The Obama legacy of sluggish economic performance is a central issue for the Republicans. Democrats claim that the Republicans have nothing to offer. The GOP needs a positive policy menu; here it is, courtesy of the authors.
In this article we discuss five major economic policies.
• Fiscal policy: In a sluggish economy, cutting taxes will result in faster economic growth leading to higher demand for labor and rising federal-tax revenue. The best candidate for the chopping block is the U.S. corporate-income-tax rate which is the highest among the industrial nations. The federal statutory corporate tax is 35 percent, and adding the states’ taxes, it is 39.1 percent. To avoid the high tax, American companies park substantial portions of their foreign earnings abroad. However, reducing the corporate tax from 35 percent to, say, 15 percent would repatriate most of the $2 trillion U.S. corporate earnings invested abroad back to the U.S. and, consequently, give a huge boost to production and employment at home.
• Energy boom: Liberals persist in policies that would cripple the energy sector in the name of global warming. Emissions of CO2 originated in the U.S. are relatively small – in 2012 they amounted to only 16 percent of the total. Subsidies and mandates requiring American utilities and automobile drivers to use “clean” energy resources will contribute a rounding error to the reduction in global warming. Americans dislike the war waged by the Obama administration on coal and the Keystone XL pipeline. As an alternative to these inefficient policies, the federal government should allocate funds for research and development of clean energy.
Deregulating the traditional energy sector coupled to the new technologies of fracking and horizontal drilling will usher in an unprecedented economic boom. (Note: The resulting fall of energy prices in the global market will punish Vladimir Putin – a bonus to our foreign policy.)
• Replace Obamacare: To pass Obamacare, in order to cover the 14 percent uninsured, the president promised the 86 percent who were insured that they would be able to keep their plan and doctor. Also he promised that premiums will decrease by $2,500 – an assertion compared with which a Three Stooges comedy appears to be sober and realistic. The president promised, but he did not promise to keep his word.
One economically distortive provision of Obamacare mandates that companies insure any employee who works 30 hours a week or more or else pay a $2,000 fine. Consequently, the number of hourly employees working in excess of 29 hours a week has begun falling, and those working less than 30 hours a week has been rising. Another provision of the law exempts companies employing less than 50 workers from providing medical insurance to their employees. As a result, this provision inhibits the growth of small firms.
It is estimated that health spending by 2023 will gobble up one fifth of our economy compared with one sixth in 2013. To stimulate economic growth, Obamacare should be replaced. For starters the employer mandate should be rescinded.
• Raising the minimum wage: Raising the minimum wage is an old standby of the Democrats. The outcome of raising the minimum-wage rate is bifurcated: First, some low-skilled workers will earn higher wages; second, unemployment among other low-skilled workers – teenagers, women and minorities – will increase, leading to heavy welfare losses to these groups. Question: If raising the minimum wage to $10 would be so good, why not raise it to $20, and it would be twice as good? Let us not raise the minimum wage.
• Illegal immigration: In the short run, with the looming war against ISIS, border security takes precedence over economic issues. In the long run, economic issues should be the foundation of the GOP campaigns: Immigration (legal or illegal) of low-skilled labor is good for businesses (farmers, restaurants and hotel owners) who can find cheaper labor in the marketplace; it is bad for low-skilled documented workers who must compete with illegal immigrants. The GOP should favor immigration of high-skilled and educated persons since it enhances economic growth and benefits both businesses and labor.
In summary, Republicans need to present the voters with a positive policy on each of the most important economic issues.