July 26, 2014 SIGN IN | REGISTER

Obama Can Do a ‘Nixon Goes to China’ on Jobs

But he makes a good case for trying tax cuts to see if they might have better results than Obama’s stimulus, which was sold on the basis that it would hold unemployment below 8 percent, whereas it’s now almost 10 percent.

Mankiw cites several academic studies — including one by Obama’s own chief economist, Christina Romer (written before she went to work for Obama), showing that tax cuts have a bigger growth “multiplier” effect than government spending.

That is, each dollar of tax cuts — particularly business and income tax cuts — produces (depending on the study) from $3 to $5 in economic growth, up to four times the effect of increases in government spending.

In a Nixon-goes-to-China move, Obama could adopt some of the recommendations made by the U.S. Chamber of Commerce last week at its Jobs for America Summit.

(Disclosure: I was paid to moderate a bipartisan Congressional panel at the conference.)

An “open letter” to Obama and Congress issued in conjunction with the conference asserted that “our precariously weak economy — and especially our all-important small business sector — simply cannot sustain [the] massive tax hikes” that automatic expiration of the Bush tax cuts will impose next year.

In 2011, the top individual income tax rate is scheduled to jump from its present 35 percent to 39.6 percent — and to nearly 45 percent including new Medicare taxes passed as part of Obama’s health care plan. Adding state taxes will put the rate above 50 percent.

Obama and Congressional Democrats intend to extend the Bush tax cuts for all Americans making under $250,000 a year — adding $2.3 trillion to the deficit over 10 years. Extending them for everyone would add another $700 billion.

The chamber letter called for “at least a temporary extension of all the tax relief passed in the prior decade,” plus reduction of corporate taxes.

Sen. Evan Bayh (D-Ind.) has endorsed a full extension of the Bush cuts. Sen. Ron Wyden (D-Ore.) has recommended a temporary extension in hopes it will impel work on tax reform as part of debt control.

What are the chances that Obama could “go to China”? Liberals will howl that he’s buying “voodoo economics,” going over to the “supply side” and benefiting the rich.

Supply-sider Rep. Paul Ryan (R-Wis.), the ranking member on the Budget Committee, told me that Republicans have quietly offered to help Democrats pass a two-year extension of the Bush cuts. “There are no bites,” he said. “The problem for them is that they would have to concede that lower top tax rates are good for growth.”

But it’s worth a try. And what’s better — ideological purity or a fast reduction in the jobless rate?

Correction: My column last week erroneously stated that the Congressional Budget Office in May increased its estimate of the cost of implementing the new health care law by $115 billion. I regret the error.

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