By Congressman Paul Ryan
Economic growth through the second half of 2008 was negative. In the fourth quarter, the Gross Domestic Product (GDP) shrank at an annualized pace of 3.8%. More distressing still has been the soft labor market. Unemployment has reached 7.6% and in January of 2009, nearly 600,000 jobs were lost. Inflation has fallen sharply, registering at .3% in January of 2009. This has caused deflation to become a serious concern in many policy makers’ minds. While I agree that a deflationary environment would be disastrous to our economy, I believe that policy makers must also closely guard against inflationary forces as well.
I am extremely troubled at the direction in which our country is headed. The mounting economic hardships throughout Southern Wisconsin – from mass layoffs to growing insecurity – have been downright gut-wrenching. Families are finding it more difficult to make ends meet while they watch their savings evaporate. And this story is being played out in households all across America.
President Obama signed H.R. 1, the American Recovery and Reinvestment Act, into law on February 17, 2009. H.R. 1 is an effort to jump-start our economy. I could not support this effort. I believe that the Stimulus Package is a trillion dollar spending bill that repeats the mistakes of flawed economic doctrines which deepened our depression in the 1930s and shackles future generations with crippling debt. At a time when our country is losing tens of thousands of jobs a week, H.R. 1 makes matter worse with a fiscal response that is slow, wasteful, and ineffectual.
Despite my opposition, the House rushed to pass this bill and on February 13, 2009, H.R.1 was sent to the President by a vote of 246-183. I believe Congress has made a serious miscalculation. We cannot borrow, spend, and tax our way of this crisis – we need to promote sustained economic growth and we need to act now.
Sustained economic growth cannot come from Washington; but rather from the creativity and entrepreneurial spirit of the American people. With tremendous fear and uncertainty in the market, Congress can provide lasting tax certainty by dropping its promise to raise taxes at the end of next year on investment, savings, businesses, families, and workers. Fast-acting tax policies should focus on boosting incentives for expanding business operations and creating good-paying jobs. We should allow immediate expensing on all new investments and lower our job-killing corporate income tax – currently the second highest in the industrial world. Additionally, common sense regulatory reform that concentrates on openness and transparency should be enacted to address what got us into this mess in the first place.
In his address to Congress, the President said that the answers to America’s troubles “exist in our laboratories and our universities; in our fields and our factories; in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth.” But his specific policies, and the hard reality of the numbers that constitute his budget, clash with the rhetoric. The budget’s worst feature is its collection of heavy tax increases, imposed in the midst of an economic recession, weakening the prospects for sustained economic growth and job creation. These levies, totaling $1.4 trillion over 10 years, allegedly target “the wealthiest Americans,” but in fact will hit small businesses and investors, precisely the people whose enterprise is needed to restore the economy. Most of these so-called wealthy taxpayers are small business owners, who create 60 percent to 80 percent of the jobs in the U.S. The President’s “cap-and-trade” proposal heaps at least a $646-billion tax increase on families’ natural gas, electricity, home heating, and gasoline bills. And, it will further erode job growth in the U.S. manufacturing sector, putting American companies at a further competitive disadvantage with China and other countries.
I believe that a sound economic policy would incorporate the following:
Pro-Growth Tax Policy: Rather than raise the top marginal income tax rate to 39.6%, it should be dropped to 25%. The lower tax brackets should be collapsed to one 10% rate on the first $100,000 for couples. And the top corporate tax rate should be lowered to 25%. This modest reform would put American companies’ tax liability more in line with the prevailing rates of our foreign competitors.
Fix the Financial Sector: The underlying structural problem at our financial institutions is the toxic assets infecting their balance sheets and impairing their operations. In order to help purge these assets from the system, we need a government-sponsored, comprehensive solution, but one that is transparent and temporary, and which leverages—rather than chases away—private sector capital. One example of this would be the Resolution Trust Corporation.
Get a grip on entitlements: I have proposed legislation, called “A Roadmap for America’s Future,” that would bring permanent solvency to Medicare, Medicaid, and Social Security. By transforming these open-ended entitlements into a system with a defined benefit safety net for the low-income and chronically ill in conjunction with an individually owned defined contribution system for health and retirement, we can reach the goal of these programs without bankrupting the next generation. It would also show the world and the credit markets we are serious about our debt and unfunded liabilities.
