Political Hay

But What’s the GOP Plan?

Democrats will rue the day they asked that question.

By 3.31.10

Is the GOP really just the party of no, as Democrat talking points say and the Democrat party controlled media echo? Or do Republicans have a positive vision for America besides their well-justified opposition to the ultra-left Obamacrat agenda?

Gingrich's American Solutions

The truth is that the emerging leaders of today's GOP have been furiously projecting positive alternatives to the leftist agenda now reigning in Washington. Start with former House Speaker Newt Gingrich, who could be going toe to toe with Obama in 2012. The whole point of his grassroots organization American Solutions is precisely to promote a positive agenda of solutions to America's mounting troubles, prominently featured at the organization's website. A sweeping agenda of free market, smaller government reforms for just about every problem and issue is also presented in his recent book, Real Change, and in his soon to be released new book, To Save America.

On the economy and jobs, Gingrich is explicitly promoting the four components of Reaganomics. On tax rates, he proposes a 40% cut in the current 25% tax rate paid by the middle class, leaving 90% of workers effectively with a flat tax of 15% or less. He recognizes that America suffers from the second highest business tax rate in the industrialized world, leaving American companies uncompetitive in the global marketplace. So he supports cutting the federal corporate tax rate of 35% to the 12.5% rate Ireland adopted over 20 years ago. The Irish economy boomed as a result, raising per capita income, meaning wages for working people, in that long-time poor country from the second lowest in the EU to the second highest. Our own Treasury Department reports that Ireland raises more corporate tax revenue as a percent of GDP with its 12.5% rate than we do with our 35% rate. Newt writes at AmericanSolutions.com, "Small businesses are responsible for the overwhelming majority of jobs created in America. A reduction in the corporate tax rate would allow them to keep more of their money and hire more employees."

On capital gains, which effectively double taxes future capital income, Gingrich proposes cutting the rate to zero, following 14 out of 30 OECD countries, plus China, Taiwan, Hong Kong, Singapore, and others, who have already zeroed out capital gains taxes, and as a result create more jobs. He also supports abolishing the death tax, still another layer of taxation on capital. He proposes immediate expensing, meaning a 100% first year deduction, for investment in new machinery and equipment, so that American workers can work with "the most modern and productive equipment in the world." That means higher wages. Supply-siders emphasize this as a very pro-growth measure.

Ultimately, Gingrich proposes fundamental tax reform involving an optional 15% flat tax similar to the proposals of Steve Forbes and of the Wall Street Journal's Steve Moore. Workers could choose the new 15% flat tax with virtually all deductions and loopholes abolished, or they could choose to stay with the deductions and complexities of the current tax code. (Almost all would pay less under the new option, and enjoy the lower costs of the far simpler tax code.)

Gingrich proposes as well to balance the budget within seven years, starting with the proportional equivalent of Reagan's 1981 budget cuts, an immediate reduction of $180 billion in annual federal spending. He advocates next a budget cutting federal spending by $1 trillion over 10 years, as the House adopted in 1995 when he was Speaker. This all could be accomplished by returning everything except Social Security, Medicare and Medicaid to 2007 budget levels, repealing all unspent stimulus funds, and terminating, not respending, TARP funding.

Gingrich would deregulate energy markets, unleashing the private sector as Reagan used to say, to produce reliable low cost energy supplies, further boosting the economy. This would include expanding offshore and onshore drilling, unshackling coal producers, and liberating nuclear power (safety standards still strictly enforced). Regulatory barriers to alternative energy would be squelched as well. Further deregulation would involve repealing the disastrous mark-to-market accounting requirements and the Community Reinvestment Act, which both contributed mightily to the financial crisis, and replacing Sarbanes-Oxley with far less costly requirements. Gingrich also proposes to break up and privatize Fannie Mae and Freddie Mac.

Gingrich advances as well the same strong dollar monetary policies as Reagan, to maintain the dollar as the world's reserve currency, ensure lower interest rates and more capital investment over the long run, and avert any return to inflation. This all amounts to a full-blown reprise of Reaganomics, updated for today. It is a prescription for a renewed economic boom for another 25 years, as Reaganomics produced.

