The American Spectator

Special Report

Economic Growth and the Working Class

By Peter Ferrara on 7.9.08 @ 12:07AM

(Page 2 of 2)

High tax rates are a problem as well. America now suffers the second highest corporate tax rate in the industrialized world, averaging about 40% counting state corporation taxes. The average in the European Union is now 24%, down from 38% 10 years ago. Ireland's corporate tax rate has now long been 12.5%, and Irish workers are progressing towards higher wages on average than American workers. Individual investors can also now find lower tax rates than America's top Federal rate of 35%

Facing this tax gauntlet, investors, at home and abroad, are not going to provide American workers with the latest, best, and most in capital equipment. If Ireland and Estonia offer tax systems that are more hospitable for capital investment, there is no reason why their workers cannot eventually earn more and enjoy a higher standard of living than American workers. We need a reformed tax system that taxes the returns to capital once at a single low rate, allows immediate expensing for capital investment, and maintains low rates for individual investors as well as wage earners.

ANOTHER ESSENTIAL WAY to maximize long-term economic growth is to reduce the soaring cost of energy for our economy. Plentiful, low cost energy supplies will naturally support higher economic output and growth over time than scarce, high cost supplies. But to achieve this result, we need to sharply reduce the wildly excessive regulation that is choking off our energy supplies. The government needs to allow us to drill for more oil and gas on the mainland, in the frozen, lifeless, dark, Arctic moonscape of ANWR, and offshore. It needs to allow us to build more refineries and nuclear power plants. The resulting sharply increased energy supply would reduce energy costs, with the same effect on our economy as a major tax cut.

To the extent we can reduce unnecessary government spending, that along with the resulting lower taxes would further boost our economy. And we need to restore sound monetary policies to short-circuit budding inflation. Contributing to that is the central planning ethanol boondoggle that is harmfully increasing food prices at home and abroad, while contributing much more to runaway government spending through ethanol subsidies than to solving our energy problems. Abolishing the Federal government's ethanol adventure would reduce inflation and unnecessary government spending.

These are the policies that would maximize our economic growth, and do the most to raise wages for the working class, and the poor, and everyone else. Remarkably, we are back to the Reagan economic recovery strategy of cutting taxes, cutting spending, deregulating, and restoring sound monetary policies.

In terms of politics, the working class would respond to such a vision for economic growth as it did in 1980, if the message is explained and driven home. Polls and focus groups show that working people would respond to such a message. When American voters are given a choice on election day between economic growth on one hand and redistribution on the other, they always choose growth.

IN ADDITION, Republicans and conservatives should emphasize their enormous achievement in abolishing income taxes on the working class and the poor. Again, the bottom 40% of income earners pay no income tax on net. Instead, they receive net payments from the income tax system. This started with Ronald Reagan's proposal for the Earned Income Tax Credit (EITC) in the 1970s. Another important factor was the Child Tax Credit proposed by the Heritage Foundation, now maxed out at $1,000 per child. The tax rate cuts over the years culminating with President Bush's 33% reduction in the lowest rate in 2001 hasve ended with this result. These policies have also cut the share of Federal income taxes paid by the true middle class, as well as minimizing income taxes for thethe middle 20% of all income earners,class as well atto less than 5% of all income tax payments, another major achievement that should be trumpeted.

Republicans and conservatives should emphasize as well that they next plan to phase out payroll taxes on the poor, the working class, the middle class, and everyone else, as well, replacing the tax instead with personal savings and investment accounts that would eventually take over payment of all the benefits that are financed by the payroll tax today. This would transform the payroll tax into an engine of personal family wealth for every family in America, an enormous achievement. Working class families would accumulate hundreds of thousands of dollars in such accounts by retirement, an historic breakthrough in the personal prosperity of working people. Those family funds would provide a new foundation for the future prosperity of working class children as well.

Republicans and conservatives should also promote the idea of eliminating state income taxes as well, on the poor, the working class, and everyone else. Nine states survive today perfectly well without any state income tax, including the large, prosperous, booming states of Texas, Florida, and Tennessee. Working people are voting with their feet by migrating to these states in large numbers, fleeing the high tax states. States without an income tax have higher economic growth, and higher growth in jobs, wages, and incomes.

Now that's an agenda to appeal to the working class. Add to that a pro-growth energy policy sporting lower prices for gas and electricity, the defense of traditional family values, and strong national defense policies that will keep families safe, and conservatives and Republicans should have more than enough appeal to win the votes of the working class.

Letter to the Editor

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