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
ideas.
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
economy.
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.
Spending and Entitlement
Reform
The Republican House should also take the lead on spending
cuts now, without waiting for the deficit reduction Super
Committee, by passing Appropriations bills that implement all of
the discretionary spending cuts of the Ryan budget. Those cuts were
based on the popular plan of returning all non-entitlement,
non-interest spending for all federal agencies and departments back
to 2008 levels.
Gingrich raises a popular entitlement reform opportunity
based on the enormously successful 1996 reforms of the old Aid to
Families with Dependent Children program (AFDC), enacted while
Gingrich was Speaker of the House.
Those reforms sent the federal financing for the program
back to the states in fixed, finite block grants, with states
empowered to redesign new welfare programs for the poor — based on
work. If a state’s program cost more than its federal allotment,
then it had to pay all of the extra costs itself. If its program
cost lest, then it could keep the resulting savings.
With new incentives for the states, two-thirds of those on
AFDC left the program for real private sector jobs. Their incomes
rose by at least one fourth as a result, leading them out of
poverty. And costs for the taxpayers dropped by half or more in
real dollars compared to prior trends.
Those same reforms can and should be extended to Medicaid
and all other federal means-tested welfare programs. Those programs
are estimated to cost $10 trillion in total government spending
over the next 10 years. The Republican House should act now to pass
legislation effectively sending all those programs back to the
states with block grants providing the discretion for the states to
each enact a completely new welfare system based on work, as
Gingrich suggested. That kind of Tea Party federalism would be
enormously popular, as would the potential savings of $5 trillion
over 10 years. Based on the 1996 reforms of AFDC, the poor would
benefit enormously as well.
Gingrich also proposes legislation to increase revenue
from oil and gas exploration and drilling through sharply increased
federal leases and permits. That could raise $150 billion over
roughly 10 years, with more coming from increased economic growth
due to more abundant supplies of low cost energy for businesses.
Gingrich also proposes to sell federally owned land and other
unused and environmentally insignificant federal assets.
Gingrich is also pioneering the application of proven
business efficiency and waste cutting methodologies known as Lean
Six Sigma to government programs and agencies. Instead of waiting
for the dangerously centralized Super Committee to develop plans
for remaking the entire federal government, Gingrich argues that
all 435 members of the House in almost 200 committees and
subcommittees should be involved in developing ways to apply Lean
Six Sigma business principles to government management, with
potential cost savings of over $5 trillion. Gingrich argues that
another $700 billion to $1.2 trillion over 10 years could be
realized by applying the fraud detection techniques utilized by
credit card companies to root out fraud in Medicare and
Medicaid.
Regulation
The Republican House has another immediate opportunity: to
pass legislation to counter the job-killing regulatory blizzard the
Obama Administration is dumping on the American economy. The EPA is
effectively imposing the cap and trade tax to counter imagined
human-caused global warming, at an ultimate cost of
trillions to the economy through soaring energy and electricity
costs. The EPA’s plan would ultimately involve phasing out the
coal, oil and natural gas industries entirely. The House should
pass legislation to strip EPA of authority to impose such highly
unpopular global warming regulation.
House Majority Leader Eric Cantor (R-VA) seems to
understand the opportunity here, promoting legislation to overhaul
the federal government’s entire regulatory process through the
Transparency in Regulatory Analysis of Impacts on the Nation
(TRAIN) Act and the Regulations from the Executive In Need of
Scrutiny (REINS) Act.
If the Republican House can act expeditiously to pass all
of these ideas, and send them on to the do-nothing Democrat Senate,
then Republicans can take these issues to the people next year,
clearly defined.
And they can thank Newt Gingrich for many of
them.
