The good news about our economy is that it hasn???t been struck down by some mysterious act of God. Acts of Government plague our nation ??? and acts of Government are entirely within our power to change.
Today I will not recite the dismal statistics behind the failed economic policies of this administration, nor the reasons why these policies have failed. The current Presidential campaign has plenty of that, and the fact is that every single American already knows the answer to Ronald Reagan???s simple question: ???Are you better off today than you were four years ago.???
Today, I would instead like to look ahead to what the 113th Congress and the 45th President of the United States must do if we are to restore prosperity to this country.
I???d like to outline seven measures that I believe are absolutely essential to repair our economy and restore America as the most prosperous and productive nation in the world.
FIRST AND FOREMOST ??? IT???S THE SPENDING, STUPID.
Unless and until we dramatically reduce federal spending and the accompanying tax and debt burden, government will continue crowding out private capital and destroying job creation.
Three numbers tell the story very nicely: 39, 32 and 82. Thirty-nine percent is the rate of inflation and population growth combined over the last ten years between 2002 and 2012. Thirty-two percent is the growth rate of revenue in the same period ??? despite the tax cuts and the recession. Not quite keeping up with inflation and population growth, but pretty close. Eighty-two percent is the figure that???s killing us. Eighty-two percent is the growth of federal spending.
There are only two ways to pay for that spending ??? taxes and debt (and debt is simply a future tax). Taxes rob us of our current productivity, debt robs us of our future productivity AND our current investment capital. They are both driven by spending, and any discussion of taxes and debt has to start there.
As a member of the House Budget Committee, I have had the honor to work with Paul Ryan as the House produced two budget plans in 2011 and 2012 that would have placed the nation back on the path toward fiscal solvency and ultimately paid off the entire national debt by the time today???s college students are retiring ??? meaning they could retire into a prosperous and debt free America.
According to officials from Standard and Poors, the 2011 budget ??? had it been enacted ??? would have preserved the triple-A credit rating of the United States Government. Sadly, both budgets were killed in the Senate, which hasn???t passed a budget of its own in more than three years and which hasn???t acted on those sent to it by the House.
Without adopting and adhering to the House budgets ??? or something equivalent to them ??? this nation has a rendezvous with bankruptcy and economic ruin.
SECOND, REGULATIONS ARE KILLING US.
Our nation???s economy thrived when we left it to the best judgment of two individuals in a market place to decide for themselves what was in their own best interests ??? to accept the risk, reap the reward, or bear the loss.
Government limited itself to maintaining the conditions in which those decisions could be made: assuring that representations are accurate and that contracts are enforced ??? you have to tell the truth and you have to keep your promises.
Beyond that, if you were a bank and made a bad loan ??? you ate it and went away sadder but wiser. If you ran your company into the ground, somebody more competent would buy it in bankruptcy. If you couldn???t afford to buy a home ??? you didn???t buy it. The socialization of losses, the subsidization of risk and the second-guessing of decisions between a buyer and a seller not only artificially create catastrophic bubbles in the economy, but are crushing enterprise and freezing private access to capital.
It???s no mystery why banks aren???t lending ??? just ask a banker. They???ll tell you they are looking at thousands of pages of new regulations, highly inflationary monetary policy, and predatory litigation and have no idea from one day to the next what kind of economic and regulatory environment they will face as they risk their capital. So they sit on it.
ESA litigation has shut down what was once a thriving timber industry which produced a healthier economy AND a healthier forest. The EPA now requires us to spill vast amounts of fresh water for causes like the Delta Smelt; water that is then lost to the ocean while farms dry up and blow away. Environmental extremism in the name of global warming is imposing draconian restrictions on energy development while imposing wildly expensive mandates that are driving energy costs into the stratosphere. (And in case you haven???t noticed, the planet has been warming since the last ice age ??? and will continue to warm and cool as it has done for billions of years whether or not we wreck our economy and send our quality of life back to the Stone Age.).
The House has passed legislation to require any new regulations that cost over $100 million to be approved by Congress before they can be implemented, although this too was killed in the Senate.
The next Congress and Administration need not only to enact this law, but to lower the threshold and to apply it retroactively to those regulations already in place.
