Last week’s European Summit shows how difficult it is for the European Union to confront its fundamental economic problems. Since 2007, many European Union countries have suffered loss of their rates of growth and high unemployment. Yet the European Summit offers no plan for growth. More trouble lies ahead for Europe.
America’s economic condition is not yet as dire as Europe’s, but it soon will be if we do not correct the root cause of the problems that we face in our own country.
Since 2006 America’s growth rate has also declined. America now has 15.5% less GDP than it otherwise would have had if we had continued to grow at our post-World War II historic rates. Growth estimates for 2012 have been reduced. Unemployment remains nearly 9%.
Joblessness is a waste for our country, and an emergency for millions of our citizens and their families.
We at the Free Congress Foundation have examined several economic standards of measurement, including consumption by the public, exports, government spending and investment from when the recession began in 2006 until now.
A look at these major components of GDP shows that the only category falling relative to GDP is investment. Net investment was down 80.5% during the recession, and is still down 66.9% during the so-called recovery.
We are now five years into what may be the American equivalent of Japan’s "lost decade." Unlike Europe, America is positioned to reverse that trend, restore investment and economic growth and sustain it for years to come.
The Free Congress Foundation proposes a program for America’s recovery. We call our plan the Growth Code. Through five common-sense changes to the tax code, we can accelerate economic growth to pre-recession levels or even higher.
First, small-business owners should no longer be taxed as individuals. We should allow all business people to file their business income taxes on the same form, and get the same treatment whether they are a small business or the largest corporation.
All business activity would be taxed at 15%. Rules now exist and would be maintained to ensure that the 15% tax rate applies to genuine commercial enterprises.
Second, businesses should be able to write off from their taxes the cost of investment made in that first year. Immediate "expensing" would dramatically increase productivity and create new jobs.
Third, tax brackets should be lowered and dramatically simplified for individuals across the board, including the middle class, to rates of 10%, 15% and 25%.
Fourth, we should end the abhorrent practice of double taxation. The money we invest has already been taxed. We should not be taxed a second time if we invest, earn interest or if we are paid a dividend.
The mortgage interest deduction would be maintained. Overseas profits taxed abroad would be returned to our country tax-free, and be available for reinvestment.
Fifth, the many deductions and credits that reduce the tax base of the country should be replaced with a refundable $4,300 family tax credit. Today, tax breaks built into the tax code cost the government nearly as much as it collects through taxes. Most of the special deductions and credits that now exist cannot even be used by poorer families.
With our proposed new refundable Family Credit, families at or below the poverty level would obtain the maximum benefit.
However, all citizens should pay income tax, although lower-income families would pay at the lowest rate, deducted from the Credit. Every American should have financial "skin in the game" in our government and political system.
What would happen if we implemented the Growth Code? Our economic experts tell us the plan does not reduce government revenue. The Growth Code would result in an increase in America’s GDP above the anemic 2% now expected.
Over the next 10 years the GDP would grow an additional 14.5%. The national stock of capital would increase by 35.3%. Employment and jobs would increase dramatically, decreasing the national unemployment rate to below 5%.
Federal government revenues would increase by nearly 15%, recapturing the growth we have lost. This increased revenue could be used to reduce our debt and deficits.
The Growth Code is simple, realistic, backed by solid research, and it can be implemented quickly. It doesn’t require the abolition of the tax code, only several substantive changes. It doesn’t require unobtainable changes to the Constitution. Every change can be implemented by a majority vote of the Congress.
It does not rely on tax increases, which respected economists believe costs GDP three dollars for every dollar gained by the tax increase. The Growth Code does spur investment, and that means more jobs to utilize that investment. More investment means production will go up, prices will come down, demand will go up and unemployment will come down.
Americans know we are on the wrong track. They know we need change. The time has arrived for a bold strategy designed to reinvigorate the American economy. Our country needs real growth that comes from the long-term stability and dignity of real jobs.
The Growth Code is a strategy to restore confidence, and engage the American traits of ambition and aspiration for success for the benefit of our entire community. It’s time for a change, and for us to pass on to our children what we inherited: the land of opportunity.
• Gilmore is president and CEO of the Free Congress Foundation, a non-profit organization committed to finding solutions to America’s problems. He was governor of Virginia from 1998-2002.
© 2011 Investor’s Business Daily, Inc. All rights reserved. Investor’s Business Daily, IBD and CAN SLIM and their corresponding logos are registered trademarks of Data Analysis Inc. Copyright and Trademark Notice | Privacy Statement Terms | Conditions of Use