Economic Recovery - What We Know Will Work

“Bernanke Sees Slow Recovery as Skittish Consumers Cut Back”
“Job Cuts Outpace GDP Fall”

These are just two recent Wall Street Journal headlines that begin to outline for the public the dismal state of the U.S. economy. The stimulus packages and bailouts brought to us over the past 14 months by both the Bush and Obama administrations have clearly failed (remember: President Bush had a stimulus – rebates – in the Spring of 2008, followed by a housing stimulus in the Summer, followed by the Wall Street/TARP bailout in the Fall before the Obama stimulus package that passed Congress in February of this year and additional bailouts).

Add to this the introduction of tax-raising and job-killing legislation in both the energy and health care sectors which are currently working their way through Congress. Current projections have the accumulated debt for all this spending to top $23 trillion (nearly twice our nation’s GDP, and more accumulated debt than the combined borrowing of every president from George Washington to George W. Bush).

Remember in January when President Obama said that we must pass the $787 billion stimulus bill immediately – so quickly in fact that no member of Congress read the entire thing before passing it – so that the economy could stabilize and unemployment would be capped at 8 percent? Well, the national unemployment is presently 9.5 percent and rising; even the President has acknowledged that it will move into double digits. In California and Ohio, unemployment is already more than 11 percent; in California it is nearing 15 percent.

Finally, the Federal Reserve issued a widely-ignored report last week which judged that under current policies our economy will have an unemployment rate hovering around 10 percent with little job creation for the next five years; yes, you read correctly - five years without job growth. How would you like to be graduating from high school or college in the next few years and trying to find a job?

The headlines are simply catching up with what the American people already know: This is a terrible economy and there doesn’t seem to be any relief for families anywhere.

So, what about all that stimulus money? Has the $1.6 trillion in combined stimulus spent by Presidents Bush and Obama helped you, your retirement account, or your child’s college savings plan? Me either. Why keep pouring taxpayer money into firms like AIG, Citigroup, GM, Chrysler and the like to “save” them just so they can turn around and cut their payrolls, shed bad investments and improve their balance sheets while at the same time restricting credit and generally making life more difficult for the average American?

My contention is that all this stimulus and bailout money has largely been a payoff to Wall Street, the Left’s political allies and labor unions at the expense of the American taxpayer.

Einstein once said that to continue doing the exact same thing and expecting a different outcome is one definition of insanity. Well, rather than continue to do what is clearly failing and expecting a different result, we need a recovery plan that actually stimulates the underlying economy and helps the American taxpayer. We need to stop politician- and lobbyist-dominated policies that reward political allies, and implement policies aimed at putting money back into the hands of the American people.

The late Jack Kemp once remarked that you can’t love jobs and hate job creators. That is where we need to focus: On small businesses and their employees. Small businesses create three out of every four jobs in the United States. We need to develop policies that will help them – and in turn, help America. These policies should embrace the following goals.

First, build on the 59-21 majority of Americans who believe cutting business taxes will produce more jobs than increased government spending (CBS News poll). Americans implicitly understand what creates economic growth and a vigorous national dialogue on these terms will expand public support for tax policies that actually create more jobs.

Second, offer tax changes which are big enough and bold enough to work. Even in its current, weakened state, America has a $12 trillion economy. A small tax-cut bill simply does not matter and will be absorbed without any effect (and those who bemoan deficit spending are hypocrites: the $787 billion stimulus past in February is pure deficit spending).

Third, the specifics of the tax cuts have to be vivid enough that people understand how it will affect their economic security. People will feel more compelled to support a government plan that puts money in their wallet instead of in the hands of bureaucrats.

Fourth, economic freedom should be returned to the American people - not centralized in Washington. Politician-bureaucrat-lobbyist centered schemes which benefit the few inevitably bring about corruption, political favoritism, and increased poverty for the majority. For long-term economic health, a small business and entrepreneur-focused, pro-growth alternative will reverse the damages done by power driven elites.

Fifth, tax cuts must be paid for with serious cuts in spending. Our current economic predicament was, in large part, caused by problems created by excessive debt. As part of our recovery, we have to return to the path of fiscal responsibility and renew a call for a balanced budget.

With these goals in mind, the following tax cuts should be at the heart of an alternative vision to achieve a fundamental shift from politicians to small business, from lobbyists to entrepreneurs, and from bureaucrats to investors:

A two-year, 50% reduction in the Social Security and Medicare tax for both the employee and the employer. This provision would guarantee that virtually everyone who pays federal taxes (many of whom do not pay income tax but do pay payroll taxes) will have an immediate boost in income and that small businesses will see a dramatic increase in available cash to hire more people or make investments for the future. This reduction would also help the cash flow problems of state and local governments, which also have to pay the employer's match.

In the present economy, most businesses cannot afford to give their employees a pay raise. This will give every employee a boost in take-home pay and help them and their families through this difficult time.

The revenue loss to the Social Security and Medicare Trust Funds would be transferred from the general fund (a better use for the money than the TARP funds or the $787 billion stimulus package – only 10 percent of which has so far been spent).

Permanently match the Chinese capital gains rate, which is zero. This is the rate Alan Greenspan testified in the late1970s was best for economic growth. It is also a relatively inexpensive thing to do in the current economy because people are going to have smaller gains.

Match the Irish corporate tax rate of 12.5%. America has had the highest corporate tax system in the world (if you combine federal and state taxes). Moving to a 12.5% corporate tax rate and combining it with zero capital gains will make America the most desirable economy in the world in which to invest.

Eliminate the death tax permanently. Inheritance is the most powerful accumulator of capital and eliminating the death tax has been consistently supported by over 75% of the American people. Remember: taxes have already been paid on this money. It is fundamentally immoral for a person to have to visit the funeral home and the IRS in the same week.

Give President Obama the Opportunity to Keep His Word. Adopt the best of the small business tax proposals announced by candidate Obama in October 2008 and forgotten by the Obama Administration in 2009.

Similar ideas implemented by the state legislature will help to improve Iowa’s economy as well. A recently published study by the American Legislative Exchange Council showed that Iowa ranked 46th in competitiveness among the 50 states, and 35th in relationship of policies to performance. By improving the tax and regulatory framework, especially when compared to states that border Iowa, we can vastly improve the state’s finances, position the state for economic growth, add jobs, and improve the lives of citizens.