July 15, 2009: By Newt Gingrich
News on the economic front has not been good.
When campaigning for his economic stimulus bill this past winter, President Obama and his allies in Congress promised the bill would prevent unemployment from exceeding 8%. Last month, we reached 9.5% unemployment and President Obama conceded it will likely reach 10%.
Worse, the huge increase in our money supply and the mountains of debt being racked up by the Federal Reserve create … the ominous specter of an inflationary environment that would slow down our economic recovery.
It’s obvious to all but the most fervent left-wing ideologues that the “stimulus” – passed in haste by Congress without being read – has failed.
Of course, this hasn’t stopped the same people who brought us Stimulus One to begin production on a sequel. And with a new 60 seat majority in the Senate and Pelosi’s Puppets in charge in the House, some think another big-government, pork-laden bill that would do little for economic growth and drive us deeper in debt is inevitable.
Bad news, right? Not necessarily. This is actually a moment of enormous opportunity to promote legislation that will result in a real economic recovery.
The Historic Choice: A Real Stimulus Based on Small Business and Entrepreneurs or More Political Payoffs for Politicians and Lobbyists
I’m going to say something that may surprise you – I agree that Congress should pass another stimulus bill.
However, it should be a bill that would provide real stimulus for our economy. Conservatives should seize this opportunity to lead a national dialogue over what creates economic growth in America.
It is becoming increasingly clear to the country that the Left’s $787 billion spending bill was not a “stimulus package.” It was, instead, a “politician payoff package” in which the most rapidly spent money went to state and local governments.
Vice President Biden – out campaigning on behalf of their failed spending bill – has been quick to point out that the stimulus has “saved” government jobs that would have been cut.
Fair enough, but that money only solved this year’s problems. What about next year? And the years after that? All that the stimulus has done has allowed state governments to delay making the hard spending choices necessary to reform their bureaucracies.
More importantly, the only real measure for the success of an economic stimulus bill should be whether it spurs hiring in the private sector, where the vast majority of jobs in the United States are created. The Left’s spending bill has only increased government control over the country by taking money out of the private sector and putting it into the hands of politicians, bureaucrats and lobbyists.
As the big government spending program fails to produce jobs and economic growth, the American people will demand an alternative more likely to succeed. This new conversation over “what should be done to fix the economy” creates an historic opportunity to offer a large, bold, consistent and dramatic economic initiative that would reframe the debate over economic growth and the sources of jobs in America.
Principles for a Successful Real Stimulus
Our alternative vision to the Left’s big spending, lobbyist- and politician-dominated spending bill should have five goals.
First, to build on the 59-21 majority of Americans who believe cutting business taxes will produce more jobs than increased government spending (January 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, to offer tax changes which are big enough and bold enough to work. Even in its current, weakened state, America has a $12 trillion dollar economy. A small tax-cut bill simply does not matter and will be absorbed without any effect.
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-and not centralized in Washington. Politician-bureaucrat-lobbyist centered systems inevitably bring about corruption, political favoritism, and increased poverty. For long-term economic health, our small business and entrepreneur-focused, pro-growth alternative must reverse the damages the power driven elites have done.
Fifth, our tax cuts must be paid for with serious cuts in spending and economic growth. 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.
A Real Stimulus for Our Economy: Tax Cuts for More Jobs, Higher Take Home Pay and Greater Prosperity Through Economic Growth
With these goals in mind, the following tax cuts should be at the heart of our alternative vision that would 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 government at all levels, which also have to pay the employer’s match.
This proposal creates the opportunity for a serious conversation with every employer about how it would increase their income and give them more resources to create jobs. The revenue loss to the trust funds would be transferred from the general fund (a better use for the money than either TARP or the Politicians Spending Act of February).
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.
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.
Paying for Prosperity, Job Creation and Increased Take Home Pay:
Lessons from the Balanced Budgets of the 1990s
First, let’s be clear that liberal cries about deficits are hypocritical nonsense. In February, the Left passed $787 billion in political payoffs that was pure deficit spending. The Left’s first priority is always to grow government on every front; then they worry about the deficit, which is a liberal code for “tax increases.”
Second, the great lesson of balancing the budget in the 1990s was that you had to have pro-jobs and pro-investment tax cuts to get economic growth. Economic growth means more jobs. More jobs means more people off of welfare, which means they no longer need support from the government and they can start contributing through their own income. The differential in economic growth and the decline in welfare and unemployment expenses was a major part of our ability to balance the budget for four year in a row.
Third, it took a comprehensive effort of rethinking government to get spending under control. Budgeting is ultimately a function of the size and system of government. And government is a function of the kind of country and economy you want. A similar comprehensive rethinking of government in the context of what kind of country and economy America needs should be undertaken.
Fourth, the cost of potential new laws should be estimated-or “scored”-based upon information from the real world, from historic experience, and from economists outside government. Historically the Joint Committee on Taxation and Congressional Budget Office have always underestimated the revenue generating power of economic growth and overestimated the revenue potential from tax increases (capital gains cuts in the past have generated vastly more revenue than Joint Tax expected and that is an historic fact).
Fifth, real change will require real change. The following proposals include dramatic even wrenching change for the current bureaucracies, politicians and lobbyists. However those changes will be applauded by most Americans. We need to make it clear we will support Congressmen and Senators willing to stand up to the institutional pressures of Washington who want to avoid reform. They will need to know we’ve got their back.
Offsetting the Cost of the Tax Cut Through Smaller, Smarter Government
The following strategies are some strategies that should be used to pay for the robust tax cuts that are the centerpiece of our real stimulus bill:
- Capture as much of the TARP money as remains unexpended;
- Carefully go through the uncommitted portion of the $787 billion politician pay off bill from February and set aside $300 billion to $400 billion to pay for the tax cuts.
- Incorporate into the bill offshore drilling and other pro energy measures. These would be accurately scored as revenue raisers through more development and from the economic reflow in higher tax revenue through keeping the energy money at home instead of sending it overseas.
- Sell the private sector assets the government has unwisely acquired during the last year. The economy will grow faster without the threat of government controlled, bureaucratically supervised and politician defined companies. Whatever the value of the government stake in the various companies, put them on the auction block and get them back into the market. This will yield billions in revenue.
- Have a one time recapture of frozen corporate assets currently held offshore with a one or two year window for returning them to the United States. This has been estimated to produce a substantial amount of revenue for the government.
- Have a six month amnesty for back taxes to generate voluntary self policing. When tried at the state level this has produced significant resources.
- The bigger economy with more jobs will take people off of unemployment and off of welfare and will reduce the dependence on Medicaid and other government programs. The resultant drop in the cost of government will be a significant drop in government expenditures offsetting a significant part of the short term revenue loss through the tax cuts (this was our experience in the late 1990s and in this down economy it would be even more true).
A National Dialogue: From Your Kitchen Table to the Halls of Congress
Together we can restart the American economy with bold ideas that put an end to Washington’s political handouts and irresponsible spending.
In the spirit of Margaret Thatcher’s rule – “First you win the argument; then you win the vote” – it is my hope you can use this strategy memo as the basis for a “kitchen table,” grassroots campaign that will create a national dialogue over the source of economic growth in America: small business and entrepreneurs or big bureaucracies and government handouts.
The genius of our free market system has always depended upon ingenuity, pro-growth tax structures, smart spending, and fiscal responsibility. Any other path is sacrificing the future for the present.
Together we can return America back to the path of safety, prosperity and freedom.