have to admit, I'm impressed.
It takes real vision for a leader to propose a growth strategy in the midst of recession or even economic disaster, when most economists are saying that taxes need to rise. Tim Pawlenty's tax reform plan is just about right for the U.S.' long-term
The best solution here and now
is lower taxes and less spending. Combined, ideally, with stable money.
Lower taxes doesn't mean that federal
tax revenue as a percentage
of GDP should fall from its average
around 18% over the past sixty years. You probably couldn't make it go down if you tried. Out of ten governments that introduced "flat tax" systems since 2000, with top rates typically under 20%, four had a small decline
in revenue/GDP in the first year of the new tax system, compared to the
last year of the old
system. Six had an increase
When you combine that stable ratio with the fact that nominal GDP tended to grow strongly after the introduction
of the flat tax system, the tendency
is for total tax revenues
to rise. Only one government, the Czech Republic, had lower nominal tax revenue in
the first year of their
flat tax system. After
the top income tax rate fell from 32% to 15%, revenues
of the Czech Republic's
central government fell
0.5% from a year earlier. Even this decline is explained by the fact that the year of introduction was 2008,
a rather bad year for economies worldwide.
If this type of strategy is such a proven
success, then why the resistance? I would think long and hard about
Criticisms that the Republicans are unfairly favoring certain moneyed interests are not entirely
incorrect, in my opinion. First, I would consider some sort of adjustment for those with average
or lower incomes. This could take the form of an increase in minimum
taxable incomes, for example.
Make the first $20,000 of income
per adult tax-free. Add another $10,000 per child, so that
a family of four would enjoy the first $60,000 tax-free.
As Pawlenty suggests, a simplification of the tax code,
eliminating many special-interest handouts, should be undertaken.
This becomes politically much easier when
the corporate tax rate is 15%, rather than 35%. The highest corporate tax rate in the world
soon leads to the highest
levels of corporate tax avoidance.
If tax revenues are around
18% of GDP, then a plan to eliminate
deficit spending must bring spending down to about
18% of GDP.
In general, I would focus
more on eliminating corporate
welfare, graft and theft from spending
plans. The Republican party needs to be seen to be
doing something about the
incredible looting by
Wall Street and others, taking
place right now. This is entirely in line with
The first thing that needs to be cut
is military spending. A nice 50% should do it. All forms of corporate welfare--especially banker welfare--are next. Bring back Glass-Steagall, a rare example of an almost perfect regulatory framework.
A basic principle of capitalism
is to channel activity undertaken for self-interest into the benefit of the society as a whole. Making oneself wealthy also makes the society wealthy. Typically, this means bringing
valuable new goods and
services to market, at a competitive price.
When activity that is not beneficial
to the society is rewarded,
then the arrangement becomes
self-destructive. This could be
predatory lending, environmental destruction, outright
theft from the government, overtly criminal behavior that goes unpunished,
and any time failure is rewarded by making the failed even stronger and more dominant
than they were before.
Federal spending can't be controlled
without some sort of reform to entitlement programs.
However, Republicans will find they
get no support for this--chopping programs for the least advantaged--until they take
some meaningful steps to cease the ever-increasing plundering by
the most advantaged.
Among the entitlement
programs, an excessive focus is placed
upon Social Security. Social Security is the one federal program that actually gives money to mostly low-income people. Future deficits
of 1% of GDP are relatively small
compared to the amounts being spent on health care-related programs, which end up as revenue for the medical-industrial
complex, or defense expenditures, which end up as
revenue for the military-industrial complex.
Health care spending needs to come down. However, Republicans should start to think about how they can combine lower spending with improved results for the least advantaged.
A Medicare block grant idea
could be part of this plan.
Singapore is considered
one of the most libertarian
and business-friendly places in the world. The top income tax rate is 20%, and the corporate rate is 17%. Total health care spending in Singapore is about
3% of GDP, compared to about 17% in the U.S. The
U.S. federal government spent 5.4% of GDP in 2010 on
Medicare and Medicaid alone. To this
is added another 2.1% of GDP spent by
Singapore has universal health
care, ranked sixth in the
world based on outcomes regardless of price. It has a combination public/private
system, with ten government-operated hospitals
and thirteen private ones.
Hong Kong, another libertarian
leader, also has universal
health care. The city-state has thirty-eight
government hospitals, and
thirteen private ones. The government spends 3% of GDP to provide health care to all Hong Kong citizens.
Republicans should begin to think about how they can take
away Democrats' biggest selling point--universal health care--and implement it while also reducing
government health care spending dramatically.
This could even be done within
a context of increasing
state autonomy. It would be wonderful to see fifty different
experiments in how to provide
vastly improved health services, including universal access, while keeping expenditures to around 6% of
GDP. For some, like
Texas, this could mean a wholly private arrangement. For California,
it might be a Singapore-like public/private system. For
Massachusetts, it could be a Hong-Kong-like system of government hospitals. Let the best system win.
A word of warning: the most
successful system might be the Hong Kong-style government-operated
one. This might rankle libertarian ideologues. So what.
A similar focus can be brought to the topic of excessive compensation for government
employees. We want to reduce the cost of providing services, while actually improving the services rendered.
How can any voter complain if they're better off afterwards?
How about the environment? To say
that there is no problem at all is, in my opinion, pure denial. However, many Democratic solutions cause at
least as many problems as
Some sort of tax on natural resource use – a carbon tax, plus perhaps taxes on other resources ranging from copper to lumber – would not be a bad solution, when paired with
other tax reforms. Could we combine a rather high resource tax with the elimination of payroll taxes on
the lowest incomes? The nice thing about a resource tax, for those with low
incomes, is that you can
easily avoid it.
It would be good to think about other ways of eliminating the payroll tax on the lowest incomes, perhaps as part of an overall income tax reform.
Helping the least advantaged
has always been problematic,
but at the very least, don't take their
Lastly, a word about
Stable Money: Historically, this
has always meant a gold
standard system. Ben Bernanke used
to be known as an
"inflation target" advocate.
Is that what you want? To paraphrase George
Bernard Shaw: you either
go with gold, or you make it up as you go along. We've been making it up for forty years, and you can see the results.
The conservative vision needs to expand beyond lower corporate taxes and chopping programs for the least advantaged.
If Republicans could find superior solutions to the Democrats' biggest concerns, while cleaning up the corruption in their
own ranks, the Democratic party would be obsolete.