The Vision Requirement
In a time of big crisis, America needs leadership and vision. We need something to believe in.
In a recent Time magazine article, Newt Gingrich, former Speaker of the House during the Clinton era and the father of modern partisan gridlock (he literally shut the government down in 1995 because President Clinton made he and Bob Dole sit at the back of Air Force One), set forth his idea for the future of America’s economy. After praising Citigroup as an “icon[] of U.S. economic power” and suggesting that President Obama’s stimulus package could lead to the next Nazi Germany, Gingrich wrote that “the only two relevant objectives are creating jobs and restoring financial institutions to functional stability.”
Towards these ends, Gingrich proposed a slew of new tax related plans, including a tax credit to offset 50% of the payroll tax, reducing the 25% marginal income tax rate to 15%, “cutting the business tax rate to 12.5 percent to match Ireland’s” and “abolishing capital gains taxes” — this, after President Obama just signed the American Recovery & Reinvestment Act which allocates $288.3 billion to tax cut-related provisions.
This was the new vision of Newt Gingrich for the Republicans’ future.
The reality, of course, is that Gingrich’s prescriptions are standard GOP fare. They’re also demonstrably wrong. The reason why abolishing capital gains taxes makes no sense is that it would primarily benefit the wealthy, while substantially increasing the deficit with no guaranteed correlative benefit.
And Gingrich’s business tax proposal is a supreme act of misdirection. Tax cut fiends like to point out that the U.S. has the second highest corporate tax rate in the world behind Japan. But that’s merely the nominal rate. There is a huge difference between the nominal rate and the effective rate. The effective rate is the amount of tax actually collected after the corporate taxpayer’s exploitation of the loopholes, shelters and other welfare. Gingrich won’t tell you that the effective corporate income tax rate in the U.S. is one of the lowest in the world. In 2004 for example, the U.S. was tied with Hungary in raising the fourth lowest amount of combined corporate income tax revenue relative to GDP. Fully two-thirds of corporations doing business in the United States pay zero income tax. Cutting tax rates for taxpayers that already do not pay taxes, will do exactly nothing to save our economy.
Most importantly, Gingrich’s tax cuts would do nothing to guarantee the creation of jobs. By itself, putting a little more money in people’s pockets fails to ensure that a single job is created or saved, because people and businesses will do whatever they please with the extra money and, in a crisis economy, that likely means keeping it on hand in case of further of emergencies. So there is a disconnect between Gingrich’s stated goal, and the means by which he believes we can get there.
At bottom, Gingrich’s reasoning suffers from the core fallacy of supply-side economics — the assumption that if we give more money to businesses they will automatically pass it on consumers or, alternatively, if we take money away from businesses they will automatically charge it to consumers. Both of these assumptions are false. The only fail-safe way for the government to create a job is, well, to create a job. Directly.
The subject of jobs, however, raises a larger question about Gingrich and others like him, because creating jobs is not just about putting Americans back to work. It’s also about implementing a vision – that is, doing the work America needs done. Does Gingrich have any ideas as to what America needs done? What change might be for the better in this country and how to make it happen?
What is Newt Gingrich’s affirmative vision for the country? It’s unclear. Even if Gingrich’s tax cut proposals would create some jobs, they have nothing to say about the kind of jobs that are created. In other words, Gingrich does not address what Americans should be put to work doing. Instead of shaping the future, Gingrich would merely invest in the status quo.
So what kind of leadership do we need? What is the work that America needs done? Perhaps the question is better phrased, What doesn’t America need done?
Take infrastructure. The American Society of Civil Engineers issued a 20o9 infrastructure report card recently, giving our national infrastructure a bleak cumulative ranking of D. “We really haven’t had the leadership or will to take action on it,” says Patrick Natale, the group’s executive director. “The bottom line is that a failing infrastructure cannot support a thriving economy.”
Roads, which were given a D-, are a good example. Americans spend 4.2 billion hours a year stuck in traffic at a cost to the economy of $78.2 billion, or $710 per motorist. Poor road conditions cost motorists $67 billion a year in repairs and operating costs, and cost 14,000 Americans their lives. One-third of America’s major roads are in poor or mediocre condition and 36% of major urban highways are congested. The current spending level of $70.3 billion per year for highway capital improvements is well below the estimated $186 billion needed annually to substantially improve the nation’s highways.
Or consider waste water, which was also given a D-. Aging systems discharge billions of gallons of untreated waste water into U.S. surface waters each year. The Environmental Protection Agency estimates that the nation must invest $390 billion over the next 20 years to update or replace existing systems and build new ones to meet increasing demand. Inland waterways, levees and drinking water were also given D-’s. The Report Card states, for example, that leaking pipes lose an estimated seven billion gallons of clean drinking water every day.
The Report concludes that “[d]eteriorating conditions and inflation have added hundreds of billions to the total cost of repairs and needed upgrades” to the nation’s infrastructure, bringing to total estimated cost to $2.2 trillion, up from $1.6 trillion in 2005. The top rated solution to the problem? Increase federal leadership in infrastructure. The report states:
Currently most infrastructure investment decisions are made without the benefit of a national vision. That strong national vision must originate with strong federal leadership and be shared by all levels of government and the private sector. Without a strong national vision, infrastructure will continue to deteriorate.
Signed into law on February 17, 2009, the American Recovery & Reinvestment Act begins to provide the strong vision on infrastructure that we need. Among other things, it invests in transportation, schools, modernizing electrical grids, dam repair, flood control, and bringing technology, communications and other basic infrastructure (like hospitals) to rural areas. But the most notable area of emphasis is President Obama’s alternative energy vision, which was deftly incorporated into a variety of provisions in the Act.
There are a number of tax-related incentives in the Act as well. But unlike Gingrich’s tax proposals, they are directed to specific kinds of activities that will help further larger vision for the country. For businesses these incentives include extending production tax credit for renewable energy facilities; allowing renewable facilities to claim investment tax credit instead of production tax credit; removing cap on investment tax credit for small wind property; allowing renewable energy producers to claim a 30 percent cash grant from the Treasury Department in lieu of the 30 percent investment tax credit; establishing a new 30 percent investment tax credit for manufacturers of advanced energy property, which may include technology for the production of renewable energy, energy storage, energy conservation, efficient transmission and distribution of electricity, and carbon capture and sequestration; and increasing tax credits for gas stations and other businesses that install non-hydrogen, alternative fuel pumps to 50 percent through 2010, for up to $50,000.
For individuals, incentive initiatives include increased financing for home weatherization; increased tax credits for purchases to make homes energy efficient, such as new furnaces or insulation, to 30 percent through 2010, for up to $1,500; increased tax credit for purchasing plug-in hybrid vehicles to $7,500; consumer rebates for energy-efficient appliance; and removal of dollar caps on the 30 percent residential credit for solar thermal, geothermal and small wind property.
These initiatives are a far cry from across-the-board tax cuts. They shape the future rather than deferring on it, emphasizing long-term goals, while providing a jolt of activity into a sagging economy. It is yet to be seen whether they will work and you may disagree with the spirit that animates them. But it cannot be reasonably disputed that this stimulus package provides both leadership and clear vision.
