Saturday, January 22, 2011

GE’s Immelt on the Hot Seat

Can GE CEO Jeffrey Immelt talk President Obama into a major corporate tax cut? Immelt has been appointed to the new Council on Jobs and Competitiveness, which replaces the disbanded Paul Volcker Economic Recovery Advisory Board. Immelt was a member of that original board. Now he has a more elevated position in the Obama 2.0, allegedly pro-business, move-to-the-center Clintonesque White House.

Regarding the new President Obama, I am still trust but verify. But yes, of course, Jeff Immelt is a businessman through and through. He is a trustee of the Ronald Reagan Presidential Foundation board, while GE is a big sponsor of the Reagan Centennial Celebration. (Recall that the Gipper worked for GE as a spokesman and television host from 1954 through 1962.) He’s also a registered Republican who contributed to both Hillary Clinton and John McCain during the 2008 campaign. And last year, he harshly criticized Obama at a dinner in Italy, where he basically said: Obama doesn’t like business, and business doesn’t like Obama.

But what goes around comes around. Many business people wanted senior executives in the White House, and now they have two — with GE’s Immelt joining William Daley, the former banker and new chief of staff.

GE had a rough time of it during the Great Recession. But in recent quarters it has turned quite profitable; its stock just hit a 52-week high. In an op-ed for the Washington Post, Immelt set out his agenda for continued economic recovery. He would focus on manufacturing and exports, free trade, and innovation.

So where’s the corporate tax cut? Well, Immelt offered one short line about “a sound and competitive tax system . . .” No, not exactly a ringing call to action. But I believe he will, in fact, push for corporate tax reform.

There’s nothing more important than full-fledged corporate tax-rate reduction in order to maximize U.S. economic growth. At 35 percent, our highest-in-the-world corporate tax should be knocked all the way down towards 20 percent.

And businesses taxes should be made territorial, not worldwide, in order to stop the double-taxation of foreign earnings. Business revenues held overseas, now reported to be about $1 trillion, should be repatriated to the U.S. with a 5 percent tax holiday.

Businesses also should enjoy permanent 100 percent cash expensing for new investment in plant, equipment, and research. Studies have shown that this combination by far offers the biggest bang for the buck in terms of additional GDP and job-creation.

And yes, broaden the base with loophole closers. A lower tax rate and full expensing is much more important than all those K Street credits and deductions.

At the Republican House retreat in Baltimore a week ago, I argued for a two-track, pro-growth fiscal plan. Reform the business tax (Rep. Dave Camp) and bring federal spending as a share of the economy down to 20 percent from the current 25 percent (Rep. Paul Ryan). My friend and mentor Arthur Laffer, my co-panelist at the retreat, argued strongly that reduced spending is itself a tax cut. On this point, Laffer, Alan Reynolds, and Dick Armey have all recently cited the late Nobelist Milton Friedman, who held that government spending is the broadest tax on the overall economy.

And let’s add a rollback of Obamacare and a return to a reliable King Dollar (referenced to gold) as additional pro-growth measures. Finally, let’s enact drill, drill, drill. More energy across the board — “all of the above” — is another great job creator.

But my former boss Jeff Immelt (GE is selling NBC Universal to Comcast) can play a key role in a hugely important corporate tax cut. This will incentivize firms to stay at home instead of going overseas. It will be a huge job-creator, reducing unemployment and playing an important part in deficit reduction. According to the Congressional Budget Office, a 1 percentage point increase in GDP above the meager 2.5 percent baseline would lower the ten-year budget gap by nearly $3 trillion.

Growth solves a lot of problems. Can Mr. Immelt get the job done?