What Boehner Needs to Say

My fellow Americans,

We are now embarking on another term of divided government.  The voters have returned President Obama to the White House, and continued a Democratic majority in the U.S. Senate.  They have also confirmed Republicans in control of the House of Representatives.  I want to take a few minutes today to talk to you about what the Republican majority in the House will seek to accomplish over the next two years, and why we think it is the best course to return America to prosperity.

I want to start by pointing to two numbers, which together summarize the perilous state of the American economy and the Federal Government’s finances.  The first is 2 percent.  That is the average rate of growth during the three years since the recession officially ended.  By way of contrast, the average rate of growth during the three years after the end of the ten previous  recessions since World War II was 4.6 percent, more than twice as much.  The average rate of growth during the three years after the end of the 1981-82 recession, the deepest between the Great Depression and 2007, was 5.6 percent.

The second number is $16.3 trillion, or $16.3 million million.  That is the amount the federal government owes the holders of its bonds, including the Social Security trust fund.  That debt is more than the total amount of goods and services produced in the United States last year.  It  is more than $50,000 for every man, woman and child in the United States.  Compared to the size of our economy, our federal debt is larger than the debt of Spain, and nearly as large as the debts of Italy and Portugal, all of which are considered to be in serious economic and financial trouble. 

These two numbers are closely related, because our income tax and social safety net programs magnify the effect of economic growth and its absence on our federal debt.  Over President Obama’s first term, the United States added $5.7 trillion to the national debt.  Had the economy grown at the average rate for post-war recoveries, the additional tax revenue would have reduced the 2012 deficit by half.  Had the economy grown at the rate of the Reagan recovery in the 1980s, the 2012 deficit would have been reduced by almost two-thirds.  (The deficit reduction estimates are from the Republican Staff of the Joint Economic Committee.)  Even with the spending increases of the last four years.

We believe that the historically slow growth rate over the last three years is a direct result of the expansion of the Federal government by President Obama and the Democratic Congress in 2009 and 2010.  The main drivers of that growth were the so-called stimulus package and other new spending and new regulatory laws and initiatives, including Obamacare and the 2010 Dodd-Frank banking law.  When faced with a deep recession in 1981, President Reagan followed the opposite course.  He cut taxes, controlled the growth of domestic spending and reduced the regulatory burden on American business.  We believe that the difference between the strength of the Reagan recovery and the weakness of the Obama recovery is a direct result of the difference in policies.

As I mentioned at the beginning, President Obama was returned to office.  We understand that he will not be adopting President Reagan’s policies during his second term.  But he will be asking Republicans to work with him to address the debt problem.  We will do so, but only if the President works with us to address the growth problem.  This is not a matter of partisan politics or personal animosity toward the President.  It is a matter of simple arithmetic.  Given our income tax structure and social safety net programs, we simply cannot make progress on the debt problem without addressing the growth problem.

So how should we address the growth problem?

There are three steps we believe are essential to free the American economy to grow as it has in previous recoveries:

1.  We need a budget process that limits the share of America’s income consumed by the Federal Government, and requires Congress and the President to set priorities within that limit.  During President Clinton’s last full year in the White House, federal spending was 18.4% of gross domestic product.  In the last fiscal year, it was 22.9%, which was down from the previous three years.  House Republicans passed budgets in each of the last two years that were designed to move us toward the level of government spending we had in the late 1990s, when the economy was booming.  In contrast, Senate Democrats have not passed a budget since 2009.  President Obama’s budget proposals have not received a single vote in the Democratic Senate since 2010.  We call on the President to propose a budget, consistent with the principles outlined by his bi-partisan National Commission on Fiscal Responsibility and Reform in 2010, that places an enforceable limit on government spending as a share of our economy and moves us in the direction of limiting Federal spending to 20% of our economy.  That would still be a larger share than the federal government spent at the end of the Clinton administration.

2.  We need a tax code that raises the money required to pay for the government we need, but doesn’t try to dictate the way Americans spend and invest the rest of their money.  Nobody in government knows which start-up will become the next Google, where the next generation of energy resources will be found, or how Americans will live and work 20 years from now.  Yet the tax code contains thousands of exemptions, preferences and loopholes that favor some businesses, some investments, and some spending choices over others.  The President’s bi-partisan budget commission called for elimination of these exemptions, preferences and loopholes in 2010.  We ask that the President use those recommendations as a blueprint for tax reform in 2013.

3.  We need an effective and efficient regulatory system that does not unnecessarily burden business.  Businesses only have a certain amount of money to spend.  When they have to spend it complying with regulations, they can’t invest it in  research, improved products and services, or new plant and equipment.  As a result, the economy slows.  That doesn’t mean we should do away with all regulation, but it does mean we should consider the investments we will lose when we require businesses to spend money on regulatory compliance.  As we go about implementing the Obamacare and Dodd-Frank laws, we need to look for ways to reduce the cost those laws impose on businesses.  Republicans and Democrats agree that some revisions to both laws are in order; we should use those revisions to make compliance less costly.  And at the same time we need to cut back on regulations in other areas to free up resources for the private economy to grow.  We do not expect to agree with President Obama and his party on the proper limits on regulation.  But if we are to restore growth to our economy, we need to do two things.  The first is not to enact new laws that place regulatory burdens on business without a corresponding reduction in other regulations.  No such law will pass the House in the next two years.  The other is to find ways to reduce regulatory burdens under existing law, consistent with our shared goals of a clean environment, safe products and workplaces and a fair marketplace.  This can only be accomplished on a bipartisan basis.

We know that Democrats will portray these proposals as being for the benefit of the rich, because that kind of rhetoric worked for them in the last election.  But it is merely rhetoric.  It ignores the reality of today’s federal government and the lessons of recent history.  The federal government spends hundreds of billions of dollars on programs for business or for those with high incomes.  How much do subsidies for solar panel companies or car battery companies benefit anyone other than the investors in those businesses?  If Democrats are as concerned for the middle class as they claim to be, they should be happy to work with Republicans to eliminate subsidies that primarily benefit high income earners while contributing to the growth crisis and the debt crisis, which directly affect the middle class.  Similarly, as the President’s own bi-partisan budget commission recognized, we can reform the tax code to support growth without reducing taxes on the wealthy, as long as we recognize the difference between “tax cuts” and tax reform that lowers rates but taxes more income and raises at least as much revenue for the government.  The policies we are proposing are aimed at expanding economic freedom – the freedom of Americans to provide each other with goods and services in the marketplace.  And they are proven –they worked in the 1980s, kicking off a boom that lasted, with one mild recession, for nearly two decades, and led to a balanced budget for three years at the end of the last century.

We recognize that we do not have a mandate for limiting government to the level we would prefer.  But President Obama does not have a mandate for continuing to expand government as he and his party would prefer.  The public has instead instructed us to work together to address the problems facing this country.  The two biggest problems are restoring economic growth and reducing our debt burden.  If the President is serious about addressing these problems, the House Republican majority wants to work with him to do so.

Tom Kelly is a partner with Dorsey & Whitney, Center of the American Experiment's Vice Chairman, and an American Experimient senior fellow.