Smith: Grand Bargain: Campaign promise or inadequate cut in taxes

Smith: Grand Bargain: Campaign promise or inadequate cut in taxes

August 12th, 2013 By Robin Smith in Opinion Columns

Robin Smith

Photo by Contributed Photo/Times Free Press.

Events in politics don't occur in isolation. There are always strings attached.

The announcement of the "Grand Bargain for Middle Class Jobs" captured headlines late last month as President Obama visited Chattanooga.

But what exactly is in this expansive offer?

The most notable of terms included a reduction of America's corporate tax rate from the current 35 percent to 28 percent, with a further reduction to 25 percent for corporations involved in manufacturing.

These actions would increase our GDP by more than 2 percent with increasing wages by "nearly as much" and a boost in capital investment "by more than 6 percent" according to the nonpartisan Tax Foundation.

In the global arena of commerce and competition, other nations have the advantage and draw business and jobs away from the United States on this front.

According to Deloitte's listing of 2013 corporate tax rates, China taxes corporations at 25 percent, Canada at 15 percent, Mexico at 30 percent, Germany at 15 percent, Taiwan at 17 percent, Israel at 25 percent, South Korea at 22 percent and Japan at 25 percent.

What nations have higher corporate tax rates than the 35 percent? Angola, Cameroon, and Guyana.

But "85 percent of all new jobs" come from small companies, as reported by Investors Business Daily, and are taxed, not at the corporate rate, but the individual tax rate of up to 44 percent. IBD notes that the "bargain" will not benefit the true engine of our economy, small businesses.

The other issue that made this grand bargain more of a campaign promise was in the president's request to spend more money on stimulus projects.

Remember the $825 billion spent by government to "stimulate" the economy through the American Recovery and Reinvestment Act, signed into law on February 17, 2009.

What was the real impact of this spending on the need for jobs?

According to the Bureau of Labor Statistics, unemployment was at a "low" of 7.8 percent in January 2009, reaching a high of 10 percent in October of that year and not returning to that baseline of 7.8 percent until September 2012.

Stimulus spending did not create jobs. Stimulus spending did not improve America's economic standing.

Finally, Obama spoke of job training in his Chattanooga "grand bargain" remarks, noting the need to compete globally -- "with robust training and assistance measures ... we're going to have to sharpen our competitive edge."

The federal government has 47 job training programs. Legislation passed the U.S. House in March 2013 that would combine 35 of these programs, eliminating redundancy. And according to the legislation's sponsor, Rep. Virginia Foxx, R-N.C., the bill would "strengthen the role of state and local officials and job creators, allowing them to tailor programs to best fit their area's needs and job opportunities" by facilitating "greater collaboration with community colleges."

That sounds a lot like the path cut for success in Tennessee in business recruitment and expansion.

Ironically, the bipartisan companion legislation to this job training proposal passed the Senate Health, Education, Labor, and Pensions committee on July 31, the very next day after the President's grand bargain announcement.

The grand bargain is a real possibility if the individual tax rate is included to benefit small businesses and the 47 job training programs are effectively consolidated to produce results and state control.

But is the Grand Bargain only a campaign promise or is there an authentic desire to make a positive legislative effort to create jobs? The writer Ralph Waldo Emerson's is likely correct on this: "All promise outruns performance."

Robin Smith served as chairwoman of the Tennessee Republican Party from 2007 to 2009. She is a partner at the SmithWaterhouse Strategies business development and strategic planning firm.