As previewed at the last debate, he’s delivered a product “far bolder, far deeper, far more profound” than 1994’s Contract, not to mention 1980’s.
Last week, Newt Gingrich released his 21st Century Contract with America, composed of 10 specific legislative proposals he would enact if elected President. In the 1994 Congressional campaigns, Republicans not only rode Newt’s Contract with America proposals to Republican majorities in Congress. They maintained their House majority for 12 years, after Republicans had only held a House majority for 2 of the previous 74 years.
Newt’s 21st century contract is similarly a document on which the entire Republican Party can campaign next year, and win a generation of governing majorities.
Booming Recovery, Long Overdue
Gingrich pledges in his new contract to “Return to robust job creation with a bold set of tax cuts and regulatory reforms that will free American entrepreneurs to invest and hire, as well as by reforming the Federal Reserve.”
That includes a proposal for corporate tax reform, closing loopholes and reducing the federal rate from 35%, second highest in the developed world, all the way down to 12.5%. Ireland, long a poor, economically backward nation, adopted that rate in 1988 when it suffered the second lowest per capita income in the EU. The Irish rode the resulting boom over the next 20 years to the second highest per capita income in the EU. Jack Kemp used to advance this policy for America as well, noting that our own Treasury Department issued a study showing that Ireland raises more corporate tax revenues as a percent of GDP with this low rate than we do with our rate nearly 3 times as high.
Gingrich’s economic recovery plan would also abolish the capital gains tax, because “At a zero percent rate, hundreds of billions of dollars in new investments would pour into the United States to create new firms and build new factories.” By effectively double-taxing capital income, the capital gains levy discourages the venture capital that feeds start-ups and creates jobs. That is why 14 out of 30 OECD countries, plus China, Taiwan, Hong Kong, Singapore, and others, already enjoy zero capital gains taxes. Gingrich’s Contract would further eliminate double taxation by abolishing the death tax and the Alternative Minimum Tax.
Gingrich’s new contract also includes the proposal for an optional flat tax long advocated by Wall Street Journal senior economics writer Steve Moore. Gingrich explains:
All tax filers would be given the option to pay their income taxes subject to current income tax provisions or to pay under a lower single rate of taxation with limited deductions. A revenue neutral flat tax reform would save hundreds of billions of dollars in compliance costs each year and would eliminate the need for taxes on savings, dividends, and capital gains. A faster, flatter, fairer tax structure would be simple: tax returns could be done on a single page. Subtract from your income a standard deduction and deductions for charity and home ownership, multiply the result by a fixed single rate of taxation, and the process is over.
This is a complete answer to President Obama and Warren Buffett arguing that corporate CEOs should pay the same tax rate as their secretaries. Under a flat tax, they would. In my recent book America’s Ticking Bankruptcy Bomb, I explain that with the resulting economic boom from these policies, on a dynamic basis the revenue neutral flat tax rate could be as low as 15% for all.
Gingrich adds, “To further empower job creators, we must get rid of regulations that prevent them from growing and hiring. This means taking decision-making power from bureaucrats who don’t know how job creation works.” That would include repealing the Dodd-Frank regulatory tsunami threatening to swamp the nation’s financial system, and replacing the Environmental Protection Agency with an Environmental Solutions Agency “that will operate on the premise that most environmental problems can and should be solved by states and local communities…and focus on incentives for new solutions, research and technologies.” Gingrich would also replace the National Labor Relations Board with “a new common sense organization for labor-management relations,” and reform the Food and Drug Administration to fast track wonder drug breakthroughs.
Gingrich provides for a complete Reagan style economic recovery plan by also proposing to fundamentally reform the Federal Reserve. Besides “a full-scale audit of Federal Reserve activities,” Gingrich proposes that “The Fed’s monetary policy discretion should be limited to following a price rule guiding the conduct of monetary policy. The Fed should monitor the signals provided by sensitive commodity prices with the goal of maintaining stable prices, thereby contributing to a stable dollar without inflation.” Among those sensitive commodity prices would be gold, providing a formal, legislatively mandated link to gold in monetary policy for the first time in 40 years.
Gingrich displays an understanding of the libertarian, Hayek-Von Mises, Austrian school of economics in writing in regard to monetary policy:
Artificial interest rates distort investment decisions all across the economy, resulting in a misallocation of productive resources that cannot be sustained over the long term. Eventually, artificially low interest rates lead to an economic bust and widespread job losses. Only when interest rates are no longer manipulated can businesses and entrepreneurs determine the right investments that can in turn lead to sustainable job creation throughout the economy.
Art Laffer, a central architect of Reaganomics, says regarding Gingrich’s economic recovery plan, “The combination of pro-growth tax reform, spending restraint, and sound money will restore robust economic growth with low unemployment and low inflation,” and praises “the powerful effect it will have on the future growth path of the United States economy.” Indeed, Gingrich has the formula for another generation long economic boom achieved by freeing a dynamic economy that is straining to break out of the bonds of Obamanomics.
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