THIRD, GET GOVERNMENT OUT OF THE WAY AND DEVELOP AMERICA???S VAST ENERGY POTENTIAL.
The Keystone pipeline alone means $7 billion of private investment and 20,000 U.S. jobs ??? not to mention the delivery of more than a half million barrels of Canadian crude oil per day to fuel the American economy.
If you want to know what the economy looks like in an energy independent America, look to North Dakota, where gas production on private lands has expanded dramatically due to hydraulic fracturing and horizontal drilling ??? unemployment there is now at three percent.
Including our oil shale, America???s petroleum supply alone is three times the size of Saudi Arabia. Our coal reserves are estimated to last for the next 200 years.
We have vast, untapped hydroelectric potential ??? not just from dams, but from small hydro-generators placed in existing pipelines and canals. (If the federal government would simply get out of the way and allow the use of federal canals and pipelines for hydro-generation, it is estimated we could add the capacity of the Glenn Canyon Dam in Colorado alone).
Our nuclear potential is unlimited.
The four cheapest and most abundant forms of energy we have available to us are hydro, oil and gas, coal and nuclear in that order. Yet, what does this government actively discourage? Hydro, oil and gas, coal and nuclear, in that order.
The House has passed legislation to expand energy exploration and production, but once again, this legislation is not moving through the Senate and is opposed by the Administration. But it is absolutely vital to the future prosperity of our nation that we actively develop our domestic energy supplies.
FOURTH, BROADEN, FLATTEN AND LOWER OUR TAX RATES.
At 39 percent, the combined, effective United States corporate tax rate is the highest in the world ??? in fact, it is 14 percent higher than the average OECD country. And yet, we???re shocked ??? just shocked ??? when American companies flee to more hospitable environments.
Meanwhile, the Administration is pushing to increase taxes on what the President calls ???millionaires and billionaires??? ??? those he oddly defines as making over $200,000 per year. But when you peel back the proposal, you find that much of these tax increases hit small businesses filing under sub-chapter S ??? the same small businesses that we are depending on to create two-thirds of the new jobs in our society.
Indeed, as much as 87 percent of net small business income would be socked with these tax increases. To crush those businesses with an effective marginal tax increase of up to 13 percent and then expect them to create more jobs is simply insane.
That???s why it is absolutely imperative that the Bush-era tax rates be made permanent, but that???s just the beginning. Whatever is the tax rate, thousands of pages of deductions, exemptions, credits, carry-forwards and other loopholes have drastically distorted the flow of capital away from its highest and best use. This diminishes and destroys its economic potential.
The elimination of these distortions would make possible the lowering of the highest marginal tax rate on individuals and corporations to 25 percent ??? making us competitive again with other countries and unlocking American capital that could otherwise be put to productive use. I believe that the ideal would be a flat rate tax on all income above the federal poverty rate when it is realized, whether as wages, benefits, dividends or capital gains, with the only deductions being for mortgage interest or rent on a principal residence, taxes, medical and business expenses, food and charitable contributions.
FIFTH, STOP PICKING WINNERS AND LOSERS IN THE MARKETPLACE.
Whether it is bailouts or subsidies, this is a pernicious development that has to be eradicated. Perhaps the poster-child for this folly is Solyndra, but it is becoming rampant throughout our economy. And I???d make two points with respect to the bailout culture this administration didn???t invent ??? but has taken to new extremes.
The first is, as Arthur Laffer has often pointed out, if you subsidize something you get more of it. For example, once government has declared one enterprise too big to fail, by definition all of its competitors become ???too small to worry about.??? Capital flows to such giants, not by merit, but by government fiat. Ultimately, the ???Too small to worry about??? competitors are bought up or driven out, and the ???too big to fail??? giants get even bigger.
The second is the effect this has on encouraging bad decisions into the future. Think about what we???re spending on energy subsidies, agricultural subsidies, ethanol subsidies, car subsidies, mortgage subsidies, mass transit subsidies, cash for clunkers, cash for caulkers and other forms of corporate welfare and crony capitalism, just to scratch the surface?
When government plays this game, risks are masked, inefficiencies go undetected and uncorrected, capital flows from productive to non-productive use and perhaps the most dangerous for a free society, the government picks winners and losers. The productive sector becomes less dependent on its customers and more beholden to government.
