Cut & Simplify

Most of the economic proposals I’m hearing from the Republican pool have some merit, but they miss the mark. Simple plans like Cain’s 9-9-9 just don’t hold up to economic and political scrutiny. Complicated ones like Romney’s 59-point outline are too cumbersome.

For markets to be relatively free they must be relatively unencumbered, which means limited government intrusion. When government must be involved, it should do so in a simple and transparent fashion. The individual tax code is a prime example of failure in both respects; it’s overly confiscatory and impossible for most Americans to comprehend.

But a middle ground between simplicity and complexity is possible. Let’s start with a few basic facts:

  1. The national debt and ongoing large deficits represent a serious problem.
  2. Taxes are too high, so raising them to close the deficit isn’t a realistic option (even if this could work, which it couldn’t).
  3. The federal government must get smaller if spending is to be controlled.
  4. A serious reduction in the size of the federal government will not be painless.

Not surprisingly, the Republican candidates (save for Ron Paul) hesitate to address these head on lest they scare the presumed fragile middle-of-the-roaders. But real conservatives understand the nature of the problem and want real answers. They respect leaders who tell the truth. I’m convinced that most so-called independents recognize the seriousness of affairs as well, and they are willing to get behind articulate leader with real vision and solutions.

Fortunately, some of the necessary economic rebuilding doesn’t have to be painful. Obama has left two pieces of low-hanging fruit ripe for conservatives to pick

  1. Taxes are too complicated.
  2. American business is over-regulated.

Both of these represent win-win situations and must be leveraged as part of any economic recovery package. Revenue issues aside, a simpler tax system would save our economy billions of dollars in compliance costs alone. Cutting unnecessary regulations (i.e., most of them) would both reduce government spending and lift a heavy burden on the job creators.

This leads me to my economic proposal, which I’ll call CUT & SIMPLIFY:

  1. A flat income tax. Exempt income up to the 125% of the poverty line. Keep the deduction for charitable contributions, phase out the mortgage interest deduction, and eliminate the rest. Let the economists calculate the rate that keeps government income tax revenues at the same level, and then cut it by 10%. For example, if a 20% flat rate is needed to retain current revenue levels, set the new rate at 20% less 2%, or 18%.
  2. A flat corporate tax rate of 15%.
  3. Elimination of the capital gains tax.
  4. A pledge to veto any budget in the first year that doesn’t reduce federal expenditures by at least 20% from the previous year. This starts with overturning Obamacare and eliminating specific government agencies—like the EPA and the Department of Education— whose activities are inconsistent with the enumerated powers.

It’s my hope that the eventual Republican nominee will commit to and articulate this type of clear fundamental change to our economy, and that he can lead a tidal wave in House and Senate races that produces likeminded majorities in both bodies. Nibbling at the edges of leviathan just isn’t enough.

5 thoughts on “Cut & Simplify

  1. John, as usual, you are bordeline genius in your analysis. It’s simple, easy to understand, and most importanly looks like it would truely work. So my question is, why can’t something like this be done? I mean really why can’t this happen? I know the real answer is absolute political corruption and waste, but I wanted to hear your thoughts on why the Fed continues to ignore common sense fiscal ideas.

    1. I see 3 hurdles to overcome. One is the misconception many Americans have that “tax breaks” are really breaks; the rates must increase to compensate. Another is the reality that (as Blinder says) every deduction has a constituency. Just imagine the fight you’d get from the construction industry if we had a serious discussion about ending the mortgage interest deduction. Finally, a lot of people seem to think that they are better of when those who earn more must sacrifice a larger percentage of their wealth to the collective. Perhaps they don’t understand that a highly progressive tax code is an antidote to economic growth, regardless of how it makes them feel. When the system falls apart they blame Wall Street, not Washington.

      The Fed ignores common sense fiscal ideas because they run counter to the notion of a secretive, all-powerful central bank in the first place. The Fed exists explicitly to provide central guidance to the economy (just see the first bullet point in the Fed’s mission statement at http://www.federalreserve.gov/aboutthefed/mission.htm). History tells us that the Fed’s intrusion into the economy doesn’t work, but most people don’t understand the power of the invisible hand and the ability of free markets to correct themselves. I’d like to end the Fed, but auditing it would be a good first step.

Leave a Reply

Your email address will not be published. Required fields are marked *