Growth or Implosion? The case for abolishing the toxic tax code & starting over.

implosion-softcover(Washington, D.C.) — As readers of this blog know, I generally write about trends in Israel, the Middle East and Russia. But because I love the United States, I feel compelled to write today about how much trouble we are in economically and one set of changes we urgently need to make.

Today is Tax Day, the day all Americans are required to send in our federal income tax forms to the IRS and pray to God we didn’t make a mistake. What an utter disaster our current federal tax code is. As one Congressman put it, our tax code is ten times longer than the Bible with none of the good news. It’s long, complex, confusing, and a magnet for lobbyists all trying to carve out a deal for themselves. It forces Americans to spend six billion hours a year — that’s right, six billion hours — filling out tax forms, and to stay up worrying at night that they’ll get dragged into an audit, or worse.

We can do better. Indeed, we must if we’re ever going to get America back on the right track. It’s time for our nation to come together around bold, sweeping tax reform that will unleash the great potential of the American people, get this economy roaring again, severely reduce the power of the IRS, and drain the cesspool of corruption in Washington.

Ultimately, tax reform is not primarily an economic issue but a moral one. The current system is creating a terrible drag on our economy and suffocating the creation of millions of good, high-paying jobs. But it is also punishing marriage, children, work and savings.

Tax reform should be a bipartisan issue. The vast majority of Americans want to scrap the toxic IRS code and replace with a new system that is pro-family and pro-growth. So let’s get to it.

After all, the stakes are high. If we don’t pass serious tax reform soon, we won’t be able to get our economy growing at full strength. Millions of people will remain unemployed or under-employed. Real wages will stay stagnant or fall. We won’t be able to afford a military strong enough to protect ourselves, our allies or our vital national interests around the world. We won’t be able to honor our promises to the Greatest Generation via Social Security or Medicare. We won’t be able to balance our budget or stop borrowing from the Chinese.

That’s the bad news. The good news is that there are good ideas from good leaders on the table that could help us turn things around.

  • A new poll commissioned by the National Association of Manufacturers show overwhelming bipartisan support for bold tax reform.
  • Steve Forbes — for whom I used to work as the director of policy and communications — continues to make a solid case for the Flat Tax.
  • Former Senator Rick Santorum — who won eleven states and four million votes in 2012 — has an excellent op-ed out today on the need for bold tax reform and the principles that should drive the debate.
  • Many other serious leaders — including Rep. Paul Ryan of Wisconsin — are making the case for serious reform, as well.

In the end, America needs a Third Great Awakening — a sweeping moral and spiritual revival — not just economic growth. But we need growth and opportunity, too.

Here are excerpts from the non-fiction book I wrote in 2012, Implosion: Can America Recover From Its Economic & Spiritual Challenges In Time?

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The Road to Reform . . . ?

Some experts and think tanks believe there is still time to turn things around. At least two have laid out detailed reform plans worth considering.

Congressman Paul Ryan has developed his “Roadmap for America’s Future.” This detailed legislative proposal cuts tax rates and simplifies the tax code to reignite economic growth. It cuts and restrains federal spending. It reforms Social Security and Medicare in ways that protect the existing system for current retirees and those close to retirement while also improving the system for younger workers. For example, Ryan proposes the retirement age be gradually and incrementally increased from sixty-five years old to seventy years old, since people are living and working longer. He also proposes that younger workers can invest some of their current payroll taxes into tax-free personal retirement accounts that permit low-risk investments in mutual funds and annuities. The Ryan plan also includes specific details to balance the budget and reduce federal debt—all, presumably, before an implosion of the American economy occurs.[i]

The Heritage Foundation has also released a very detailed reform plan. It’s called, “Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity.” While the principles are similar to Congressman Ryan’s plan, some of the specifics are different. Both plans call for fully repealing “ObamaCare,” and both create personal retirement accounts within the Social Security system for younger workers. However, while the Ryan plan calls for simplifying the federal tax code from its current six marginal tax brackets [NOTE: at the time I wrote Implosion, there were 6 rates; now there are 7] down to just two (a 10 percent rate and a 25 percent rate), the Heritage plan calls for a single flat tax (the rate is not yet determined). Whereas the Ryan plan would hold spending at 19 percent of GDP, the Heritage plan would restrain spending to 18.5 percent of GDP.

