After being highly skeptical of President Obama's pivot back to the economy, I now believe the outline of his new proposal for corporate tax reform coupled with increased spending on much needed infrastructure and job training programs has the makings of a so-called grand bargain. Instead of automatically rejecting his proposal out of hand, the Republican leadership in the Congress ought to improve upon the president's proposal.
I know that may be too much to ask, but as I will argue below, there is a real chance for a concrete deal that would be roughly consistent with Republican principles.
In a speech at an Amazon warehouse, Obama called for reducing corporate tax rates from the current 35 percent to a split 25 percent and 28 percent rate. The revenues lost from that would be recouped by reducing depreciation allowances for large companies, changing inventory accounting and taxing previously untaxed foreign earnings.
This last point is tricky, but if all it entails is a small surtax on repatriating past and future foreign profits, it won't be all that complicated or all that objectionable to Republicans. After all, President Bush succeeded in passing a one-time deal that imposed a 5.25 percent tax on repatriated foreign earnings in 2005. At the time, there was no ideological opposition to this idea.
For Republicans today, however, the hitch is that Obama's plan won't be revenue -neutral. The revenues raised from his proposed reforms would exceed the revenues lost from the lower tax rates. He wants to spend the difference on infrastructure and job training. For most Republicans, this is a non-starter, but it is time to think creatively.
What the Republicans ought to do is to test the president's seriousness on infrastructure spending by forcing him to choose between the economy and his prized organized labor and environmental constituencies. The real problem with infrastructure spending is that it takes forever before a spade of dirt is moved. In order to speed up that process, any legislation should include two important provisos.
First, the required environmental reviews have to be either waived in their entirety or "fast-tracked." It shouldn't take a half decade between a formal proposal to its actual start. Second, the prevailing (union) wage requirements of the Davis-Bacon Act would have to be waived.
Why? It takes time to establish prevailing wages and, more importantly, the cost of Davis-Bacon projects run 20 percent to 40 percent higher than otherwise. This way the taxpayer can get more bang for his or her infrastructure buck. Think of this as more highways, airport improvements and mass transit, along with more jobs.
Further, to show his good faith Obama should approve the $8.5 billion privately financed Keystone XL Pipeline. This Canada to Texas energy project is ready to go and it would jump start the infrastructure spending that would follow.
Should the Republicans offer up such a program, it would give them the high ground in the debate over the economy and it would test the president's willingness to make a concrete deal. Better still, President Obama ought to offer up these suggestions to the Republican leadership. If they turn him down, it would prove once again that the Republicans are more interested in obstructing the administration than in improving the economy.
David Shulman is a retired Wall Street executive who is now a senior economist at the UCLA Anderson Forecast. He is also affiliated with Baruch College (CUNY).