For the longer run, Gingrich proposes sweeping entitlement reforms, solving that potentially overwhelming problem with fundamental structural change that averts any need for a tax increase. He advocates empowering workers with the freedom to choose personal accounts for Social Security, eventually expanding the accounts to take over financing of all the benefits currently financed by the payroll tax, allowing that tax to be phased out entirely. He proposes building on the enormously successful 1996 welfare reforms by expanding the underlying concept of block grants to the states to finance mandatory work for welfare to the other 85 federal means tested welfare programs, including Medicaid, food stamps, and public housing.

On health care, Gingrich co-authored a Wall Street Journal commentary with Health Savings Account (HSA) and Patient Power guru John Goodman involving expanding coverage and reducing costs through greater patient control, incentives, and freer markets, including comprehensive HSAs. Gingrich, in fact, heads a whole think tank, The Center for Health Transformation, focused on advancing these ideas.

The Ryan Roadmap

Skyrocketing GOP House Budget Chief Paul Ryan has introduced legislation providing for the increasingly famous Ryan Roadmap -- a comprehensive plan that would eliminate long term budget deficits, achieve full solvency for Social Security and Medicare, provide a comprehensive health care safety net for the poor and uninsured, and adopt comprehensive tax reform with low, pro-growth tax rates. The entire Roadmap is officially scored by CBO as achieving these results, with no tax increase. Indeed, the federal budget is balanced over the long run with both taxes and spending at their long run historical average of 18.6% of GDP.

For health care, the Roadmap provides effectively that the tax break for health insurance that currently applies only to employer provided insurance is extended to everyone. All workers would be eligible for a refundable tax credit of $2,300 for individuals and $5,700 for families for the purchase of health insurance. They could buy that insurance interstate nationwide, and would own it directly and individually, making it fully portable from job to job.

Medicaid would provide supplemental payments to the poor besides these tax credits to help them buy insurance. This would benefit the poor enormously, freeing them from the Medicaid ghetto that so badly underpays doctors and hospitals that 40% won't even take Medicaid patients today, resulting in worse health outcomes for the poor. The poor would instead enjoy the same health care as the middle class, since they would be able to buy the same insurance in the marketplace.

States would also be free to take the federal financing for Medicaid in finite block grants, along with the flexibility to tailor their programs to the specific needs of their populations and better control costs. The plan also provides for state run high risk pools that guarantee back-up, safety net coverage for all regardless of pre-existing conditions, addressing that problem without burdensome regulations that would sharply raise health insurance costs for everyone.

For Social Security, workers under 55 would be free to choose to invest over one-third of their payroll taxes in personal retirement accounts, similar to the Thrift Savings Plan covering federal employees. Those accounts take over responsibility for paying an equivalent proportion of future benefits, resulting in sharp reductions in government spending over the long run. The accounts are backed up by a federal guarantee that workers will not lose a dollar of their contributions to the accounts, even after inflation. Because long run market investment returns are so much higher than what Social Security even promises, let alone what it can pay, workers should receive substantially higher overall retirement benefits as a result.

For Medicare, those under 55 would receive vouchers starting out at $11,000 per year to be used to buy health insurance in retirement. Low income retirees would receive more depending on their income, to ensure they could obtain essential coverage.

The Roadmap would provide all taxpayers the choice of filing under an alternative, greatly simplified tax code with just two rates even lower than in Reagan's 1986 tax reform. Joint filers earning up to $100,000 per year, and single filers earning up to $50,000, would pay 10%, with a 25% rate on higher incomes. A generous standard deduction and personal exemption would exempt the first $39,000 per year for a family of four from any income tax.

The plan would promote savings by eliminating as well taxation of capital gains, dividends, and interest, and the entire death tax, which would stop the multiple taxation of the capital essential to creating jobs and economic growth. The arbitrary and unfair Alternative Minimum Tax (AMT) would also be abolished. The corporate income tax, currently with the second highest rate in the industrialized world leaving American companies uncompetitive, would be replaced entirely with a border adjustable business consumption tax of 8.5%, which would restore American international competitiveness.

Those who wanted to continue to use any of the deductions, credits or tax preferences of the current code would be free to do so, by filing under the current complex code with its much higher rates. But those choosing the new alternative could save considerable money and time filing their taxes on a postcard.

