Diary

Economic Bill of Rights

In 1994, Republicans used the Contact with America to help win back control of Congress. It took both positive ideas, like the Contract, along with negative reactions to the Clinton Presidency, to take control. Republicans have done an excellent job of countering the Obama Presidencies’ plans, however, we now need to start the process of coming up with a positive, idea based platform for Republicans to ride the anti-Obama wave that is building. Just like the individual items in the Contract were not new, but rather ideas that were being pushed on an individual basis at times in the prior decade or decades, so are the ideas I suggest we use as the postive, ideas based platform to win control of Congress back.

The Economic Bill of Rights (a term used by Reagan near the end of his presidency, as well as in recent articles by James Pethokoukis) is I feel a fitting term to use in this time of the Great Recession and its aftermath. These 10 ideas I feel would unite Republicans, galvanize conservatives, and lead the surge to victory.

A. Taxes

1. Income Tax Reform- There has been a fight for the last decade of whether to go with a flat tax or sales tax. I know that all sides feel either would be better than what we have currently. I feel that tax reform is much more important than tax cuts at this point. Reagan’s tax cuts worked as the top rate went from 70% to 28%. However, Bush’s tax cut went from 39% to 36%, Not nearly as much bang for the buck. We should consider a modified income tax with rates, 10% and 25%, with limited deductions of the mortgage deduction, charitible giving deduction, and increase the child tax credit to $5,000 per child. Also, the entitlement taxes (FICA & Medicare) should show the full amount, which includes the half paid by the employer should show fully on the employees paycheck to show how much is paid. Finally, the Earned Income Tax Credit should be revamped to be easier to use. Those earning under the poverty level get 100% of their entitlement taxes back. Those at 2 times the poverty level get half of their entitlement taxes back, beyond that, no one gets anymore EITC. Dividends and Capital Gains are taxed as income. Other definitions of income (emplyee health insurance, etc) stay as currently written. Overall, there are increases in taxes on some, (those living on dividends or capital gains, those taking advantage of the EITC) However, with a top rate of 25% rate, this is low enough to make up for the cap gains increase, and its simplicity will make this much easier to sell. It is pro family, pro growth, and much simpler than what we have, and it does not have the negatives of the flat tax of a 17% rate for everyone. Compared to the sales tax, it does not require a constitutional amendment to eliminate the income tax. The problem is that how do you stop adding layers and layers? Require a 3/5 majority to change any rates, or income definitions. Also, index the rates and the child tax credit to inflation. Democrats will be glad to get tax cuts off of the table, and Republicans will have what they have always wanted, a pro growth, pro family tax policy.

2. Corporate Tax- First, I do not believe that Bruce Bartlett’s note on the VAT in a recent Forbes article would work. It would bring in 1 trillion a year, but using a 20% rate. This in reality is a sales tax, so even though we all know that corporate taxes are passed down to consumers, I feel that a VAT is too easy to increase, and with a 20% rate, they still cannot get enough to pay for the current economy. Also, if a 20% rate only brings in 1 trillion, then how effective is that, when you have a 20% sales tax, yet are not bringing in 20% of GDP? That is why we should stay with a corporate sales tax, but instead of all of the corporate welfare, there is a simple answer, use instead of the tax code, but rather use GAAP, Generally Accepted Accounting Principles, to use as the basis for the tax code. So, no extra deductions on depreciation, or other extra rules. Then use a flat tax based on net income, and use a rate in the 20’s to get a revenue neutral rate. The rate is lower, we get an easier to use corporate tax, and corporation will not have multiple sets of books, one for taxes and one for GAAP. This will be easy to use and generate more income than we have long term due to easier to use rules. Again require 3/5 majority to change any wording or rates.

B. Retirement

3. 401k Mandatory Enrollment- With Pensions in limited use, 401k usage should be mandatory. Preferrably with a company match on income up until 5% of income, so 10% of an employees wages are saved annually (5% from the worker and 5% from the company). In reality by making this mandatory, this is a tax, but we need to focus on retirement security. Also, 401k’s need to be easier to move in that they do not belong to the company, and when you leave move to an IRA, but like an IRA that you could take with you and not have to roll it over to an IRA. Basically the 401k needs to be an IRA.  401k needs to be 1 of 3 parts of a retirement stool along with social security and pensions/annuities.

