Setting an Economic Agenda Sen. John Kerry on his plans to cut corporate taxes, create higher-wage jobs and work toward a balanced budget
(MONEY Magazine) – Sen. John Kerry's supporters point out that his initials are J.F.K., his economic policies reminiscent of Bill Clinton's and his strong military record much like John McCain's. His detractors label him as a tax-and-spend liberal who will boost your tax bill to pay for his pet programs. As always, the truth is somewhere in the middle. And that's where Kerry is focusing his attention. His recently introduced Middle Class Misery Index shows that the middle class is worse off than it was four years ago. Rather than define Kerry from the outside, I gave him a chance to outline his view of the economy in his own words.
INSANA: Gross domestic product (GDP) is growing by more than 4.5%, and CEO confidence is at its highest level in 20 years. Is it hard to characterize the economy as underperforming?
KERRY: No, not at all. In fact, most Americans have a very strong sense of its underperformance, because when you talk to shopkeepers and retailers, lots of other people, they're still feeling the slowdown. That's No 1.
No. 2, there's really a wage recession in the U.S. A lot of the productivity increases and a lot of the profits that some corporations are showing are coming at the expense of labor and wages. You've had about a $1,200-per-worker reduction in wages in the United States even while tuitions have gone up, health-care costs have gone up and now, of course, energy costs are up.
Q. But job growth has started to accelerate, no?
A. I fully expect the jobs numbers to go up. But jobs are a four-year measurement. And this President has the worst job performance record in 50 years. That's not inconsequential.
Q. So how would a President Kerry create jobs?
A. Our future is going to be in pushing the curve of science and technology. There are about 25 or 26 so-called critical technologies where we ought to be pushing the curve. One of them is alternative and renewable energy. I've pledged to create about 500,000 new jobs in that field. Those can be high-value-added jobs that pay higher salaries that allow people to get ahead and produce the products that can't be as rapidly replicated in other countries--jobs where we have the ability to carve out market share on a global basis.
There's also a pent-up demand for infrastructure. There's about $127 billion of backed-up school construction and an enormous amount of court-ordered but unfunded sewer overflow projects--the kind of work that puts laborers and plumbers and pipe fitters and painters and carpenters to work. We haven't been doing it.
Q. Do you have the funds to do it?
A. There's some of that in our budget proposal...in the $25 billion State Tax Relief and Education Fund. There's not as much of it as you might want for one or two reasons: 1) the deficit is very significant, and 2) there's a very large amount of stimulus in the economy right now. The Bush people, for better or worse, have been spending money hand over fist to try to move things forward. I just don't think they've been doing it in a very effective way.
Waiting for a signal
Q. If you were to become President and tried to balance the budget early in your term, at a time when the Federal Reserve may well be raising interest rates, won't that hurt the economy?
A. No, provided we give confidence to the marketplace. The fact is that there's a significant amount of venture capital out there waiting for that confidence signal, and a lot of venture capital has been invested already as we've shifted out of the burst bubble of the 1990s. You've got a lot of things waiting to happen. If you send the right signals, there will be enough money invested out there, and it will produce jobs as we proceed forward.
Now, if we find at a particular time that we need a little more stimulus, a little more spending, then you may have to change the curve at which you're going to reduce the deficit. Wall Street doesn't really care in what specific year you wind up balancing the budget. What they care about is that the trend lines of revenue and expenditure are heading in the right direction.
Kerry's economic team
Q. You've suggested that you will roll back not just the tax decreases that we've seen for those making adjusted incomes over $200,000 a year but also the capital-gains and dividend tax breaks for those people. Are you worried that'll affect the markets negatively?
A. No, I'm not. Many folks that've worked with me on this issue, from the Bob Rubins to the Warren Buffetts, suggest that at that level of income the differential is not significant enough to change the movement of capital.
With respect to the dividend piece, does it have a little bit of an impact on companies that are now paying dividends because of the reduction? The answer is yes, but it doesn't change what they will have as available capital to use for other purposes within the company, and that's what's important.
Q. Speaking of Bob Rubin, what would your economic team look like?
A. You can get a sense of the veneer of it. I have great respect for Bob Rubin and his leadership, and for people like Gene Sperling [the former national economic adviser to President Bill Clinton who is on Kerry's economic team] and Roger Altman [a former deputy Treasury Secretary under Clinton who is also advising Kerry]. Warren Buffett is on my economic advisory team with other corporate leaders. It would be a very growth-oriented, fiscally responsible group that comes not with a bias but with an eye toward sound management of our nation's business.
Q. You have proposed a tax break for companies that create jobs in the United States. Some of your Democratic colleagues might say, "Why should corporations get a tax break when, at 7.3% of total taxes paid, the corporate tax burden is the lowest it has ever been?"
A. That figure's distorted by the fact that about 60% of corporations in America are paying no taxes at all. If you had appropriate reductions in corporate loopholes and appropriate enforcement, you'd have a fairer distribution, and that figure wouldn't stand anymore.
I think my colleagues on the Democratic side will accept the strong argument that it is important for us to help businesses to grow here in America and to make our companies more competitive. I don't want to lead a Democratic Party that loves jobs but hates the people who create them. If we're going to close the corporate incentive to take jobs overseas, it makes sense to use the revenue from that to enhance the creation of jobs and the ability to keep jobs here in the U.S.
The prescription-drug bill
Q. You're also proposing a sort of payroll-tax break. Can you describe what you're trying to do there?
A. We're trying to lower the cost of doing business in the U.S. to encourage job creation here. If a break from the payroll tax would enable a company to create a job, they'd get a two-year break on the payroll-tax component of that job.
Q. Turning to another hot topic, would you repeal the prescription-drug bill that's been passed?
A. I would change it profoundly because I believe it is far more costly with less return than it ought to be. There are more effective ways to provide a legitimate prescription-drug benefit to seniors. If you ran a business and you were told after you'd purchased a particular approach to something that it costs one-third more than you thought--$139 billion more--I don't think you'd last very long as a CEO.
When the taxpayer is paying for the program and you have seniors on fixed incomes and you're not driving the best bargain possible for a government purchased program, it's wrong. The taxpayer needs the ability to be able to do some bulk purchasing and lower the costs. The Veterans Administration does that. We have empowered the VA to do bulk purchasing, and therefore veterans get lower-cost prescription drugs. There are ways to have carved out a bill without a doughnut hole where you're paying a premium but not getting the benefit.