose constituents prefer no new taxes and smaller government, would reject what amounts to a tax increase. No news there. Now, let's move to the next step and see what sort of deal might be negotiated to bring about at least part of what each side desires.
At a nominal rate of 35 percent, the United States has the highest corporate tax rate in the industrial world. Even though the effective rate in 2011 was only 12 percent, the lowest it has been in nearly a century, the president is right to believe a reduction would stimulate investment and help the economy. Obama's plan would reduce the nominal rate to 28 percent, while the rate on manufacturing would be 25 percent. This is a good proposal that ought not be rejected out of hand.
The weakness in the president's plan is his insistence that government spending can create jobs. It would do so only by removing money from the economy, and generally such plans cost so much they negate any gains. Previous stimulus spending initiatives ought to be proof enough of this. However, he is correct in noting that the government has pent-up infrastructure needs that should be addressed.
There are many ways the two sides might work toward compromise. Republicans could insist on removing some of the red tape associated with infrastructure projects, mostly having to do with union rules and environmental concerns, that drive up costs. They could insist Obama add approval of the Keystone XL Pipeline project to the mix in exchange for Republicans agreeing to his plan for increased spending on community colleges or other projects.
Coming to terms on such a deal would be important not just because the nation's corporate tax structure is a hindrance to economic recovery. It is important because the larger issues of tax and entitlement reform and passing a long-term budget deal looms on the horizon like a gathering storm. Solving that will require more good-faith compromises, with an enormous payoff for the nation's long-term fiscal health.
Unfortunately, the recent slight improvement in the economy has taken attention away from the need for a budget deal, even as the so-called sequestration cuts continue to chip away haphazardly at the growth in government spending. That will change in the fall as Congress returns to face another need to increase the federal debt limit and more spending cuts loom, most notably to defense.
Making the "grand bargain" work could signal the type of change that erases much of the cynicism Americans feel toward Washington.
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