J.E. James: How we get rise to greater prosperity is building business

J.E. James.

J.E. James.

You can tell from my bio line that I am neither an economist nor a mathematician. But I am among those who believe that our deficits and debt cannot keep growing as they have the past 10 years.

Most of the talk these days on how to address this problem has centered on various forms of austerity — higher taxes, less government spending; or both. I don't think there has been enough serious discussion on how to promote economic growth as another means of shrinking deficits and slowing the growth of our debt.

Most everyone with a mortgage knows how a few point change in interest rates, when compounded over several years, can profoundly affect the total pay off for a home. Yet few seem to realize the same phenomenon applies to our economy. For most of the 1990s we chugged along at a robust 5 percent annual growth in GDP. That growth fell sharply after 9/11 but was back up to 4 percent, when the financial meltdown hit.

So far, several years into "recovery," growth is a sluggish 2 percent. Our GDP is roughly $15 trillion, so if we continue 2 percent growth for the next 10 years, our economy will increase to $18 trillion. But if we could get growth up to an average 4 percent, in 10 years GDP would be $22 trillion.

At the 1992 rate of 5 percent, GDP would swell to $26 trillion. Now $26 trillion is a whole lot more than $18 trillion. It's a huge difference in increased tax revenue, more jobs, reduced spending (on things like food stamps and unemployment), and increased personal income.

So why haven't we heard more about a growth approach to our fiscal woes?

The reasons are many. Even economists can't often agree on the best government policies to spur growth.

Liberal politicians favor more government deficit spending, conservatives tend to look at tax breaks for business that also will increase the deficit; and the public is wary of both approaches. We should be wary because the increasing national debt is becoming a real threat to our well-being. Also, the financial collapse left many feeling that breaks for business only enrich the fat cats who profited so handsomely while leading their companies into bankruptcy and the country into a recession. Finally, legislators often tend to favor breaks only for enterprises in their district or on their list of contributors.

I am not sanguine that much will be done in our present political gridlock. But I think much could be done.

A good first step would be exempting profits of U.S. corporations earned overseas from U.S. taxes when they ship the money home. Right now, U.S. companies have a vast corporate fortune (some estimates put it at $1.5 trillion) sitting in overseas tax havens to avoid the 35 percent tax bite waiting if the money comes home.

The Obama administration opposes any such tax break, saying there is no firm evidence it will create a lot of jobs. That's debatable, but it is certain an infusion of say $1 trillion into the economy will not cause job losses. I would go further and say we should junk the entire corporate tax on profits; possibly replacing it with a 1 percent to 2 percent tax on gross domestic revenue. With the present system some companies pay the max, others pay reduced rates for many reasons, and many more pay nothing. We should level the playing field for all.

Business — not government — is the engine of prosperity. We need to get over our resentment of the past corporate sins of a few and embrace expansion.


  • Discuss
  • Print

Comments » 3

Righty writes:

Good column, Mr. James. I learned something today.

wild_bill#233490 writes:

Good column. Many of the problems facing our country today could be reduced or eliminated if the economy got back to pre-Obama levels. Pre-Bush 43 wouldn't be bad either.

jesseusn#268752 writes:

Perhaps a bit of clarification would also be helpful. US companies do pay taxes on profits earned overseas, but the pile of cash I cited is technically owned by subsidiaries of US companies and is not taxed until it is repatriated to the US parent company. According to the Wall Street Journal, much of the money is actually in US bank accounts owned by the subsidiaries or in US Treasury securities.
