Obama's offer: What's next is critical

Our July 26 editorial chided President Obama for once again trying to rally support for his economic initiatives, but without offering any proposal to change the discussion in Washington in an effort to generate compromise on tax, spending and economic policy. Now the president has done so, and in a form the editorial suggested - by trying to find common ground with Republicans on tax reform and use it as a linchpin to achieve compromise on other policies.

In a visit to an Amazon distribution center in Chattanooga, Tenn. this week, President Obama proposed reducing the corporate tax rate to 28 percent from 35 percent. Without providing details, the president suggested the transition to a "simpler tax system" would also eliminate some of the loopholes and tax dodges that allow many corporations to pay far less than 35 percent.

Such a plan could initially generate billions of dollars in federal revenue as corporate dollars return home and companies pay a fee for profits they earned overseas while avoiding American tax rates. The president wants to see that money invested to repair and upgrade the nation's transportation infrastructure, a key component of his economic growth plan, and to provide job retraining, improve education and encourage the expansion of renewable energy sources, all sound policies.

This can go one of two ways. Republicans can utilize the opening to begin work on a budget deal and on the terms for raising the debt ceiling. The White House and Democrats, in turn, could take the approach that the corporate tax cut/economic investment gambit is a take it or leave it proposal. Or, more productively, Democrats could be open to discussion of comprehensive tax reform, such as envisioned by Sen. Max Baucus, D-Mont., chairman of the Senate Committee on Finance, and Rep. David Lee, R-Mich., chairman of the House Committee on Ways and Means.

Alternatively, party leaders could find excuses to block any deal, yet again turning attention to the next election, convinced winning the blame game will produce more congressional victories than political compromise.

But if it is the good of the country that Republicans and Democrats in Washington have in mind, the course of action is obvious - find a way to work together and avoid another showdown over spending and the debt ceiling.

Economic growth, which according to the Commerce Department has proceeded at a tepid pace of 2.2 percent annually since the recovery began in mid-2009, appears poised to accelerate. Fears of a second-quarter slowdown did not materialize.

Ford, Chrysler and Nissan each reported an 11 percent increase in sales for last month, a sign of continued strong auto sales. The number of Americans applying for unemployment benefits fell 19,000 last week to a seasonally adjusted 326,000, the fewest since January 2008, an indication of a strengthening job market. U.S. factory activity expanded in July at the fastest pace in two years.

In Connecticut the state added 500 payroll jobs in June, the fourth consecutive month of job additions, with 10,000 non-farm positions added since last June. According to the Department of Labor, Connecticut has recovered about half of the 121,000 jobs lost during the Great Recession.

Connecticut Comptroller Kevin Lembo on Thursday announced that the fiscal year that ended June 30 is expected to produce a $321 million surplus, allowing the state to begin rebuilding its Rainy Day Fund.

But what happens in Washington matters. If Republicans and Democrats there show an ability to govern, achieving compromise on fiscal and economic policy, the recovery will almost certainly accelerate. Conversely, a government shutdown or default tied to a refusal to raise the debt ceiling could cause serious economic damage.

Given recent history, it's difficult to be optimistic.

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