Since the Great Depression, recessions in America before this last one have lasted an average of 10 months. The longest previously has been 16 months. But here we are 46 months after the last recession started, and there is still no real recovery.
We are instead suffering the longest period with unemployment at 8.5% or above since the Great Depression. Real wages and family incomes are persistently falling. More Americans are in poverty today than at any time since the Census Bureau began keeping records on it over 50 years ago.
President Obama and his administration have tried to blame the persistent unemployment and economic stagnation on the severity of the recession they inherited. However, the historical record shows us that the deeper the recession the stronger the recovery. America should at worst be finishing the second year of a booming recovery by now.
We know how to create economic growth. Ronald Reagan did it, with arguably worse circumstances than today: double digit inflation, double digit unemployment and double digit interest rates. We did it when I was Speaker of the House, when the American people created 11 million new jobs in four years. Returning to these principles would restore another economic boom within a year.
My plan for the restoration of traditional, booming, American economic growth is straight from the same playbook that worked during Ronald Reagan’s presidency and during my term as Speaker. It begins with reducing tax rates to maximize incentives for increased production, job creation, and prosperity. America today suffers from virtually the highest corporate tax rate in the industrialized world, nearly 40% on average counting state corporate rates.
"My plan for the restoration of traditional, booming, American economic growth is straight from the same playbook that worked during Ronald Reagan’s presidency and during my term as Speaker.""
That rate leaves American business uncompetitive in the global economy. Even Communist China has a 25% corporate rate. The average in the mostly socialist European Union is even lower than that. The rate in formerly socialist Canada is 16.5% today, falling to 15% next year.
My plan reduces the federal rate to 12.5%, adding up with state rates to nearly 17.5% on average. I would also adopt a system of territorial taxation for American companies, meaning their income would be taxed once where it is earned, rather than double taxed by the federal corporate tax. This would liberate American companies to once again be the most competitive in the world.
I would also abolish the capital gains tax and the tax on dividends, which today involve double taxation of the capital investment that creates jobs. I would also eliminate the double taxation involved in the death tax and the Alternative Minimum Tax. I would allow immediate 100% expensing of investment in plant and equipment, just like the deduction for any other business expense. That would ensure that American workers work with the most modern and productive equipment in the world, which is what enables them to earn the highest wages and incomes in the world.
Further tax reform would provide for an optional flat tax for individuals of 15%, with deductions only for charitable contributions and home mortgage interest. A personal exemption of $12,000 per family member, plus the continuation of the Child Tax Credit and the EITC would ensure no tax increase for low, moderate or middle income workers and families. Taxpayers would be free to choose to file their taxes on a postcard under this new system, or under the current tax code with all of its deductions if they prefer.
With this tax system to maximize jobs, growth, wages and prosperity, the new revenues from booming economic growth plus spending cuts (including the savings produced from fundamental reform of entitlements) would balance the federal budget in less than 10 years. That would slash the drain on the private economy of federal spending, deficits and debt. We don’t need or want to raise revenues to support the current level of overspending.
My economic recovery plan also narrows the Federal Reserve’s statutory mandate to focus on price stability so as to maintain a stable dollar without inflation. That ensures job creating investors from the world over that their investments in America will not be depreciated by a declining dollar or inflation.
Finally, my plan slashes the runaway regulatory burdens that are killing jobs. This includes repealing and replacing Obamacare, with its counterproductive employer mandate that is already destroying jobs, which would also reduce future taxes and spending by trillions. It includes as well repealing Dodd-Frank and Sarbanes-Oxley, which are squelching the credit for job creation and consumers essential to recovery. It also includes replacing the Environmental Protection Agency with an Environmental Solutions Agency which operates on the premise that most environmental problems can and should be solved by states and local communities.
It also includes liberating American energy producers to maximize production of all forms of American energy, assuring a reliable supply of low cost energy for the economy. That would effectively be another tax cut.
These bold reforms are all detailed in my new 21st Century Contract with America, available at Newt.org.With these reforms, mighty rivers of new capital investment from home and abroad would flow into the American economy, creating jobs and bidding up wages. The growing prospect of ruinous inflation would be slayed. And the American people would enjoy another generation long, world leading, economic boom.