U.S. Sen. Bob Corker, R-Tenn., made a good point recently about proposed regulation of the banking industry. He noted that uncertainty about what future regulations may be imposed by Congress is discouraging investment, restricting credit and harming the American economy.
Sen. Corker is working with Republicans and Democrats alike to come up with reforms that would stabilize the financial industry without offering further bailouts to banks that perform poorly or irresponsibly. He is emphasizing that there needs to be some durability to whatever rules are ultimately established, because the industry is naturally “hunkering down” until it knows the regulations under which it will be operating.
“Just the fact that financial institutions are unsure what the ground rules are going to be in the future has a stifling effect on credit,” he told reporters. “If we can establish the ground rules, put this behind us and do something that will stand the test of time, that would be good for the economy of Tennessee and the economy of our country.”
The same principle holds for tax policy. President Barack Obama wants to reverse some of the Bush-era tax cuts — meaning he wants to raise taxes on some Americans — while offering some businesses a patchwork of tax credits. It is not yet known what Congress will do with his proposals. But what is crystal clear is that uncertainty about what tax rates may be in the near future will discourage the investment our economy needs right now.
If, for instance, a business thinks the taxes it pays on future revenue are going to rise, it will be less likely to expand, since it will realize less income on its investment.
Instead of promising a confusing combination of tax increases and tax relief, the president ought to ask Congress to retain the Bush tax cuts for all Americans who pay taxes. That would give businesses and individuals the confidence to invest in creating the jobs that would both grow tax revenue and reduce the horrible unemployment rate.
The problem is not that tax rates are “too low” but that Washington spending is far too high. Punishing taxpayers for Washington’s wild spending is no solution to our economic problems.