In a wide-ranging interview in the Wall Street Journal published on March 27, 2010 I indicated that the American people were unhappy with the state of the economy, wanted greater economic growth and more limited government, and that they would vote that way in November. Indeed, voters did give President Obama a real “shellacking” (to use his words), as Republicans gained control of the House of Representatives and the governorships of most states, and made large gains in the Senate. The common expectation is that this division will produce a political stalemate, as both parties position themselves for the presidential election in 2012. Yet, the American people need an agenda to raise the growth rate of the American economy, and cut sharply actual and future fiscal deficits. If these happen, not only would unemployment and other short-term problems would be taken care of, but also optimism would return about the longer-term prospects of the United States.
What follows is a partial agenda to raise economic growth and reduce the long run fiscal deficit. The most important step in raising the growth rate is not to increase but rather to lower taxes on capital and entrepreneurship. This implies maintaining essentially all the Bush tax cuts, including those on capital gains and dividends, and those on incomes at all levels, including quite high incomes. The estate tax on very high levels of wealth could be reinstated if politically necessary, but it will only bring in a very small amount of tax revenue, and will be more costly than it is worth. Tax reform also implies a reduction in the corporate income tax, and especially reductions in taxes on incomes of small businesses. Successful small businesses that grow to become large companies, such as Wal-Mart, Starbucks, Microsoft, and Apple, form the foundation of the American economy. They should be strongly encouraged.
(photo credit: Charlie Ambler)