State of the Union: Incestuous Business Partnerships and Forced State Partnerships

Following President Obama's State of the Union address earlier this week, Senator Marco Rubio and Senator Rand Paul gave Republican and Tea Party rebuttals respectively. Both of them spoke on important points like outrageous spending, high taxes, and the need for choice in education. Senator Paul rightly highlighted both the GOP's complicity in big spending and the President's wrong stances on civil liberties and foreign policy while Senator Rubio barely touched these issues. However,there were two very big issues that the two Senators either insufficiently discussed or did not discuss at all--corporatism and federalism.

True to form, during his State of the Union address, President Obama railed against corporate tax loopholes and deductions for the well connected, proving later in his speech that this was only talk. As Veronique de Rugy noted at the National Review, President Obama later called for special incentives and tax breaks for certain industries and sectors of his own choosing--manufacturing, clean energy, infrastructure and construction, housing, science and innovation, and education suppliers among others. Sadly, as Tim Carney at the Washington Examiner notes, neither Senator challenged the President on this sufficiently nor offered alternative solutions:

But Rubio didn't make a full-throated case for free-market populism. Like Obama, he relied on his party's well-thumbed playbook: He pinned the housing bubble on government, and took another shot at the failed green-energy subsidy-suckler, Solyndra. Then he called vaguely for shrinking government. 

Rubio could have, instead, offered some real free-market populist ideas. To cut the deficit, for instance, he could have proposed ending specific corporate-welfare programs. He could have made it clear he wants to cut subsidies to both Big Oil and Big Green. And why not offer something tangible to the average family, like cutting the payroll tax? 

Rand Paul, giving the Tea Party response, hit the right notes a bit stronger. Paul tapped into the near-universal understanding that politics is a rigged game when he assailed "backroom deals in which everyone up here wins, but every taxpayer loses." 

Paul said, "We must continue to object when Congress sticks special interest riders on bills in the dead of night." 

Again, Paul's economic proposals were typical GOP fare: a balanced-budget, for instance. He never gave bolder proposals -- say, breaking up big banks to protect taxpayers from bailouts.

Perhaps one of those two Senators could have said something like this:

[W]e can and we will make America the most attractive country on earth to do business in. Here’s how we’re going to do this. Right now, we have the highest federal corporate income tax rate in the industrialized world. Did you know our rates are higher than China and communist Cuba? This doesn’t generate as much revenue as you would think, though, because many big corporations skirt federal taxes because they have the friends in D.C. who right the rules for the rest of us. This makes us less competitive and restrains our engine of prosperity. Heck, some businesses spend more time trying to figure out how to hide their profits than they do in generating more profits so that they can expand and hire more of us. So, to make America the most attractive and competitive place to do business, to set up shop here and hire people here, to attract capital from all over the globe that will lead to an explosion of growth, instead of chasing industry offshore, I propose to eliminate all federal corporate income tax. And hear me out on this. This is how we create millions of high-paying jobs. This is how we increase opportunity and prosperity for all. 

But here’s the best part: To balance out any loss of federal revenue from this tax cut, we eliminate corporate welfare and all the loopholes and we eliminate bailouts. This is how we break the back of crony capitalism because it feeds off corporate welfare, which is just socialism for the very rich. We can change all of that. The message then to job-creating corporations is: We’ll unshackle you from the world’s highest federal corporate income tax rate, but you will stand or fall on your own, just like all the rest of us out on main street.

This idea, proposed by Governor Sarah Palin in September of 2011, would prevent the selection of winners and losers and the "private-public partnership" touted by President Obama that only puts business in bed with government. Since this proposal eliminates corporate taxes, it would also provide push back to the President's continual false claim that tax breaks are given to companies who ship jobs overseas. This is claim President Obama made in his 2011 and 2012 State of the Union addresses, and it is false. As I wrote nearly a year ago :

 What President Obama calls a “tax break for outsourcing” is really no tax break at all. America has the highest corporate tax in the world. America's corporate tax rate is nearly three times that of the financially flailing Greece. Companies are not given a tax credit or subsidy specifically for outsourcing, but by outsourcing, their costs become lower as often the regulatory burden is smaller as are other costs. Additionally, American companies who have foreign subsidiaries pay taxes both to that foreign country and the US, and these companies pay taxes if those profits are repatriated.  

 As the Cato Institute notes “corporate income taxes are the most distortive, and hence the most harmful for economic growth.” Making America’s corporate tax rates competitive with the rest of the world will help drive jobs back to America, but the Obama administration has it backwards by suggesting the corporate tax reduction should follow companies “insourcing” jobs. Even in spite of the fact that President Obama’s deficit reduction commission proposed corporate tax reductions and that he himself discussed reductions in his 2011 State of the Union address, he has not made any concerted effort to reduce the corporate tax. In fact, his administration has even recently spoken of levying a “global minimum tax” to prevent American companies from “escaping doing their fair share” by outsourcing.

President Obama likes to play good cop to Big Business's bad cop--criticizing them in speeches only to give them special tax incentives and tax breaks. From a policy perspective, eliminating special tax breaks and at least lowering corporate taxes will allow businesses to create jobs and protect taxpayers from paying for special breaks to the President's cronies. From a political perspective, it means that the alternative concrete solutions are being offered, not just criticism of the opposing party.

In addition to discussing "private-public" partnerships, President Obama focused on state-federal "partnerships". In particular, states with the best "clean energy" proposal will get federal support and the federal government will work with states on providing Pre-K education. Senator Rubio mentioned briefly that states should have a role in Medicare, but neither Senator pushed back against the President's plans to push a federal government plan that would likely be an unfunded mandate for states. Maybe that is because it takes a governor to truly understand how the federal government stomps on federalism. Following the President's speech, Governor Sarah Palin tweeted:

Most things Obama talked about are handled better on the individual, local & state level. Growing our bankrupt fed govt is NOT the answer.
— Sarah Palin (@SarahPalinUSA) February 13, 2013

She would know. In 2009, President Obama signed into law the "stimulus" package, which Governor Palin fought against by vetoing large portions of the stimulus funding allocated to Alaska. She noted that such a plan didn't have strings attached to it--it had "debt-building, binding, controlling ropes" attached to it. Governors today are seeing the same thing with Obamacare. Many Republican governors have rejected state run Obamacare exchanges in part because, although federal dollars are allocated to setup the exchanges, states are required to fund the exchange beginning in 2015. Accepting the exchange turns into an unfunded mandate.

This is not to say that the federal government has no relationship to state government. One of the main reasons the Constitution succeeded where the Articles of Confederation failed in our nation's founding was because the federal government's role was ill-defined and weak in the Articles. However, the federal government needs to realize its minimal role at the state level.

Suffice it say, while these two Senators effectively hit on several important issues, they did not appropriately hit on the federal government's improper entanglement with both business (corporatism) and state governments (lack of federalism). The State of the Union is one of incestuous business partnerships between connected cronies and the federal government and the forced partnership between the federal government and the states and the federal government with the taxpayers paying the dowry.

Crossposted here and here.