To American families, inflation is a destroyer of savings, a killer of wealth, and a crusher of confidence. It calls into question the value of our money. And while we all share in the pain, the people whom inflation hits hardest are elderly people who live on fixed incomes, those in the middle class who are struggling to save for retirement and college and lower-income people who live paycheck to paycheck.
Combine high inflation and high unemployment and you have stagflation. Hindsight shows how the pain of the late 1970s and early 1980s could have been avoided, yet we’re now again planning to borrow and spend — and raise taxes — as President Jimmy Carter did. Soon we may again find ourselves watching a rising “misery index” of inflation and unemployment together. If that happens, individual earning power will evaporate, and our standard of living will decline.
To prevent stagflation, we should enact fiscal policy reforms that apply the lessons we learned from the 1970s. Keynesian stimuli based on borrowing and spending have not worked and will not work. One-time rebate checks do not increase the incentive to expand business operations and create jobs. But marginal cuts in tax rates do. We also must lower our job-killing corporate income tax rate, the highest in the industrialized world after Japan, and ease business worries by making it clear that there will be no tax increases in 2010.
We should also re-establish the sound dollar. For the past decade, the Federal Reserve has manipulated interest rates and vastly over-expanded the money supply — and in so doing fueled the housing bubble that precipitated our current crisis. To end uncertainty about the economy, to keep interest rates down, and to give Americans the confidence they need to take risks and ensure future growth, we should make price stability a priority, guaranteeing the value of the dollar.
To that end, I introduced H.R. 6053, the Price Stability Act, in the 110th Congress. Currently, the Federal Reserve Bank has a dual mandate: to promote full employment as well as price stability. Unfortunately, these goals, while laudable, can lend themselves to contradictory policy responses. For example, we are currently seeing both rising unemployment and increasing inflation. Traditionally, the policy response to rising unemployment would be to lower interest rates to stimulate the economy; however, the response to increasing inflation is to raise interest rates. With these competing aims, the Federal Reserve finds itself in a difficult position.
The GM plant closing in my hometown of Janesville, as well as mass layoffs elsewhere, have been personally devastating, and have dealt a painful blow to communities across Wisconsin. Manufacturing jobs are the bedrock of Southern Wisconsin's economy, and the bedrock of our nation's economy.
I have introduced legislation that would address the specific challenges facing Wisconsin's manufacturing sector. We currently have the second highest corporate tax rate in the word, driving jobs overseas. My "Roadmap for America's Future" (www.americanroadmap.org) would level the playing field for American-made goods and services in the international marketplace. It does so by removing taxes from American-made exports and puts an equal tax on foreign imports. For example, right now, Racine's Case New Holland tractors are at a competitive disadvantage against their Japanese competitor, Komatsu, because of the current U.S. tax code. When the Komatsu leaves Japan, Japan lifts its tax on the tractor, and it arrives in the U.S. tax free. But when a Case tractor rolls off the assembly line in Racine for export to Japan, the U.S. first taxes it here and then it is taxed again in Japan. This punitive tax policy kills American jobs and puts American companies at a competitive disadvantage in the 21st-century global economy. My Roadmap proposal would end these backwards tax policies and put American workers in the position to thrive, instead of struggling to survive, in this period of economic uncertainty.
We must also focus on keeping jobs here in the U.S. and prevent them from being taken away by foreign competitors. Specifically, less developed countries like China have not only taken advantage of their lower costs to win manufacturing jobs, but often they also employ unfair trade practices. For example, China has undervalued its currency, subsidized domestic manufacturing, and disregarded intellectual property law. These practices have hurt U.S. manufacturers and must be stopped. I will continue to fight to ensure China is playing by the rules and I will continue to advocate for sensible economic policies that will provide much needed relief for Wisconsin families.
Congressman Paul Ryan serves Wisconsin’s 1st Congressional District. To contact him by phone in Washington, D.C., call (202) 225-3031. Or visit Paul Ryan at www.house.gov/ryan