More often than not, foreign policy has been a fickle friend to a President in search of reelection. The electorate often overlooks even a dramatic foreign policy success in lieu of perceived domestic problems, especially pocketbook issues. Unfortunately, it appears that the administration is planning to rely on foreign policy in its reelection strategy, while ignoring our current economic problems and overlooking a promising issue for the upcoming elections.
Today, an unimpressive economy is having a direct effect on the pocketbooks of Americans and U.S. businesses. The reeling stock market has eroded the values of portfolios, and at the same time has postponed one of the President’s major domestic policy initiatives—retirement savings reform. Republicans are reportedly running as fast as they can from the threats and accusations of Democrats on this issue who will imply that Republicans want to turn “your Social Security over to the likes of those who ran Enron and Tyco.” Yikes.
The President can turn this to his advantage, because tax reform is more important than Social Security reform, anyway. As economist Aldona Robbins pointed out in a recent Institute for Policy Innovation study, tax reform should be done before retirement savings reform. Otherwise, private accounts will not represent new saving, and much of the investment will go overseas in search of more favorable returns. Reforming the tax code first will increase economic growth, which will postpone Social Security’s doomsday and make implementing private accounts easier.
Short of national defense, there is no more important domestic policy need than fundamental tax reform-- the “unified field theory of public policy.” Tax reform solves much of what is wrong in our economy and many related public policy problems.
The United States employs a revenue system that contradicts America’s values, undermines its global competitiveness, deceives taxpayers, restrains innovation and productivity, and divides us instead of uniting us. Instead of serving the nation, the federal revenue system has become an obstacle to be overcome. Indeed, our tax code handicaps the ability of businesses to compete both at home but especially abroad.
As Americans struggle to comply with the myriad rules and schedules of the tax code, they surrender their financial privacy to a degree once thought impossible, and to a degree thought intolerable by our Founding Fathers.
In pursuit of revenue, enforcement of the tax code and dispute resolution, the IRS employs tactics permitted no other branch of government. Rights guaranteed to citizens in every other area of interaction with government do not apply with the IRS.
The tax code restrains the U.S. economy by slowing growth and hindering the international competitiveness of U.S. companies. Progressive income taxation has failed even to accomplish its intention of redistributing income. Because the tax code has been used for many other purposes besides raising revenue, it has caused a host of seemingly unrelated policy problems. And as states have emulated the federal tax code, comparable losses have cascaded throughout the economy at the state level.
The solution is fundamental reform of the way the U.S. government raises revenue.Under a reformed tax code, there would be no stock option accounting debate, and foreign companies would be beating a path to locate financial and human capital in the United States. Under a reformed tax code, DaimlerChrysler would be named ChryslerDaimler.
There has been a perception that no progress can be made on tax reform until there is some uniform agreement on a plan, but this is nonsense. Tax codes originate from Congress, not from think tanks or advocacy groups. There are many ways to devise a tax code that is simple, neutral, and transparent. With both pressure and political cover from a popular sitting President, Congress could begin reforming the tax code soon. And tax reform doesn’t have to be a dramatic tossing out of the existing code and replacement with an untried new system. A relatively small number of amendments to the current code could lead to where most proponents of tax reform want to go.
Prudent tax reform will result in a code that is simple, neutral, and transparent. The productive activity of the country would be taxed only once, and at a single rate. The result would be a tax code that citizens understand and that imposes minimal intrusions and distortions on the economy. It will be less exposed to political manipulation and will thus allow individuals and businesses to make predictable long-range decisions.. The United States will experience stronger, more stable economic growth and a citizenry that is less oppressed and less cynical about its government. It is the most important of policy solutions, and this administration could do no better than to make fundamental tax reform the centerpiece of its reelection strategy.
Tom Giovanetti is the President of the Institute for Policy Innovation (IPI), a public policy research institute based in Dallas, Texas.