Gingrich is framing the issues for 2012. Will Republicans listen?
President Obama, on the campaign trail already this month, has taken to attacking a “do-nothing” Congress. Apparently, he thinks he is going to reprise Harry Truman’s shocking come from behind victory in the election of 1948, where Truman surged to narrowly win at the end with that do-nothing Congress theme.
Newt Gingrich is so right in urging his own “Leadership Now” theme for the Republican House majority. He argues that the House should not wait for the debt reduction Super Committee before passing legislation to address federal spending, the deficit, economic growth, and jobs. The House should show leadership now by passing legislation that will achieve these goals most effectively, demonstrating to the public what conservative Republican victories in the elections next year would accomplish.
The House got off to a good start on this theme in passing the Ryan budget on time early this year. It would have cut federal spending by $6.2 trillion over 10 years, reformed both individual and corporate taxes by closing loopholes and lowering rates, eventually balanced the budget, and even ultimately paid off the national debt. Of course, the Democrat majority Senate failed to adopt that or any other budget as required by law (which it has failed to do now for at least two years).
But the Republican controlled House persisted, passing Cut, Cap and Balance, which cut federal spending by over a hundred billion for next year alone, capped federal spending for the future at its long term, postwar, historical average of 20 percent of GDP (about one-fifth lower than current federal spending), and included a balanced budget amendment to the Constitution requiring balanced federal budgets each year — just like in almost every state.
Once again, however, the Democrat-controlled Senate failed
to pass Cut, Cap and Balance. You see, the issue is not really a
do-nothing Congress, but rather a do-nothing Senate. To ensure that
the public gets that distinction, the House should pick up Newt’s
Leadership Now theme, and pass legislation based on some of his
Tax Reform First
In demonstrating a Leadership Now mentality, the House should pass both individual and corporate tax reform. It should close loopholes that allow Obama political machine cronies like General Electric to get away with paying no federal income taxes, and lower the tax rates to get the economy booming again.
Tax rates — not just tax cuts — are the key factor in determining economic growth and prosperity. The tax rate, particularly the marginal tax rate (the rate that applies to the last dollar earned) determines how much the producer is allowed to keep out of what he or she produces. For example, at a 25 percent tax rate, the producer keeps three-fourths of his production. If that rate is increased to 50 percent, the producer keeps only half of what he produces, lowering his reward for production and output by one-third. Incentives are consequently slashed for productive activity, such as savings, investment, work, business expansion, business creation, job creation, and entrepreneurship. The result? Fewer jobs, lower wages, and slower economic growth.
By contrast, if the tax rate is reduced from 50 to 25 percent, producers will be allowed to keep three-fourths from their production, increasing the reward for production and output by one-half. That would sharply increase incentives for all of the above productive activities, resulting in more of them — plus more jobs, higher wages, and faster economic growth.
Moreover, these incentives do not just expand or contract
the economy by the amount of any tax cut or tax increase. For
example, a tax cut of $100 billion involving reduced tax rates does
not just affect the economy by $100 billion. The lower tax rates
affect every dollar and every economic decision throughout the
Furthermore, marginal tax rates do not just affect the incentives of those to whom the rates currently apply. They also affect those to whom the rates may apply in the future. For example, consider a small business owner. If he invests more capital in his business to expand production, or hires more workers to increase output, that may result in higher net taxable income. It is the tax rate at that higher income level — not at his current income level — that will determine whether he undertakes the capital investment, or hires more workers.
Ryan’s budget included income tax reform with a 25 percent top income tax rate for family incomes over $100,000 a year, a 10 percent rate for incomes below $100,000, and generous personal exemptions leaving the first $40,000 a year for a family of four free of any income tax. It also included corporate tax reform, which addresses an enormous problem troubling the American economy.
The U.S. corporate income tax rate is virtually the highest in the industrialized world, with a federal rate of 35 percent. State corporate rates take it close to 40 percent on average. Even Communist China has a 25 percent rate. The average rate in the heavily socialist European Union is less than that, and formerly socialist Canada is cutting its 16.5 percent rate down to 15 percent next year.
The U.S. corporate income tax rates leave American companies uncompetitive in the global economy. Ryan’s budget proposed a federal corporate income tax rate of 25 percent. The much lower individual and corporate rates from Ryan’s tax reforms would cause a new economic boom with millions of new jobs and higher wages due to the resulting incentives for productive activities, as discussed above. Yet, with the closed loopholes, CBO has already scored Ryan’s tax reforms as restoring federal tax revenues to the long run, postwar, historical average over the last 70 years of just over 18 percent of GDP. And that doesn’t fully account for the economic growth that would result.
The Republican-controlled House should execute Leadership Now by passing Ryan’s individual and corporate tax reforms this year. Let the do-nothing Democrat Senate sit on them. Then let’s see what the voters have to say about it next year.
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?