Steve & Cokie Roberts: Taxes and trade are the test

Published 7:22 pm Wednesday, November 19, 2014

The economic news from abroad is not good. Japan has plunged into a recession and Europe could soon follow. America’s performance — 3.5 percent annual growth, 5.8 percent unemployment rate — looks positively robust by comparison.

But the U.S. cannot escape the downdraft of foreign failures. “The United States is about the only growth beacon in the global economy right now,” economist Jacob Funk Kirkegaard of the Peterson Institute told The New York Times, “and that is not a very nice place to be.”

In the face of this threat, there are two areas where Congress and the president can act quickly to shore up the country’s economic defenses. One is reforming the corporate tax code. The other is promoting the international trade pacts now being negotiated with Asia and Europe.

The outlook is hardly optimistic. Republican leaders in the House have buried a bipartisan immigration measure. President Obama has lost patience and promises to reform by executive order.

Republican leaders say unilateral action will “poison the well” on Capitol Hill and undermine cooperation on other issues. Their prediction is probably right, but their predilection is definitely wrong. That should not happen. The national interest is too important. The threat to our economic recovery is too great.

As the president told a press conference in Myanmar last week: “The one thing that I think is going to be important to have a successful partnership over the next couple years is not making disagreements on a single issue suddenly a deal-breaker on every issue.”

Any effort at a “successful partnership” could start with corporate taxes, an area of broad bipartisan agreement. As The New York Times put it, “The tax system for American corporations is, by all accounts, a mess. It places higher tax rates on businesses than most other advanced nations, yet raises less revenue relative to the economy thanks to a byzantine set of carve-outs and special deductions.”

That corporate rate, 35 percent, encourages businesses to move overseas and protect their profits from U.S. tax collectors; more than $2 trillion is stashed abroad, according to independent research firm Capital Economics. Moreover, those “byzantine carve-outs” create inefficiencies and strangle growth.

“The American dream is disappearing before our very eyes — not because people don’t work hard. It’s because of the way we’ve structured the system,” Michael Porter of the Harvard Business School told The Washington Post. “The jobs that are a path to the American dream are few and far between. And that’s because of high corporate taxes.”

Sen. Rob Portman, an Ohio Republican, insists that “we have an amazing degree of consensus about what to do” across party lines: Reduce the 35 percent rate by about one-third; minimize the “special deductions;” bring home the $2 trillion.

A similar, if slightly shakier, consensus exists on trade. Organized labor, still a key democratic constituency, hates trade deals. And Sen. Harry Reid, the Democratic leader, has cravenly caved to their demands. But now that Republicans have captured the Senate and Reid will no longer control the Senate calendar, “no policy area is riper for bipartisan action than trade,” notes the Post.

Obama pushed hard for a trade deal during his recent Asian trip, but he admits that many Americans don’t see the value of foreign commerce. “We … have to make sure that all of our people back home understand the benefits for them,” he said in China, “that it means more trade, more good jobs and higher incomes for people throughout the region.”

The first task is to pass “fast track,” a law requiring an up-or-down vote with no amendments on any trade pact. Without that, deals are much harder to negotiate in the first place, and much harder to get through Congress once a bargain is struck.

Both sides want a showdown over immigration. Democrats relish the chance to solidify their hold on Hispanic and Asian voters, who backed Obama strongly in 2012 but wavered this year. Republicans are eager to brand the president as a lawbreaker who ignores the Constitution for political purposes.

The toxic fallout from that confrontation seems inevitable. But it doesn’t have to poison every well or every relationship. There’s still time and space for a “successful partnership” over the next two years.

None of this will be easy, or even likely. Unions still fiercely despise trade deals; businesses will fiercely defend their “special deductions.” But a partnership is what the voters want and what the country needs.

Taxes and trade are the test.

Steve and Cokie Roberts can be contacted by email at