Congress Needs to Do Much Heavy Lifting on Taxes and Trade

January 8, 2015 6:30 am Last Updated: January 7, 2015 9:52 pm

It was one thing to get elected, but it will be another for the Republican Congress to work with a president best known for his imperious style and a hard left agenda.

Still, in the most recent round of budget negotiations, President Obama did accept modifications to the bank regulations imposed by Dodd-Frank, and other opportunities for compromise abound to make America more prosperous.

Cities are growing faster than the suburbs, because young professionals in information technology, media, and other knowledge-driven industries prefer shorter commutes and urban amenities. Limited government budgets to rebuild overtaxed roads and transit systems, however, are slowing urban growth.

The “prevailing wage” provision of the Davis-Beacon Act generally requires excessively high union wages and burdensome work rules on federally assisted projects. Those requirements grossly inflate construction costs and reduce the number of projects completed each year. Meanwhile, organized labor represents a much diminished share of an increasingly educated workforce.

The Highway Trust Fund, which finances most federal contributions to road and rail spending, is underfunded, because the gasoline tax was last raised to 18.4 cents per gallon in 1997.

Raising the fuel levy is unpopular but remains the fairest way to finance transportation projects. An alternative fee on each mile driven, favored by many industry experts, would penalize folks choosing fuel-efficient cars over those driving gas-guzzling, carbon-loading SUVs and trucks—not exactly an environmentally friendly policy.

The GOP leadership should get behind a bill that adjusts the gas tax in line with inflation to 31 cents, mostly focuses the additional money on urban needs and repeals Davis-Bacon.

Obama won’t like gutting a law bestowing special privileges on unions, but he could make a big deal about creating new construction jobs and improving the quality of life for young voters who want more livable cities. In the new Washington calculus of divided government, he’s going to have to pay something to get what he likes most: more taxes and government spending.

The president wants Congress to grant him fast-track authority to negotiate a trans-Pacific free trade agreement (TPP) that includes Japan, Malaysia, Mexico, and eight other partners. That would require both the House and Senate to vote up or down on the pact, with only minimal latitude to amend whatever deal the president’s negotiators bring home.

Virtually all major trade agreements during the last two generations have passed this way, but many have not turned out well. Thanks to currency manipulation and other practices that afford unfair subsidies to imports from China, Japan, and elsewhere, the United States has a $500 billion trade deficit that costs Americans about 4 million jobs.

Congress must require that trade deals include provisions with real teeth to end currency manipulation and preserve U.S. laws that permit tariffs on unfairly subsidized imports.

U.S. corporate tax rates are much higher than those in other countries, though many businesses manage to pay quite low taxes thanks to special breaks. The burdens and complexity of the tax law encourage many companies to move production, headquarters, and jobs offshore.

The GOP would like to end some special tax breaks and lower corporate taxes overall. The president would like to use the revenue gained from closing loopholes to finance additional social programs.

Perhaps it would be best to compromise by junking the corporate tax altogether and replacing it with a value-added tax on all businesses. With no special treatment for any enterprise, that would allocate business investment to projects with the most promising potential to boost growth and jobs, not those with the most expensive Washington lobbyists.

None of this would be easy for the GOP leadership or the president, but Americans give them good salaries, nice offices, and great perks. It’s about time they did some heavy lifting to make Americans better off, instead of just beating their breasts and exercising their lungs.

Peter Morici, professor at the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Previously he served as director of the Office of Economics at the U.S. International Trade Commission. Follow @pmorici1