Further contributing to a long-term balanced budget is a binding cap on all other federal spending. The massive reductions in federal spending, taxes, and government debt from the entire Roadmap would produce a booming economy, the creation of millions of jobs, higher wages and incomes, and long term prosperity for America, restoring the American Dream. This is exactly what Tea Party activists have been asking for. 

Patient Power v. Government Power

Don't be misled by those, left or right, who are saying Obamacare's government takeover of health care can't be repealed. As the above discussion shows, reform of the entire entitlement state is in play, Social Security, Medicare, Medicaid, welfare, and Obamacare.

On health care, the GOP across the board is embracing the Patient Power policies first advanced in 1992 by John Goodman in the pathbreaking book of that same name. That includes expanding the tax break for employer provided health insurance to all workers, as described above, freeing workers to choose their own individual portable insurance, rather than being stuck with what the employer chooses for them. It includes freeing the poor from Medicaid to choose their own health plan as well, and enjoy the same health care as the middle class in the process. It includes the same choice for seniors, expanding all of Medicare into a Medicare Advantage option providing for choice among superior private insurance alternatives. It was the GOP that introduced the popular Medicare Advantage option in the first place.

And it is the GOP now proposing to expand choice further by allowing consumers to choose any health plan in a national insurance market, through interstate sales. Moreover, from Medicaid, to Medicare, to the employer and individual insurance markets, all would enjoy the choice of an HSA that maximizes patient choice and control over health care. With an HSA, only a small fraction of current health insurance dollars go to the insurance company for catastrophic health insurance with a high deductible, with the rest kept under the control of the patient in the HSA to pay for the care of his or her choice directly.

This is in diametrically opposing contrast to the Government Power theme of Obamacare, with its over 100 new government bureaucracies, agencies, boards, commissions and programs taking over and ruling health care. These government authorities will tell doctors and hospitals what are the "best practices" in health care, what works in health care and what doesn't, what health care is cost effective, what is quality health care and what isn't, enforcing all of this through the payment compensation system. Under the individual mandate and the employer mandate, the government dictates to everyone exactly what health insurance they must buy. That will be the most expensive insurance including all the politically correct benefits, translating into soaring premiums, which are effective tax increase under the mandates. The government also dictates to insurance companies exactly what health insurance they must sell, to whom they must sell it, and at what price. The government even redistributes premium income among insurance companies through "risk adjustment." Is there any aspect of health care that Obamacare leaves beyond government control?

Under Obamacare's Government Power approach, millions will now lose their employer provided insurance to become government dependents, millions of seniors will lose their Medicare Advantage plans, and millions of working people will lose their Health Savings Accounts. Then there are the $2.5 trillion in Medicare cuts over the first 20 years, which begins the effective health care rationing, and the trillions in increased taxes, which the GOP Patient Power approach would also repeal.

Just one week of experience with Obamacare shows how unhinged from reality the ultra-left ruling Democrats who imposed it on us are. Because Obamacare raises taxes on employer provided retiree health benefits, U.S. accounting laws enforced by the SEC require companies to immediately report the resulting losses. So the loss reports are coming in: AT&T $1 billion, Caterpillar $100 million, Deere & Co. $150 million, 3M $90 million. President Obama promised us his government takeover would promote jobs and economic growth by reducing costs for employers, but already it is doing just the opposite.

Democrats shocked by this regulatory compliance have already reacted with a summons demanding documents and Congressional testimony from the companies because their reported real world results "appear to conflict with independent analyses, which show that the new law will expand coverage and bring down costs." Rejecting any consideration of dissenting data and analysis as a right-wing plot, they rigidly stuck to their own propaganda talking points, and now they and the rest of us will suffer the consequences, building over time into a tidal wave.

I have no doubt that the American people will overwhelmingly support Patient Power over Government Power. Consequently, the Republican campaign to replace Obamacare with Patient Power will just be one long, powerful, party-building exercise right through to Inauguration Day, 2013.

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About the Author

Peter Ferrara is a Senior Fellow for the Heartland Institute, and Senior Policy Advisor on Entitlement Reform and Budget Policy for the National Tax Limitation Committee. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General under President George H.W. Bush.