Time for Real Change on the Economy and Taxes

Time for Real Change on the Economy and Taxes
by Newt Gingrich (more by this author)
Posted 03/18/2008 ETUpdated 03/18/2008 ET

The news on the economy this week is increasingly unsettling.
Gas prices continue to rise, with inflationary ripple effects throughout the economy. And the bust of the subprime mortgage market has now spread throughout the credit markets to such a degree that Bear Stearns, the fifth largest American investment bank, was sold last weekend in a firesale.

Worse still, Wall Street's banks have essentially stopped lending. The appetite for any type of risk has come to a screeching stop. The problem is that a modern economy can't grow, let alone be sustained, for very long when banks stop lending. Companies use loans to finance operations, new equipment, and new acquisitions. That means if companies can't borrow, many will ultimately go out of business and thousands of people will lose their jobs.
First Step: Immediate Action Needed to Stabilize the Housing Market and Keep People in their Homes

In January, I wrote that the Washington insider "stimulus" package that was then being prepared (which subsequently passed) was "too small, too temporary and clearly inadequate for the scale of the economic problems we face."

Since then, our economic challenges have only grown. Seventy percent of economists surveyed by the Wall Street Journal believe the country is currently in recession. In February, national foreclosure filings jumped 60%, with California alone experiencing a 131% jump from the previous year. Many Americans are finding that their largest investment (their home) has lost value; many are unable to sell if they need to move; and others are finding it difficult to borrow money for a new home.

Former Fed Chair Alan Greenspan is warning that the current financial crisis could be the worst since World War II.

The marginal change provided by February's bipartisan stimulus package does not adequately address the foreclosure crisis nor does it provide long term solutions to our fundamental economic challenges.

The first necessary step is to help bring stability back to the housing market by undertaking reasonable measures to help home owners avoid foreclosure. The key for any workable plan is to distinguish between owner-occupied homes threatened by foreclosure and those owned by investor-speculators. We must make sure only to help the home owners, not the speculators. At the same time we should avoid creating new large federal bureaucracies that have the government doing things that it does not know how to do very well.

Texas Congressman Burgess Leads the Way with Real Change on Taxes With an Optional Flat Tax Plan

Fortunately, while plans for short term and temporary mortgage assistance are being drawn up, some members of Congress are offering long term economic proposals that provide real change instead of marginal change -- proposals that meet the scale of the long term economic challenges we face.

One member, Republican Congressman Michael Burgess from Texas, is offering up a proposal that has special resonance for Americans with April 15 just around the corner. It's a plan to save taxpayers time, put an end to special interest loopholes in the tax code, and provide the type of incentives that will put our economy on a course of enduring growth and prosperity: An innovative, one-page, optional flat tax.

A One-Page, Optional Flat Tax Will be Simple to Fill out and It Will Provide the Basis for an Enduring Prosperity
Before being elected to Congress in 2002, Michael Burgess had a 21-year career as a doctor delivering babies in Denton County, Texas. His campaign slogan was "We Need a Doctor in the House". Now the good Doctor Burgess has put together a one page prescription to fix our convoluted income tax system.

Dr. Burgess starts with the fundamental premise that our taxes should be simple, transparent, and low. Dr. Burgess also believes that the economic incentives in our tax code should be clear, predictable, and permanent.

The one-page, optional flat tax proposed by Dr. Burgess is just what it says -- optional. Nobody would be forced into the new system. Taxpayers could continue with their current rates and current deductions, for if they decided that the optional flat tax saved them time and money, they could elect to pay under the single rate optional flat tax system.

The Optional Flat Tax, In Four Bullet Points

Here are the elements of an optional flat tax, in four simple bullet points:
A single rate of tax (for example, 17%) on all individual and corporate taxpayers;
Elimination of all taxes on savings, dividends, and capital gains;
Elimination of the death tax and Alternative Minimum Tax (AMT);
A standard deduction, which would be above the established poverty level so that an optional flat tax would not unfairly target the poor. Approximately the lowest 42% of income earners would be exempt from paying taxes altogether, and any taxes they did pay would only be on the amount that exceeded the deduction.

A Good Idea that is Gaining Ground
Having a flat, single rate tax is a good idea that has been spreading around the world. Eight U.S. states and twenty nations have single rate flat tax structures.
Indiana adopted a flat rate in 2003, and by 2007 the Hoosier state's corporate tax revenues grew by 250 per cent.

