Sixteen months into the conservative revolution that swept the field
in the 1994 elections, the liberals are winning the war. They lost the battle
at the polls but they are winning the war in the trenches of the Congress
and the sound bites of the evening news.
The reason is that the argument in Washington - and thus on the television
- has been about the deficit and the cruel spending cuts the Republicans
have enacted to reduce it. When the Republicans propose reducing the rate
of increase in spending for program A from 9% per year to 7% (when the annual
inflation rate is less than 3%), President Clinton brands them harsh and
heartless. In due course people across America begin to believe it, and
then such a modest reduction in future growth is thought to be "extreme,"
and "going too far too fast."
Republicans shouldn't be surprised, for it comes with the territory. Being
portrayed as mean spirited is the price to be paid for becoming the Green
Eyeshade political party - that is, paying more attention to bookkeeping
than to vision. When balancing the budget becomes your goal, and budget
scoring becomes your god, you lose.
Once upon a time the Republicans were the party of growth. Ronald Reagan
ran and won on a program of 30% income tax rate cuts. It worked. Eighteen
million net new jobs were added to the economy, economic growth rates averaged
nearly 4% per year after the tax rates kicked in, and federal tax revenues
rose by 26% during President Reagan's two terms.
A growth policy would work again. There is no way to reduce the deficit
more efficiently and more painlessly than with a higher rate of economic
growth. And there is no way of reducing the need for welfare spending more
rapidly and more permanently than by achieving higher incomes for everyone.
A successful fiscal policy must include two vital elements. Slowing the
growth of government spending is one. But encouraging economic growth is
a higher priority, for it also creates jobs and increases take home pay,
as well as reducing the deficit through greater tax receipts.
Such a policy should begin with enactment of the core pro-growth tax reduction
programs of the Contract With America.
Cutting and indexing the capital gains tax would quickly stimulate growth
by unlocking billions of dollars of assets. Expanding the use of Individual
Retirement Accounts (IRAs), and repealing the Social Security benefits tax
would increase growth, too. Raising the amount that retirees can earn without
loss of benefits would expand the supply of elderly workers, help employers
meet their demands for skilled labor over the next decade and increase federal
revenue.
Second, instead of pursuing deficit reduction as the primary goal of economic
policy, Republicans should advocate a policy of aggressive deregulation
to encourage economic growth. Free farmers from acreage restrictions so
they can grow more crops while phasing out subsidies, thus reducing spending.
Deregulate communications to unleash high-tech growth. Replace welfare programs
with work to increase labor output at the lower end of the economic scale.
Allow parents to choose the best schools for their children to spur long
range economic growth by improving the skills of the workforce. Begin the
transfer of retirement saving from the Social Security system to individually
owned marketplace IRAs. They would grow both the retirement income of older
Americans and the savings pool of the nation to fuel even more prosperity.
Finally, pick up on the growth ideas of the Tax Reform Commission: repeal
the existing tax code and replace it with a single-rate, progressive flat
tax. The resulting explosion of growth would create millions of new jobs
and billions of dollars in increased personal income. The Hall-Rabuska flat
tax proposal was estimated to increase economic growth a full percentage
point per year. Although that increase may seem small, a percentage point
increase in the growth of the economy translates into six million jobs and
two trillion dollars in real economic productivity over eight years. It
would also increase government tax revenue by nearly $700 billion, allowing
Republicans spooked by the deficit to reduce it.
That is an economic program worth expending political blood and treasure
to enact.
Let the liberals take the other side - that the tax reductions are growing
the economy too fast, creating too many jobs, and giving people too much
freedom and too much money.
Republicans can reply that Democratic proposals to reduce the economic
growth rate from 4% to 3.5% are cruel and heartless. The evening news will
be filled with shots of disappointed men and women who had been counting
on putting a new roof on the house or their daughter through college. Congressional
Budget Office scorers could be furloughed as non-essential employees. And
the deficit would go down. And who knows, even the Green Eyeshade Republicans
might be happy.
The National Center for Policy Analysis is a public policy research institute
founded in 1983 and internationally known for its studies on public policy
issues. The NCPA is headquarters in Dallas, Texas, with an office in Washington,
D.C.