If the Republican Party is to reassert its political relevance following the wasted years, 2001-2010, it will necessarily have to refocus its policy agenda to the pursuit of traditional Republican goals – limited government, private property rights, individual freedom and the rule of law. This will take considerable effort and discipline, given how far the party has strayed from these objectives since the departure of Ronald Reagan from the Presidency and of Newton Gingrich from the House Speakership. It will also take the immigration of some real intellectual horsepower into a party that is sadly handicapped in that dimension. Fortunately, the Democratic Party is self-destructing into the creation of unsustainable debt and impending stagflation, opening up a real entrepreneurial opportunity for a return to free market triumph from 2012 onwards.
I do not view myself as a political entrepreneur, indeed I have no experience in that role. Nevertheless, drawing on my many years of experience as a leading scholar of public choice and as a classical liberal who helped to bring Margaret Thatcher into office in Britain in 1979, let me advance, in broad-brush terms, a potentially attractive budgetary contract with America, that might provide a starting point for electoral success in 2012.
The center-point of the contract is the elimination of all federal budget deficits within the four year presidential term, 2012-2016. Thereafter, the goal would be the achievement of budget surpluses sufficient to draw down the national debt to no more than 30 per cent of gross domestic product by 2020. These goals must be achieved without recourse to inflation in excess of 2 per cent per annum. These goals must be realised without false accounting (i.e., by placing all entitlements fully on-budget).
Such a program of budgetary tightening will require significant cuts in federal expenditures, reining them in to no more than 20 per cent of gross domestic product. To achieve such a budget cut will require revisiting the fundamental role of the federal government, eliminating its excursions into production, reducing its regulatory role, decentralizing many activities to the states, and requiring full funding through taxation and through targeted cuts in its transfer programs. It will require significant job attrition and real salary and benefit cuts for federal employees. It will necessitate raising the age for accessing social security and medicare benefits to reflect increases in life expectancy.
Even with such spending cuts, federal taxes will have to rise somewhat to meet the expenditure targets. My suggestion is that the Republican Party should investigate a fundamental reform of income taxation, providing a flat income tax solution, without exemptions, with a negative rate for households operating at below the poverty level, sparingly defined. Presumably, such a flat tax, in combination with the payroll tax, if that is retained, will have to raise federal revenues slightly in excess of 20 per cent of gross domestic product in order to reduce the long-term debt to GDP ratio. With the flat tax, the burden would be shared proportionately across all earners, rather than discriminating sharply against the most productive members of society.
Such a radical reform in budgetary policy can be sold to an electoral majority in terms of its positive implications for economic growth and its protection of the international reserve status of the dollar, as well as in terms of fundamental fairness and transparency. To do so, however, requires intellectual horsepower of the highest order and an ability to explain the underpinnings of free market economics at a level beyond the capacity of any practising politician in the United States.
Trauling for such leadership is a pre-requisite for a return to free market triumph in 2012. In an educated population the size of the United States, surely there is a vein of such talent available for discovery. If not, then the drift to progressive socialism will not be stemmed and reversed, but rather will continue until the Red Revolution is complete.
Tags: federal budget balance, implications for economic growth, implications for individual liberty, protecting the international reserve status of the dollar, public expenditure cuts, the flat income tax, true accounting