Colorado's flat tax, first introduced in 1987, has created repeated surpluses in state tax revenue. This consistent record of success contributed to Colorado reducing the corporate tax rate in 2000 and again in 2001.

Governor Mark Sanford of South Carolina recently proposed an optional flat tax for state income in his 2008 State of the State Address.

The California Republican Party recently adopted the optional flat tax as part of its party platform, borrowing from the Platform of the American People, a "tripartisan" agenda developed by American Solutions.

Most Eastern European nations have flat tax structures, including Russia, and their economies are booming. Since adopting a flat tax in 1995, Latvia's economy alone has grown by an average of twelve per cent each year.

What You Can Do to Learn More about the Optional Flat Tax

Congressman Burgess has recently given two speeches on the House floor detailing his optional flat tax plan. I invite you to read or watch both of them. You can view them here and here.
Dr. Burgess has also prepared this mailer that he is sending out to his constituents. It contains a mock-up of what your tax form would look like under an optional flat tax, along with information about the proposal. With this form, filing your taxes would take less than fifteen minutes.
I encourage you to share this mailer with your friends who might be interested in the idea of an optional flat tax. You can also learn more about the optional flat tax by downloading this chapter from my book Real Change. In it, I describe the benefits of a one page optional flat tax plan.
Then, write your representative and urge him or her to co-sponsor H.R. 1040, the optional flat tax bill. Be sure to let your representative know that you're one of the over 80% of Americans who favors the option of filing their taxes on a single page with one rate of taxation.
It may take time, but I am confident that we will eventually adopt an optional flat tax plan. And when we do, we will put an end to an absurdly complicated system that pits the individual American taxpayer against an army of special interest groups, each trying to advance their narrow agenda at the expense of tax fairness and simplicity. Our tax system robs individual and corporate taxpayers of billions of hours of lost productivity and dilutes the very economic incentives required to keep U.S. workers and companies as the most productive in the world. It can't be replaced too soon.

Real Change Now to Reduce U.S. Corporate Tax Rates, the Highest in the World
Even as we work to win the argument for an optional flat tax plan, we must urge immediate action on reducing America's punishing corporate tax rates. Today's U.S. federal corporate tax rate is 35% -- the second highest in the world -- with the corporate capital gains rate also at 35%. Add in state income taxes and the corporate rate in America averages 40%, making it the highest in the world.

In comparison, the average corporate tax rate in the European Union was 24% in 2007, down from 38% in 1996. How can America compete with the nations of the European Union -- not to mention the emerging economies of India and China -- with this self-defeating, high-tax rate structure?

The U.S. corporations bearing this tax burden are the ones we expect to provide working people with jobs, better incomes, and long term prosperity. If we continue to have the highest corporate tax rates in the industrialized world, we can surely expect to see more and more companies move jobs overseas. As an anti-recession and long term growth measure, Congress should immediately abolish the capital gains taxes on individual and corporate income, and sharply reduce the corporate tax rate to 12.5 %, the same corporate tax rate as in Ireland, which currently enjoys the industrialized world's lowest rate. After Ireland reduced its rate to 12.5% (from a high of 50%), its living standards and world competitiveness rose dramatically.

Good for the Stock Market, Good for Your 401(k)
Abolishing the capital gains tax on individual and corporate income, along with slashing the corporate tax rate, will lead to an immediate jump in the value of the stock market. It will also lead to an immediate jump in the value of every retiree's 401(k). More importantly, it would lead to a burst of new investments in the United States, creating the foundation for long-term economic growth.

At the same time, we should allow 100% expensing of all investments in new equipment within one year of its purchase. This would lead to a boom in equipping American workers with the best and most modern equipment so they can compete with any economy in the world.
Real Change in Economic Incentives Does not Require Offsetting Tax Increases
It's important to remember that pushing for real change in our economy with an optional flat tax and a lower corporate income tax will be met with howls of derision. Some will complain that it will bust the budget. Others will insist that these changes be coupled with offsetting tax increases.

Both will be wrong. The unwillingness or inability of the bureaucrats at the Joint Tax Committee, Congressional Budget Office, and the Office of Management and Budget to foresee the growth caused by previous tax cuts is inexcusable. These same bureaucrats will surely once again underestimate the pro-growth effects and pro-tax revenue effects of fundamentally changing our tax system.