4. Annuities- With Pensions in limited supply, along with the 401k, Companies need to be required to add 5% of a workers pay into a vehicle that eventually would be an annuity when the worker tuns 65. This would be like a pension, but not be placed on the companies books, so they are not bound when market’s turn and need to pump up their pension plans to meet obligations. All Pensions would need to be converted into these annuities, and again just like the revised 401k, these would move with the employee, and companies would add into the employees policy. Overall, this would along with social security provide the basic retirement amount, and the 401k would be able to be considered supplemental as it originally was considered.

5. Social Security Reform- No, not private accounts, but rather, if the formula was changed, and the above items in regards to pensions/annuities and 401ks were considered as part of a retirement reform plan to strengthen social security but keep it as it is, just a portion, not all of your retirement, would end the battle, and with mandatory 401ks and mandatory annuities, we would have private accounts, but social security would be there long term with the cola change for higher earners without changing the tax rate. Overall, I feel all three of these plans would be able to be passed on a bipartisan basis.

Budget

6.Line Item Veto- Nearly all states have this, and this has been a long term goal. However, I feel that this should be pushed as the answer to earmarks and the pork, which was not nearly as bad when the last significant effort to use this tool was done. Instead of earmark reform, the line item veto would accomplish the same thing, and would help in other challenges. However, since the Supreme Court overturned this, this would be part 2 of the constitutional amendment that I will suggest below.

7. Balanced Budget Amendment- All states except Vermont have this, and in most cases, spending cuts are a significant portion of a state’s response to income reductions during recessions. This nearly passed in 1995, and with the huge deficit, I feel we would be able to get the votes to get this passed. Along with a Line Item Veto involved, this would be a huge step forward to focus on fiscal responsibility.

8. Spending Commission- Judd Gregg and Kent Conrad have been trying to get this created, and are hoping to do this attached to the debt increase bill that will need to be passed soon. This is similar to the military closure commission, only an up or down vote, and the military commission did succeed in its goals, and I feel along with the balanced budget amendment, this would go a long way to getting spending under control.

9. A National Mortgage- This is an outside the box idea, but our national debt is so high, that we need a plan to pay down this debt. If we had a balanced budget amendment, so we knew the national debt would not grow anymore, then you can start on the process of eliminating the debt. If you had a 20 year or even 30 year mortgage, where all of the national debt is revised into one large mortgage, and just like during the world wars, a push to buy the portions of this national mortgage. So, step one is admitting the obvious that the portion owed by the government (eg social security treasuries, etc) which is 4 trillion out of the 11 trillion of the national debt, would be acknowledged that this is an accounting gimick. Then you have the 7 trillion that you would sell over a 20 to 30 year timeframe. If this could be accomplished, then after that time is completed, you could either increase spending a huge portion (as no interest payments would be due as they are now) or huge tax cuts, or a mix of both. At the same time, many of the boomers would be not on the entitlements, so spending on entitlements would also be down. The incentive for both parties is what to do with the money once the debt payments are done. That would be the incentive to have this approved by bothparties, but this cannot be done until a balanced budget amendment is passed to eliminate any future debt. If this occurs, the only new debt would be passed by 3/5 majority of both houses, which would in reality be only during wartime and we would have the government back off of the new debt once that war is done. There is no reason we cannot stop new deficit spending as well as eliminate this by the time of our generations retirement.

10. Regulation Reform- The final item would be to require all regulations be passed as laws. The regulatory agencies would have to make the request, but instead of creating new regulations constantly, it would reguire congress to create bills for those regulations, and then require them to be passed as laws. If the regulation makes sense, this would be easy. If not, if would not go through. Also all regulations would have a sunset provision and need to be passed again every 10 years. First, this would slow regulations. Second, it would eliminate a lot of regulations that have limited reasons to be in place. Finally, instead of a 4th branch of government as the regulatory agencies are now, they would be back to being under their correct branches. Legislative branch makes laws, Executive applies and Judicial interprets. However, with many agencies they create the regulation then have their own courts to handle disputes. All of this is basically outside the 3 branches, and this requirement gets it back under control. The 3 branches should love this idea, as it puts control back into their hands. With the sunset provision, we also can eliminate rules that are not needed anymore.

 

Overall, nearly all of these ideas are older, but many could play very well with the electorate now that Obama has pushed governement spending and control so far, as well as the Bush administration not pushing the fiscal issues that they should have. Hopefully, we can fulfill Reagan’s wish for an Econimic Bill of Rights.