Posted on 04/01/2004 2:55:50 PM PST by MegaSilver
In his opening efforts at developing an economic policy, John Kerry is all fiddle and not much thrust
THE partisan eruptions over the testimony given by Richard Clarke before the commission investigating September 11th may have given the impression that the presidential contest is going to be fought chiefly over foreign-policy matters, particularly George Bush's record in Iraq and on the war on terror. Yet this week, the ground shifted quietly back to the domestic issues of jobs, taxes and the economy that may, in the end, prove to be what the election will actually be all about.
On April 2nd, the latest employment report is due out. Recent monthly reports have recounted a truly dismal pace of job creation for so robust an economic recovery, and opinion polls affirm that this is by far President Bush's weakest point. In the days leading up to the report, Mr Bush defended his economic record, and his tax cuts in particular, while he and his lieutenants attacked the “tax-raising” record of Senator John Kerry, the presumptive Democratic candidate.
On March 26th, Mr Kerry delivered what he hoped would be seen as the most definitive economic speech of his candidacy thus far, the chief part of which is a “plan” to create 10m jobs during his first term. A few days later, he moved on to energy policy. More utterances on the economy are expected over the next few weeks. How is Mr Kerry's vision, such as it is, stacking up?
The symbolism of his jobs speech was not hard to miss. For his venue, Mr Kerry chose Detroit, where Bill Clinton, 12 years earlier, memorably steered the Democratic Party away from its disastrous old obsessions with class and redistribution, and laid out a creed that became known as “Clintonomics”: a mix of fiscal discipline, a limited but responsive government, and an economic populism that stressed jobs and growth over class war.
Mr Clinton's chief speechwriter in 1992, David Kusnet, now at the Economic Policy Institute in Washington, DC, points to the parallels in the way Mr Kerry has laid out his goods. Where Mr Clinton promised to “put people first”, Mr Kerry promises to “put jobs first”. Both men remember Franklin Roosevelt's call for “bold, persistent experimentation” on the part of government. And Mr Kerry, like Mr Clinton before him, pointedly seeks the centre ground—in this case by proposing a cut in the rate of tax that most American companies pay.
“Some may be surprised to hear a Democrat calling for lower corporate tax rates,” said Mr Kerry in Detroit. “The fact is, I don't care about the old debates. I care about getting the job done and creating jobs in America.” Such centrism, Mr Kusnet contends, covers Mr Kerry's fire as he attempts to narrow the tax debate with Republicans down to the least publicly defensible of Mr Bush's tax cuts: those on inheritance, dividends and capital gains that benefit the filthy rich.
The politics of the proposals certainly seem canny. For Mr Kerry addresses full-square the widespread perception, albeit a false one, that jobs outsourced overseas are at the root of America's “jobless recovery”. His answer is to end the preferential tax treatment of overseas earnings that at the margin encourages American companies to base production overseas rather than at home. And with the money thus saved, he will be able to cut the corporate-tax rate on the great bulk of American companies, from 35% to 33.25%. Cutting company taxes: not even Mr Bush has dared do that. Mr Kerry has stolen some Republican ground.
An accountant's dream
America's corporate tax system is certainly ripe for attention. America not only taxes its companies at a relatively high rate, it also, unlike other countries, taxes them on their worldwide operations. This puts American firms at a disadvantage overseas compared with lower-taxed competitors. So in order to help them, Congress over the years has legislated to allow American companies to put off paying taxes on overseas profits until these are actually brought home. Thus, a big pool of money—more than $600 billion, some say—sits abroad.
Mr Kerry proposes to bring that money home, by offering a one-year moratorium (another Republican idea) during which companies that repatriate profits pay only a 10% tax on money that is reinvested at home. Thereafter, tax on profits overseas must be paid immediately. The scheme, it is reckoned, will raise an extra $12 billion a year. The money will be spent lowering the overall corporate tax rate, as well as providing a tax credit to companies that take on new workers in industries, both in manufacturing and services, that are losing jobs to outsourcing.
This is the nub of Mr Kerry's vision, and it aims to play well in swing industrial states, such as Michigan, Pennsylvania and Ohio, that have been losing jobs. But is it really clever for the economy as a whole?
This newspaper has advocated getting rid of corporate taxation altogether (on the grounds that it is easy to evade, inefficient and bad for growth—and thus jobs). That, admittedly, would be a big step for a Democrat. All the same, the Kerry plan looks dangerously complicated and dirigiste—no small thing when the Republicans spend half their time claiming he is really French.
By offering tax credits at home to selected industries, he is asking bureaucrats to judge which industries to back. Even if you think this is a good thing, it will be fiendishly difficult to administer. How on earth can you measure, in the general fog of job creation and destruction, which industries are seeing jobs outsourced? And how do you discriminate between an overseas subsidiary producing for local consumption (which is still eligible for tax deferrals under the Kerry plan) and one producing for export (which is not)?
In the end Mr Kerry is simply tinkering with an already fiendishly complex tax code. His utterances this week on high oil prices—hastily wrapped up as a “policy”—had the same sort of opportunism about them. He promised somehow to put pressure on oil-exporting nations to increase output. He called for the impossible goal of energy independence for America. And he criticised Mr Bush for continuing to add to the country's Strategic Petroleum Reserve, even though such purchases have only a marginal impact on oil prices.
Admittedly, that can scarcely be worse than the White House's energy policy, which consists mainly of blaming the Democrats for blocking a pork-laden energy bill. Yet absent, still, from Mr Kerry's economic thinking is any sense of an overarching, unifying theme. The candidate's backers promise that, over the coming weeks, with more economic utterances, such a theme will somehow emerge. For now, though, Mr Kerry is no Bill Clinton.
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I think his policy is in the incubator on life support. They are trying to resusitate it along with Kerry's campaign and his shoulder.
Old debates?? After 30 years of fighting to raise taxes, in one week Kerry goes from tax-raiser to tax-cutter and he dismisses the flip-flop by saying that's "old debate", meaning he is not permitting anyone to comment on his implicit admission that he has been wrong for thirty years. Arrogance.
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