WHEN RONALD REAGAN gave his “A Time for Choosing” speech on
October 27, just days before the 1964 election between Barry
Goldwater and LBJ, he correctly outlined two possible paths for the
United States: up toward liberty or down toward statism.
The vote for Lyndon Johnson and his Democrat Congress was a
choice to move further down the Road to Serfdom. But would a vote
for Goldwater have put us on the opposite path? Goldwater was very
lonely in the Republican congressional caucus. He had convinced a
majority of GOP primary voters that the party could and should
become a conservative party. But the Republican Party machinery and
its congressional representatives had made no such decision. A
President Goldwater would have faced a Congress uncertain about
which direction to move.
The November 2012 election more closely matches Ronald Reagan’s
speech. The choice is not simply between two men, Romney and Obama,
but between two parties whose proposals would march the country in
diametrically opposed directions.
Each side’s stance on taxes provides an illustrative contrast. A
re-elected Obama can veto any effort to reform or reduce federal
taxes. On January 2013, the Bush tax cuts of 2001 and 2003 end. The
Alternative Minimum Tax (AMT) patch ends, and the AMT will begin to
hit 31 million families. The top personal tax rate jumps to 43.4
percent, the capital gains rate jumps from 15 percent to 23.8
percent, the tax on corporate dividends increases from 15 percent
to 43. 4 percent. And middle-class taxation?
The Obama 1.0 promise in 2008 was clear:
I can make a firm pledge. Under my plan, no family making less
than $250,000 a year will see any form of tax increase. Not your
income tax, not your payroll tax, not your capital gains taxes, not
any of your taxes.
The Obama 2.0 promise, first stated on August 8, 2012, in Grand
Junction, Colorado, reads a little differently:
Now, if your family makes under $250,000— which, by the way, is
98 percent of American families and 97 percent of small businesses—
under my plan, your income taxes would not increase a single dime
next year. That’s my plan.
One notes two changes. Americans of all incomes are on notice
that Obama is only promising not to increase your income taxes. A
value-added tax, a wealth tax, excise taxes, or import duties could
be imposed tomorrow. And the promise to protect those under
$250,000 a year has an expiration date of January 1, 2014. The
promise only exists “next year”—2013.
Should Americans elect a President Romney and add at least tree
Republican senators, to establish Republican control of the U.S.
Senate alongside a continued GOP House, the path on taxes is clear.
Romney has called for an across-the-board tax cut of 20 percent,
which would bring the top individual rate to 28 percent. The House
and most GOP senators have already voted for the plan proposed by
Paul Ryan, which lowers the top rate to 25 percent.
Both Romney and a Republican Congress would be committed to
shifting to a territorial tax. Under our present worldwide tax
system, American firms doing business overseas must pay U.S. taxes
on income earned abroad, even though they’ve already been taxed on
that income by their host nation’s government. Foreign firms doing
business in America pay our taxes but do not pay again at home.
This, of course, puts all American firms at a disadvantage in
worldwide competition. It has hurt us badly.
Obama opposed a two-year “repatriation,” which would have
allowed American firms to bring overseas profits back to the United
States taxed at a 5.25 percent rate, rather than the usual
corporate rate, which can be as high as 35 percent. That would have
brought an estimated $1 trillion back to the U.S., which would have
greatly strengthened the economy and boosted Obama’s chances of
winning in November. But he said no. He said “Hell, no.” He could
not stand the thought of American businesses earning money without
paying his vig.
Obama and the modern Republican Party offer starkly different
paths on federal spending as well. The Congressional Budget Office
was asked to score President Obama’s 2013 budget, looking out to
2050. In 2011, actual federal spending was 24 percent of GDP. That
figure increases to 25.5 percent in 2023, 29 percent in 2030, and
34 percent in 2040. By 2050, spending directed by Washington would
be fully 39. 25 percent of the economy. If you are calculating your
tax bill, please remember to add your state and local taxes to this
number.
By 2040, debt as a percentage of the economy reaches 194
percent, and in 2050 the CBO report shows an asterisk representing
“greater than 200 percent of GDP.” The higher spending reflects
Obamacare and the expansion of present entitlements as Baby Boomers
retire into an unreformed Medicare and Social Security system. The
CBO model assumes that the “fiscal cliff” of 2013 is avoided and
the 2001 and 2003 tax cuts and AMT patch extended. Without those
assumptions, economic growth would be lower and numbers worse.
RYAN’S PLAN, the “Path to Prosperity,” was scored by the CBO as
follows: In 2023, a decade after hypothetical enactment, total tax
revenues are 18.5 percent of GDP, the historical average for the
past 30 years. Federal spending declines to 20 percent from the
present level of 24 percent, and the annual deficit is less than 1
percent of GDP. Spending as a percentage of the economy falls to
18.8 percent by 2040 and 16 percent by 2050. And all these
projections understate the Republican case, because they are done
with static models that assume reducing tax rates would have zero
impact on economic growth. (n.b.: The difference over a decade
between an economy growing at 2 percent per year and one growing at
3 percent per year is $2.5 trillion in additional tax revenue.)
The Ryan budget plan also prevents America from becoming a
European welfare state by reforming existing government programs
rather than simply cutting expenditures. Specifically, the plan
builds on two reforms we have already seen work well in the real
world.The first is to block grant means-tested welfare programs.
This was Ronald Reagan’s idea in 1972, and it was mocked by the
left and many in his own party until it was passed (for the third
time) by a Republican Congress in 1996 and signed by a terrified
Bill Clinton, who had been informed by his consultant Dick Morris
that he would be defeated in November if he refused. Every
criticism of block granting welfare (Aid to Families with Dependent
Children, or AFDC) was proven false. Fifty states were allowed to
run AFDC programs without Washington’s micromanagement or federal
rules to incentivize growing welfare rolls. Ryan’s budget would
reform food stamps and Medicaid the same way. (Economist Peter
Ferrara finds more than 185 meanstested welfare programs—many quite
small—that could eventually be block granted.) If converting
federally administered welfare programs to block grants is as
successful as the previous effort in 1996, taxpayers will win, and
the programs will be actually focused on helping those in need,
rather than creating “learned dependence.”
The second reform, moving from defined benefit to defined
contribution retirement benefits, has been done in most private
sector pension plans. Those cities, states, and unionized firms
with defined benefit plans are the ones we read about in the
newspapers suffering from unfunded liabilities and bankruptcy. The
Ryan plan reforms Medicare for those under 55 by moving in that
direction.
Democrats claimed to be delighted that Republicans put their
plans in writing. Now, they chortled, the Republican vision would
be vulnerable to attack.They have it backward. In the past, every
election cycle Democrats would claim that Republicans wanted to
gut/end/slash Social Security, Medicaid, and Medicare. Because
there was no GOP plan, Democrats were free to invent their own
straw man. But in 2000 and 2004, Bush ran on a plan to
privatize/personalize Social Security for those under 55. Because
the plan was written down, Democrats could not credibly scare
anyone over 55. Younger voters wanted the option of a 40l(k) plan.
Similarly, the Ryan plan denies Obama the option of using scare
tactics, since its changes would not affect those over 55. And by
making the advantages for younger Americans clear, Ryan will
attract their support.
The Ryan “Path to Prosperity” or the Obama path to more of the
same. Up or down. This November is truly a time for choosing.
