In the name of helping the middle class, President Barack Obama this week proposed slashing corporate tax rates from 35 percent to 25 percent for manufacturers and to 28 percent for all others — provided, that is, that any tax windfall from his plan be spent on government.
The anticipated one-time tax windfall would come from tightening loopholes and encouraging corporations to repatriate profits earned abroad. President Obama wants to spend it on teachers, other public service jobs, and infrastructure.
Never mind the indifferent results already seen in his 2009 “stimulus” program that largely failed to stimulate anything but government jobs — and hardly any of the “shovel-ready jobs” the president promised.
Aside from the critical question of how the president proposes to lift the middle class by favoring government over the private sector, it is worth noting that most new jobs in the American economy, including ones with middle-class incomes, are created by small businesses.
The income of many successful small businesses is taxed at the individual income rate, not the corporate rate. And for these businesses Mr. Obama shows no inclination to change his goal, now achieved, of raising income taxes on higher income Americans from 35 percent to 39.5 percent and raising taxes on capital gains and stock dividends as he seeks higher revenue to support his spending plans.
So the president’s tax program would give breaks to large businesses but penalize small businesses that are already laboring under an unfavorable government climate.
A recent article in the Financial Times reports that the number of new small businesses in the United States has declined annually even as the economy recovers from the 2008 recession. Start-up businesses now make up only 8 percent of all U.S. businesses, down from 13 percent in the 1980s.
Meanwhile, lending to small businesses last year was only 80 percent of the level reached before the recession — in part because of the burdensome regulatory climate.
The red tape that comes with the tax code and government regulations imposes a larger proportional load on small businesses than it does on big corporations, which can afford to hire lots of lawyers and accountants.
The big players can also better afford myriad lobbyists to look after their interests in Congress and in dealing with the bureaucracy.
Reducing corporate income tax rates is a good idea.
But so is easing government’s burdens on small business.
And expanding government, which is already consuming a dangerously high amount of America’s GDP, is a bad idea.
The president, if he is serious about promoting more jobs and improving conditions for the middle class, should address the obstacles to the growth of the small business sector.
After all, the road to a lasting, job-producing economic recovery lies on Main Street — not Wall Street.
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