We must take this fight head on with two approaches. First, we must point out again and again how wrong government bureaucrats have been in the past about the pro-growth impact of positive changes to tax incentives.

Second, we must commit ourselves to reducing spending wherever we can. Those of us who support pro-growth tax reform must relentlessly challenge both Republicans and Democrats to eliminate current wasteful spending and to stop proposals for new spending that will prevent us from realizing the powerful long term benefits of fundamental tax reform.
The Defining Choice this November Will Likely Be the Economy.

Yesterday, I recorded a video workshop at AmericanSolutions.com on "Solutions for America's Economic Challenges" that expands on what I've laid out in this newsletter.
The overriding, deciding question for the 2008 elections may be who can explain why their economic program is the best answer for the troublesome economy.
Will the left convince the country that massive tax increases, massive increases in spending, and rejecting free trade are the best solutions?

Or will we effectively make the counter-argument that cutting excessive, crippling tax burdens on America's business and industry, getting control of spending, and expanding trade is the right course for a growing economy?

It's up to us to make sure lawmakers pass the right medicine for our economy. Contact your House and Senate members today and tell them we should start with what the good Dr. Burgess of Texas is prescribing.

P.S. -- Senator Obama Owes Us - And Himself - Better Answers on the Reverend Wright: In the back and forth over what Democratic presidential candidate Barack Obama's pastor, the Reverend Jeremiah Wright, has said from the pulpit, Senator Obama's claims not to have heard Wright's statements seem dubious. What's more, as Mark Steyn points out here, the Reverend Wright's hateful comments and lies about America aren't unusual. Wright's hateful words are of a piece with Senator Dick Durbin's (D-IL) 2005 comparison of the treatment of detainees at Guantanamo Bay with the Nazis, the Soviet gulags and Cambodia's Pol Pot. Wright's comments fall into the same category as the lunatic leftists who continually call President Bush and conservatives Nazis and fascists. If Senator Obama hopes to live up to his self-proclaimed image as a uniter not a divider, he's going to have to do better than offer evasions about what he's heard in church on Sunday. He needs to reject not just the Reverend Wright, but the entire Hate America Left that Wright is a part of.

P.P.S. -- The Latest on Our Grassroots Effort to Empower Citizen Activists: The Clark County (Las Vegas) Republican Party in Nevada recently drafted their new party platform and incorporated 13 planks of The Platform of the American People. Tibi Ellis, co-chair of the Clark County Republican party, spoke to us this week: "We had over 5,000 plank submissions, and we narrowed the choices down to 80. If we had not used The Platform of the American People, we would have run the risk of putting our own interests ahead of supporting the people." Additionally, the people of Clark County Nevada require that all elected officials of their party or those running for elected office in their party to take a pledge to uphold these planks at the county and the state level.

Lloyd Darby from Georgia took 30 copies of The Platform of the American People to the Toombs County convention. He offered a resolution for the county to adopt the entire Platform, and recommend it to the state convention. It passed unanimously.
Last, but certainly not least, Grundy County, Iowa adopted 36 planks of the Platform of the American People into their county platform. This includes ALL 12 of the planks on Defending America and ALL 5 of the planks on English and American Civilization. Grundy County will present their platform as part of the 99 county effort in approving Iowa's state party platform.
Each week, we hear of stories like these from individuals as well as groups who are catching on to our message at American Solutions. For more information about how you can get involved, contact the Chief Advocate for the Platform of the American People, Princella Smith at info@americansolutions.com. We look forward to working with you all in this effort to win the future!

P.P.P.S. -- Real Change's Eighth Week in the New York Times Top Ten: I'm happy to announce that this Sunday, March 23rd, Real Change will be at number eight on the New York Times bestseller list -- it's eighth week in the top ten. Thanks to everyone who's taken an interest in the book. I won't pretend that it's typical, but I received the following message this week from Congressman Tim Murphy (R-PA):
"I was at a Rotary Club Pancake breakfast and this couple brought up spontaneously that they had just read the book Real Change and they recommended that everyone should read the book in this election year. They felt that it had solid ideas of the directions needed for our country. I was struck by the enthusiasm and excitement they displayed when talking about Real Change."
To see what everyone is talking about, visit newt.org/realchange.

Mr. Gingrich is the former speaker of the U.S. House of Representatives and author of "Winning the Future" (published by Regnery, a HUMAN EVENTS sister company).