A New Beginning: An Economic Plan for the Next American Century

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A New Beginning: An Economic Plan for the Next American Century

September 22, 1998 20 min read
The Honorable John Ashcroft
Visiting Fellow

I'm delighted to be here again. It's a pleasure to be with you and to speak about the future of this great country.

This is a great country, and it is not because of the geography of America that we have greatness. It's not our location on the globe. It is because of the spirit of this great country that we have greatness expressed here and achieved here.

Engraved into the base of the Statue of Liberty in New York harbor are the words of Emma Lazarus:

Give me your tired, your poor,
Your huddled masses, yearning
to breathe free,
The wretched refuse of
your teeming shore:
Send these, the homeless,
tempest tossed, to me:
I lift my lamp beside the golden door.

Those are confident words. They are bold words. They suggest that the catalyst of freedom is so powerful that refuse becomes royalty when it encounters the opportunities of America.

"Send these, the homeless, tempest tossed, to me" indicates that those who might not otherwise attain or achieve or be productive in other settings, in America, with the catalyst of freedom, become something special. Those who were refuse become world leaders. Those who were the wretched refuse become championship stock.

The Spirit of America

I believe the American spirit of liberation, the American spirit of freedom, is indeed a catalyst which makes all the difference in the world.

We saw this about a quarter century ago when Ronald Reagan began to offer to the United States of America a new beginning, a place to start over. And America means a place to start over. It is the definition of leadership.

The spirit of America is part and parcel of what leadership is. Leadership is the capacity to redefine the possible, the ability to select objectives which hadn't previously seemed attainable, the capacity to say that there are things outside of where the world would carry us to which we can carry the world.

That has been the story of America in each of its new beginnings, in each of its efforts to start over again, and it is a place of starting over and over again, whether you're thinking about Turner's theory of the frontier or you're thinking about the way America regenerates itself.

New beginnings are part and parcel of the spirit of America because real leadership is the redefinition of the possible. Ronald Reagan came to America at a time for American leadership that was consistent with the emergence of The Heritage Foundation itself, which 25 years ago was beginning to foster the ideas of liberating this economy and liberating this spirit in America for growth and development.

Ronald Reagan was obviously speaking to the same agenda, and he fought a compression in this culture which was damaging to our economy. He fought interest rates, which were astronomical, making growth and opportunity very difficult. He fought unemployment rates, which were substantial and significant in under-employing the great productive capacity of America. He fought inflation rates, which devalued the things which were produced and made the output that Americans had generated less valuable.

Redefining the Possible

But he also decided to redefine the possible, to launch America on an opportunity for growth and development, to free America to soar again.

We face similar challenges. They are not the challenges of interest rates, unemployment, and inflation; they are the challenges of the highest tax rates in history. The average two-income family in America spends 37.6 percent of its income in buying government. You have to work until about 4:00 o'clock on Tuesday afternoon every week just in order to buy the services of regulating your family and your business. Most Americans don't find that attractive.

We also find ourselves saddled with the biggest debt in the history of America. We have $5.5 trillion in debt that we are carrying now, and the debt service is obviously, in some respects, more manageable because interest rates are where they are. But it is a long-term problem which compresses this culture, from which this culture in this country needs liberation.

Last but not least, we are operating with very significant trade deficits. Last year's trade deficit of $115 billion is projected to grow to almost $150 billion this year.

It is time again for this culture to redefine the possible, to unleash the American spirit, to say that that which is thought to be have been impossible, that which was once characterized as a problem--perhaps even as refuse--becomes, through the catalyst of freedom and liberty, the resource of recovery and the resource of opportunity. It is time to free the American spirit.

Since Ronald Reagan's efforts, we have seen a variety of things happen. We heard about his substantial and significant and very valuable tax reduction program--and a $1.6 trillion program is not an inconsequential program. It was not a program which really cut revenues. It was a program, though, that charted a course for redefining the possible.

We have had adjustment after adjustment--that's a euphemism we use for increasing taxes--since then. And in 1990 and 1993, we had the largest tax increases in the history of this country--adjustments that would compress and curtail our ability to be what we ought to be in the long term. That's the reason I think it's time again for us to redefine the possible.

I think we all want the next century to be an American century. If you take the 20th century and roll it over, you will find stamped indelibly on that century the phrase "Made in America." There are hundreds of millions of people free in the world today because America marked this century indelibly as an American century.

We want the next century to be made in America, and if we want to have that be the destiny of the world and the destiny of America, I think we have to plan for new beginnings. The economic plan that I would like to talk to you about is basically a five-point plan of new beginnings for America.

Restructuring and Reducing Taxes

The first component of the plan which I call "A New Beginning: An Economic Plan for the Next American Century" is a massive restructuring and reduction in our tax system. The complexity of America's tax system is well-known, with 17,000 pages of laws and regulations.