The Heritage plan was designed to balance the federal budget by 2021 and reduce the national debt to 30 percent of GDP by 2035. By contrast, because the Ryan plan phases in some of the reforms more gradually than the Heritage plan does, the “Roadmap” does not bring the federal budget into balance until after 2055. That may seem like a long time—and it is—but the Ryan plan should be compared not only with the Heritage plan but more importantly with the fact that President Obama has not laid out a reform plan of his own. Under the current trajectory, the Congressional Budget Office projects deficits as far as the eye can see through the twenty-first century. Without significant changes, the budget will never be balanced in our lifetimes. Worse, the CBO indicates that the national debt will hit a horrifying 185 percent of GDP by 2035.[ii]

Overall, the Heritage plan is much bolder than the Ryan plan, but there are various policy and political challenges to both. What remains to be seen is whether the American people have the stomach for either plan or a variation of one of them. The point is not that one plan is necessarily better than the other. The point I want to make here is that there are at least two serious, credible plans on the table right now that show us in specific ways how we can boost economic growth, create more jobs, reform our entitlement systems, and get ourselves back on the road to fiscal sanity before we implode. Perhaps others will develop bold, creative, and compassionate plans that will improve upon what Congressman Ryan and the Heritage Foundation have offered. I hope so. The more serious ideas in the mix, the better. There is still a way out of this mess, and that is good news, but the window to get started on such reforms is rapidly closing.

. . . Or the Road to Ruin?

If we don’t make desperately needed reforms, then we are most certainly on the path to ruin. Indeed, we could be on the road to Greece.

“America is on the road to re-creating Greece’s recent debt crisis,” noted business magazine Barron’s in a 2011 issue. “If a country as small and removed as Greece could generate the tremors that it did in the past year, how much worse would a national debt crisis be in the world’s largest economy?”[iii]

The article notes that “Greece, the world’s 27th-largest economy, is a minor player, even in the European Union. Yet a budget deficit of 13.6 percent of gross domestic product spiked its overall debt to 115 percent of GDP. Its debt fell to junk status, and it stood on the edge of bankruptcy. Only the massive May 2010 bailout by the European Union and the International Monetary Fund pulled it back from the brink.”[iv]

Citing sobering data from the Congressional Budget Office, Barron’s warned, “If you think debt problems like Greece’s can’t happen here, think again. . . . [Soon], U.S. debt will hit 132 percent of GDP—well above Greece’s 115 percent. Government spending will consume almost one-third of everything America produces—a level only reached at the height of World War II. Even raising taxes to their greatest ratio to the economy in America’s history wouldn’t offset the automatic spending machine. . . . Washington is on the road to Greece.”[v]

Bottom Line

America in 2012 owes more than $15 trillion to a range of creditors, many in foreign countries, including Communist China.

[NOTE: That was true when I wrote Implosion; but today our national debt is over $17 trillion.]

That’s bad enough, but it gets worse.

Most Americans don’t even realize that we owe another $57 trillion to cover a range of “unfunded liabilities,” including Social Security, Medicare, and Medicaid benefits. America’s most respected financial experts—both Republicans and Democrats—are warning us that such staggering levels of current and coming debt could trigger an economic implosion unless we rapidly and courageously make fundamental and sweeping reforms. The good news is that at least two detailed and compelling reforms have been proposed.

Two key questions emerge. First, does Washington have the courage to follow those plans or variations on them? And second, will Americans reward or punish political leaders in Washington for pursuing such reforms?

As important as those questions are, however, there is another even more important question: Will the Lord give us the time we need to make these changes—however difficult and painful they would be—or will he simply choose in his sovereignty to let America implode financially?

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[i] Ryan, “A Roadmap for America’s Future,” http://www.roadmap.republicans.budget.house.gov/Plan/#budgetreform.

[ii] See Butler et al, “Saving the American Dream.” The Heritage plan quotes CBO projections extensively.

[iii] J. T. Young, “The Road to Greece,” Barron’s, January 22, 2011, http://online.barrons.com/article/SB50001424052970203676504575618561763058500.html.

[iv] Ibid.

[v] Ibid.

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