Growth, growth, growth is the new mantra of the venerable Business Roundtable, whose member companies generate annual revenues of more than $7 trillion while employing 16 million workers. In past years, the BRT has put out lengthy pamphlets proposing intricate solutions for budgets, entitlements, the environment, regulations, health care, and more. But this year, the BRT has gone back to basic economic blocking and tackling by bluntly saying, “If we want to control the deficit, preserve key entitlement programs, educate our children, and offer upward economic mobility for everyone, we have to get our economy growing faster.”
Sounds like JFK. Or Ronald Reagan. Or Jack Kemp. A rising tide lifts all boats.
This was spelled out in a Wall Street Journal op-ed by Randall Stephenson, chairman and CEO of AT&T and the new head of the Business Roundtable. When I interviewed Stephenson this past week, he talked about the need for fiscal stability, tax reform, expanded trade, and immigration reform. But he zeroed in on this key point: “And make no mistake, economic growth doesn’t happen absent private investment. . . . Where there is investment — a new factory, or distribution facility being built, a new store about to open, new software being installed — that is where new jobs are created.”
Stephenson says that in today’s recovery — the slowest in the modern era going back to 1947 — private capital investment has lagged badly. Not coincidentally, so has the jobs situation, with 92 million dropping out of the workforce altogether. A labor-participation rate of 62.8 percent and an employment-to-population rate of 58 percent are historic lows indicative of the anemic jobs recovery.
And I might add, with all these people not working, it’s not unfair to suggest an unprecedented demoralization inside the U.S. economy.
Sure, you can find great exceptions to this. There’s the energy boom, the rise in social media, and advances in biotechnology. But the overall jobs picture is bleak. And that has a lot to do with the absence of private capital investment. In fact, long-term capital investment is probably the single-most powerful jobs creator. And these days we’re not getting much of it. This investment cycle is the worst since World War II.
Stephenson is pleased that the Murray-Ryan budget deal will avoid a government shutdown, thereby offering some fiscal predictability. But what he and the Business Roundtable are aiming at is the total reform of the American business tax structure, where marginal rates are the highest among developed countries. He also emphasizes the need to remove barriers to bringing overseas earnings back home.
Stephenson cites a study that shows a 1-percentage-point decrease in the average corporate tax rate would raise real U.S. GDP by about 0.5 percent within one year. And he concludes that “Any serious agenda for economic growth must begin with reforming taxes for all businesses — large and small.”
And somebody should look at Boston University professor Laurence Kotlikoff’s proposal to abolish the corporate tax altogether. According to his model, while overall growth and investment would surge, higher wages would be the biggest beneficiary.
Trouble is, as I pointed out to Stephenson, President Obama is talking about inequality and income redistribution, not growth.
Instead of unleashing entrepreneurship, Obama harps on raising the minimum wage and extending unemployment assistance. Of course, increased investment that doubles the rate of job creation would make minimum-wage and unemployment-benefit discussions unnecessary.
Obama would also penalize corporations that hold profits overseas rather than lower penalties so this money would come home for private investment.