Economic Stimulus? Consider These Strategies

By January 8, 2008Economy, Taxation

Today’s New York Times has a story on President Bush’s economic assessment in Chicago. In recent days, the President has suggested that a stimulus package might be needed to counteract disconcerting economic indicators. Some Democrats also are talking stimulus. According to the Times, Speaker Pelosi has met with advisors to develop her own stimulus plan before the State of the Union at the end of this month. If policymakers are looking at stimulating the economy, we have a few suggestions:

1.) First, let’s start with what we know works: Reinstate a retroactive and strengthened, multi-year extension of the R&D Tax Credit. Despite bipartisan support for this proven incentive, Congress last year failed to pass legislation to extend the tax credit before it expired December 31st. This is a jobs issue — more than 75 percent of the the credit dollars are used for salaries of employees engaged in R&D. If Congress and the President are serious about keeping unemployment numbers low, then they’ll immediately reinstate and strengthen this pro-growth credit.

2.) Get serious about lowering the corporate tax rate. Paulson’s recommended it, Rangel’s in favor of it, and countries around the world are doing it. (Tax Foundation backgrounder.) Major U.S. trading partners, including Germany, France and Spain all recently have cut theirs and the United States is on its way to having the highest corporate tax rate in the OECD. If you want to grow business in the United States — and attract new investment — cutting the corporate rate is a great start. (Tax )

3.) Permanently repeal the death tax. The estate tax rate is phased down again in 2009, it’s repealed in 2010 and then the rate goes back up to 55 percent in 2011. Can you say planning nightmare? Our small- and medium-sized manufacturers report paying an average $90,000 a year in planning costs alone for this tax. Permanently repealing the tax will provide certainty and free up a lot of cash for expanding businesses and growing jobs.

And, one more note to policymakers: A stimulus is not a stimulus if it includes tax increases. In the last session of Congress, legislators proposed a number of ill-advised, anti-growth tax increases that would cost manufacturers billions of dollars and make it even more difficult for them to weather economic storms.

Dorothy Coleman is vice president of tax and domestic economic policy at the National Association of Manufacturers.

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