Mitt Romney’s top economic advisers last week painted a clear portrait of the policy initiative the Republican presidential hopeful plans to use to restore robust growth to the U.S. economy. In a phrase: more tax breaks for business.
Writing in the Wall Street Journal, former Texas Sen. Phil Gramm, one of the leaders of the Tea Party movement, and Glenn Hubbard, a Columbia University business professor and top economic adviser to the Romney campaign, said the former Massachusetts governor, if elected, would enact the same policies as those enacted by President Ronald Reagan shortly after he took office in 1981. “Particularly powerful are (Romney’s) proposals to reduce marginal tax rates on business income earned by corporate and unincorporated businesses alike,” the two advisers wrote. “His goal, like Reagan’s, is to make it profitable to invest in job creation.”
The two advisers accused President Obama of failing to understand business when he said the president’s job is “not simply to maximize profits.” They said, “Jobs are sustainable only when profits are sustainable….The American economy was built on the profits earned by serving consumers, and it will only be saved by earning profits.”
Gramm and Hubbard make an obvious point. Businesses that fail to make money not only don’t hire new employees, they dismiss workers when revenues fall. Business profits plummet in recessions and payrolls follow shortly thereafter.
But to suggest that President Obama has somehow held back business profitability during what has been a tepid recovery from the Great Recession simply ignores what is taking place on corporate balance sheets. According to an analysis by Moody’s Analytics for The Fiscal Times, profitability in non-financial firms surged in recent quarters to 15 percent, a level not seen since the late 1960s.
The rating firm’s survey of the 1,100 non-financial companies it follows also found that they were sitting on cash hordes in excess of $1.24 trillion last December. Apple alone was sitting on nearly $100 billion. The entire corporate sector had over $2 trillion in cash. Alas, robust hiring has not followed in the wake of surging profits. “Giving more tax breaks to corporations that are awash in cash is not going to lead to anything,” said Joseph Stiglitz, a Nobel Prize-winning economist at Columbia University after serving as President Clinton’s chief economic adviser and top economist at the World Bank. “It’s a lack of demand that’s really impeding investment.”
Stiglitz is among the growing number of economists and business leaders who believe that lagging income, whether for people who already have jobs or those who are still un- or under-employed, has become the central problem facing the U.S. economy. Stagnant income explains why the rebound has failed to become self-sustaining, they say.