The fight for economic freedom begins in earnest today.
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And I haven’t even begun to talk about Obama’s tax increases. By the end of next year, the top income tax rate will have risen by 20%, the top capital gains tax rate by 33%, and the tax on dividends by 33% as well, with the top death tax rate restored to 45%. Obama ran for President promising a tax cut for 95% of Americans, which turned out to be a miserable $400 per worker income tax credit, less than $8 a week, with no incentive effects to promote the economy. That will be more than offset by the $645 billion cap and trade tax Obama has proposed to combat non-existent global warming, which will be paid by everybody through higher prices for gas, electricity, home heating oil, coal, and everything produced with energy. Obviously, these sharp tax increases will trash the economy in the future, not promote growth. Higher energy costs in particular will chase remaining American manufacturing overseas.
All of this is why America will be in the streets today demanding a U-turn from Obama’s road to oblivion, returning to Reagan’s highway to prosperity, which Bush mistakenly exited.
But over the longer run, the tea party revelers are looking for an expanded vista of economic freedom, with less government control, lower taxes, reduced spending and debt, fewer unnecessary regulatory burdens, and sound money free from inflation. How can America achieve that?
Let me offer a few ideas. I am not claiming these as the agenda of today’s tea parties. I am offering them as the best of the ideas that have been developed over recent decades, and the most promising for long-term freedom and prosperity, in the hope that many of those demonstrating today will support them in the future.
Newt Gingrich, who is speaking at the tea party in Atlanta today, has offered a 12-point economic recovery plan based on the principles of President Reagan’s 1981 recovery plan. Gingrich proposes to reduce the 25% income tax rate paid by middle-income earners to 15%, which would effectively establish a flat tax of 15% for close to 90% of Americans. He would also reduce the federal corporate tax rate of 35%, the second highest in the industrialized world, to the 12.5% rate adopted 20 years ago in Ireland, which boosted that traditionally poor country to the second highest income in the EU. Our own Treasury Department says Ireland’s 12.5% rate generates more corporate tax revenue as a percent of GDP than our 35% rate.
Gingrich also proposes to abolish the capital gains tax and the death tax, which both involve double taxation of savings and capital. He would also open up production of domestic U.S. energy across the board, ensuring plentiful, low cost energy supplies for the American economy. These policies would produce another generation-long economic boom.
Rep. Paul Ryan (R-WI) has offered a tax reform plan with just two rates, 10% applying to the first $100,000 in income each year, and 25% applying to all income above that. Generous personal exemptions would eliminate income taxes for a family of four on the first $40,000 earned each year.
For the payroll tax, Ryan has developed and introduced legislation that would allow workers the freedom to choose to save and invest half their Social Security taxes in their own personal accounts. To the extent each worker exercised this option, benefits from the account would replace future promised Social Security benefits on a proportional basis. Because over the long run market investment returns are so much higher than what Social Security can even promise, let alone pay, working people can gain enormously from this option. But Ryan’s bill wisely retains the Social Security safety net, guaranteeing that each worker would still receive at least what they would have been paid in Social Security benefits under current law. So workers can gain, but they can’t lose. Experience shows, however, that few if any workers would fall into that safety net over the long run.
Such personal savings, investment, and insurance accounts should be expanded over the long run to empower workers with the freedom to substitute the accounts for the entire payroll tax, with the accounts providing all of the benefits now financed by the payroll tax. This would produce an enormous reduction in the size of the federal government.
Another good idea is the national sales tax proposal. But the 23% sales tax rate is too high. The sales tax should substitute only for the income tax, not the payroll tax as well. Better to phase out the payroll tax under the personal account proposal above. The sales tax reform also does not need to be completely revenue neutral. It would work better providing a net tax cut. This may allow a sales tax rate of only 14%, particularly considering the boost to economic growth such reform would produce.
Another major reform would involve sending the hundreds of federal welfare programs back to the states based on the model of the highly successful 1996 reform of the old AFDC program. That reform replaced AFDC with a block grant of finite federal funds to each state for their own new, redesigned, welfare program based on work. The result surprised even the advocates of the idea, reducing the number of dependents on the old program by close to 60% nationwide. This same reform should now be extended to Medicaid, Food Stamps, housing subsidies, and the hundreds of other means-tested, federal welfare programs. This would also result in an enormous reduction in the size of the federal government.
The most important Obama initiative to stop now is health-care reform. Adding another huge entitlement program, ultimately the biggest of all, to our nation’s debts will hasten the explosion of big government and the ultimate bankruptcy of our country. Obama’s proposal inevitably involves the same government health-care rationing as in every other country that has adopted such a government-run health care system. That is because once such a system is adopted, there is no other way to control health costs.
Such government health-care rationing means a reduction in the standard of living for average Americans, as they suffer less timely and less effective health care. A huge reduction in America’s standard of living would result as well from Obama’s cap and trade global warming plan, as America must then suffer with less energy costing much more. That means smaller, weaker cars, less driving and other transportation, less consumption of energy-intensive meat and dairy products, colder homes, workplaces and stores in winter, hotter homes, workplaces and stores in summer, and less of everything that uses electricity.
A safety net assuring essential health-care services can be created without a government takeover of the entire health-care system. Broader use of reforms that extend patient power and choice, such as health savings accounts and interstate sales of health insurance, would best control costs.
These reforms and ideas would create a bright future for America of freedom and prosperity. Achieving them requires active, widespread, grassroots support. That is the hope that today’s tea parties across America raise.
A man of faith in a godless age is hitting Americans where it hurts.
Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
In Britain, defending your property can get you life.
It won’t take long for conservatives to scratch this presidential wannabe off their 2008 scorecard.
Was the President done in by the economy, or by the politics of the economy?