Stimulate the Weak Economy by Cutting Corporate Taxes

Romina Boccia /

This week’s disappointing news on the progress of the economic recovery has some Democrats and their allies yearning for more fiscal “stimulus.” But continuing the failed policies of the recent past would be the wrong response. Instead, Congress and the President should pursue fiscal policies that stimulate the engines of economic recovery and growth.

The rise in the May unemployment rate coupled with Federal Reserve Chairman Ben Bernanke’s statement on the weak economic recovery is fueling liberal cries for more federal spending. The New York Times reports:

Recent signs that the economic recovery is flagging have introduced a new tension into the bipartisan budget negotiations, giving rise to calls especially from liberals to limit the size of immediate spending cuts or even to provide an additional fiscal stimulus.

President Obama is riding this liberal spending bandwagon, declaring at Tuesday’s press conference with German Chancellor Angela Merkel that his trump card for avoiding a double-dip recession is to continue existing policies:

One of the things that I’m going to be interested in exploring with the members of both parties in Congress is how do we continue some of these policies to make sure we get this recovery up and running in a robust way.

While a double-dip recession doesn’t seem likely, what is much more concerning is the President’s announcement that instead of pursuing real recovery and growth policies, he would rather continue the failed stimulus policies of the recent past. The President’s position is especially troubling as the direness of America’s fiscal state and its gloomy prospects call for strong leadership to tackle the out-of-control deficit and debt.

Heritage fiscal policy expert J.D. Foster explains what Congress and the President could do instead to stimulate the economy toward faster growth in the recession’s aftermath:

They can do so by improving incentives to produce and to work: for example, by reducing regulations and tax distortions. They can do so by reducing the uncertainties surrounding future policy. They can do so by expanding foreign markets for domestic goods and services. Recent efforts to stimulate the economy have been unsuccessful because they did little or none of these things. Regulations have increased. Uncertainty has increased. Tax distortions have been left in place or even increased in some areas. And efforts toward free trade have been anemic, at best.

One example would be cutting the corporate income tax rate from its uncompetitive high of 35 percent down to 25 percent. This would provide entrepreneurs with much-needed incentives and certainty to expand and grow their businesses and hire more workers. As the Heritage Center for Data Analysis estimated, the number of jobs in the U.S. would grow by an average of 581,000 annually over the next decade given a 25 percent corporate income tax rate.

The ailing economy should signal to Congress and the President that it is high time to change course and to pursue those fiscal policies that in fact spur economic and job growth.