The tax reform I have already outlined takes us a long way in that direction, but we must also end the grants and subsidy programs propping up failing enterprises and hiding the true costs of their products. This includes stopping the underwriting of failing enterprises, ending price supports for agricultural and insurance products, stop running research and development and marketing for companies that ought to pay these costs themselves ??? and reap the rewards themselves.
SIXTH, REPEAL OBAMACARE AND REPLACE IT WITH PATIENT-CENTERED DELIVERY SYSTEMS.
This measure covers one sixth of the economy and was sold on three promises, all of which were false.
First, we were told it would bend the cost-curve down. Now we learn from the Medicare actuary that it will actually add $300 billion more to our healthcare costs than what we would have spent without Obamacare.
Second we were told that it would be good for the economy. Now the Congressional Budget Office estimates that Obamacare will cost the economy a net loss of 800,000 jobs.
Third, we were told that if you like your plan you can keep it, but now we learn that fully one third of businesses that had been providing health insurance will be dropping it as a result of the increased costs imposed by Obamacare.
It is one of the top reasons that small business owners report when asked of their reluctance to expand their work forces.
But it???s not enough to repeal Obamacare if we don???t address the failings of the current system that spawned it. I think it is vital that we extend to employees the same tax advantages we currently give to employers so that they can afford to purchase their own health plans. We need to restore to consumers the freedom to shop across state lines for the best plan that meets their needs, and restore freedom to tailor their plans to their individual needs. We have to address artificial cost-drivers in the system like out of control malpractice costs, which brings me to the seventh point.
SEVENTH, STOP USING THE CIVIL JUSTICE SYSTEM FOR PLUNDER.
The purpose of the civil courts is to assess what actual damage has been done to one individual by the specific acts of another and to assure the responsible party makes the victim whole ??? not better than whole ??? just whole.
Today, businesses are being swamped with frivolous litigation that is filed not with the expectation of winning a suit, but with the expectation that an innocent defendant will realize that the costs of successfully defending himself will vastly exceed the cost of settling out of court.
This has to stop. The innocent party in a civil suit is either the defendant who has been needlessly hauled into court or the plaintiff who has had to pursue a guilty defendant into court to enforce his rightful claims. In either case, the meritorious party faces a Pyrrhic victory: prevail in court, but at the expense of crushing legal bills. Who will make the innocent party whole for these damages?
England ??? indeed most other common-law countries ??? recognize the damage that is done either by being hauled into court to defend an unjust suit or by having to pursue a case into court to enforce a just claim. By instituting that rule, frivolous suits disappear and the civil courts are freed to consider only those suits where both parties are sincere and confident of their claims.
Second, we must recognize that the civil courts were never intended to assess punitive damages ??? that is the role of the criminal courts. The burden of proof, the evidence standards, the jury thresholds and the notice requirements are all different because there is a fundamental difference between punishing an evil deed and making a damaged party whole. Furthermore, the use of the civil courts for private parties to assess punitive damages under such laws as the ADA are making a travesty of our justice system and destroying thousands of small businesses and the jobs that depend on them.
In summary: 1) Dramatically reduce federal spending; 2) Require Congressional review and consent of regulations that impose significant compliance costs; 3) Open up America???s vast natural resources to sustainable development; 4) Broaden, flatten and lower our taxes; 5) Get government out of the subsidy business; 6) Repeal Obamacare and replace it with a competitive, open and patient-centered system; and 7) Enact the English Rule of ???Loser Pays??? in civil suits and get punitive damages out of the civil courts.
I believe these seven reforms would produce a new golden age for the American economy, and I believe the time may be approaching when this nation summons the political will to do so.
The Declaration of Independence notes that ???all experience hath shown that mankind are disposed to suffer, while evils are sufferable, than to right themselves by altering the forms to which they have become accustomed.??? For some very good reasons, our form of government was designed to resist change ??? so change only occurs in those moments when the necessity for it finally outweighs our resistance to it.
I believe this nation may have now reached that tipping point.
The reforms I???ve described are for the most part already embodied in legislation introduced in the 112th Congress or under development for the 113th Congress and whether they are adopted or forgotten depends on the decisions of the American people in the next few weeks.
I will conclude with a simple but universal maxim: freedom works. It is time America put it back to work.