Business

PETER CRABB: Economists say two things could stimulate economy

Irish playwright George Bernard Shaw once said, “If all economists were laid end to end, they would not reach a conclusion.”

Economists are once again arguing vehemently about what the government should do about the weak economy.

President Obama introduced a plan Sept. 8 that is being attacked as too little from one side and too much from the other.

Things may have been worse without it, but there is not much evidence that the even larger 2009 stimulus plan helped the economy.

As Bill Roberts and Audrey Dutton reported recently in the Idaho Statesman, Obama’s new plan is unlikely to get Idaho businesses hiring. Like companies across the country, these firms say weak product demand is stifling new hires.

Something else needs to be done.

Rather than the controversial tax-cut extensions and extended unemployment benefits of the president’s plan, there are two policy changes economists would generally accept — fewer barriers to trade and lower corporate taxes.

One of the most widely accepted premises in economics is that trade makes everyone better off. In a 2006 survey of economists, more than 87 percent agreed that the United States should eliminate tariffs and other barriers to trade.

A higher level of trade between countries increases investment and economic growth for everyone.

The first action the federal government should take right now is ratification of the long pending free-trade agreements with Colombia, Panama and South Korea. Further, restarting the stalled World Trade Organization talks would benefit many countries.

Economists also generally agree that corporate taxes are not entirely paid by corporations. Corporations generally pass along whatever taxes they may incur in the form of higher prices to consumers and lower employee wages.

A drop in the corporate tax rate is likely to be more effective at increasing investment and hiring than any extension of payroll tax cuts or investment credits. Policymakers could agree to lower the overall corporate rate in exchange for eliminating the vast number of industry exemptions.

A cut in the corporate tax rate is also not likely to increase the budget deficit much. As of 2009, corporate income taxes accounted for only 7 percent of total federal receipts, compared to more than 43 percent from individual income taxes.

What works for the federal government is also good for Idaho. The state can enact similar positive policies for economic growth.

First, the state government can encourage more trade in goods and services. The Idaho Department of Commerce, for example, could employ more trade specialists to help Idaho companies export products and expand market share.

More international trade offices could also help. Idaho currently has trade offices only in Taiwan, Mexico and China. There are many more places Idaho companies are looking to sell their products.

Second, Idaho policymakers should consider lowering corporate taxes in exchange for fewer exemptions. At 7.6 percent, Idaho’s corporate income tax ranks among the highest in the nation. The neighboring states of Nevada and Washington have no corporate income tax.

Economists may not agree on much, but federal and state lawmakers should be quick to heed the policies on which we do.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. Contact him at prcrabb@nnu.edu.

  Comments