The impossibility of honest people filling out their own taxes because of the crippling inability of those in the enforcement arm to agree on varieties of programs and interpretations, even among themselves, renders the burden of filling out taxes one of the larger industries that is totally unnecessary in an economy of free people who want to pay their taxes voluntarily, and who have done so historically. We need to restructure the tax code.

We need to reduce the level of taxation. I have already commented that 37.6 percent of the income of the average two-earner family goes to pay taxes in this country. That's basically the highest cost of government in the history of America.

Some will say, "Oh, some of that's local government. Some of it is state government." I will concede that it is, but having been a governor, let me tell you that much of what is local government and much of what is state government is the result of federal mandates. If you look carefully at what has happened in terms of the burden that the American people are bearing in taxes, Washington, D.C., is a responsible party. It is the directing partner of the operation and ought to be understood as such.

So here is my proposal for taxes for the next century for the American people. When people are asked about what kind of tax load they expect for government, they think that 25 percent is about a maximum that they should have to pay. I think that is a pretty high level to pay, but people are willing to accept that. We know that 25 percent is more than one day a week to be working for government.

The average wage earner pays, though, before we even get to income taxes, 15 percent in terms of payroll taxes. So the average wage earner, before he even thinks about whether or not he has to pay income taxes, is already sending to the government 15 percent of his income.

Now, if you were going to make sure that you limited the amount of tax to 25 percent, that would not leave you with the capacity to charge much in terms of income tax. If you were to add an income tax to the tax taken from the wage earner's wages, you would find yourself with an income tax of 10 percent. That is the income tax rate which I propose for individuals for their wages as long as the payroll tax is deducted.

Some of you know that the 15 percent payroll tax is no longer collected on income over about $68,000. So on income above $68,000, you would need a tax rate which was 25 percent--the total of the 10 percent and the 15 percent.

That's the tax framework of which I speak today in terms of tax reduction. We are really taking into consideration that 70 percent of Americans pay a tax of 15 percent, which is the payroll deduction tax, and that is a bigger tax than they pay in terms of income tax.

One of the features that I think recommends this program is that it is a two-tiered system, with 10 percent and 25 percent rates, but when it is understood and construed in conjunction with the payroll taxes, it becomes a system which is uniform from the first dollar earned to the last dollar earned at the 25 percent tax rate. I believe this has fairness written all over it, and I think it suggests that it's appropriate for us to recognize that this 15 percent is a very serious tax which is levied on the work of American citizens and ought to be understood as such and recognized in any tax program.

The second thing that I would emphasize in this restructuring is that we have massive simplifications. We have just four deductions. They are the ones that the American people really need and that reflect American values: the deduction for home ownership, the deduction for charitable giving, the deduction for state and local taxes to avoid taxes on taxes, and the deduction for health care.

I could get into a minute debate with you about health care, but I think it would very helpful to this country if we could allow citizens to choose their own health care with resources that are provided to them by their employers rather than taxing them first on those resources, unless it's part of an employer plan.

The first point, then, is a massive restructuring of the tax code which provides two basic rates, 10 percent on the earnings from which payroll taxes have been deducted and 25 percent on the earnings above that level, making a single fair, flat-tax structure so that Americans will be taxed in a way which is equitable.

This represents a very serious reduction. It is a reduction just about the same size and magnitude of what Ronald Reagan proposed in the early 1980s at $1.6 trillion. This is a $1.7 trillion reduction over five years in taxes.

Point one, massive restructuring of the tax code to provide for simplification, including a two-tiered system which results in a fair, flat tax on income and a reduction in the size of government by substantially curtailing the resources available to government. We are talking about a significant reduction in the amount of resources taken from the American people: a $1.7 trillion tax cut over five years.

Downsizing Government

The second point I want to make about the plan for a new beginning for an America that is, I believe, going to mark the next century with its character and its opportunity, and hopefully with its liberty and with its freedom, is the necessity to downsize government.

We need about a $1.3 trillion reduction in the size of government, and I propose that, in order to do that, we develop a commission on departmental and functional elimination. I would analogize this commission to the Base Reallocation and Closure Commission (BRAC) of the military.

The increasing size of government has been a tremendous cost to America's families. The Joint Economic Committee in Congress has indicated that if we were to have the size government we had in 1960, and were to allow the American people to enjoy what is otherwise the cost of the additional government that has been imposed, the average family in America would have $23,000 a year more in income.

That is a very substantial cost to the American people. It is time to begin to redeliver to the American people the opportunity to enjoy the resources they earn. And one of the ways to do that is to deprive the government of the resources the American people earn.

We have fundamental questions to ask ourselves as a culture, and among those questions is, does the bureaucracy spend money on America better than the American people spend money on America? Does the bureaucracy spend money on American families better than the American people spend it on American families?

This is really a modification of the question that Abraham Lincoln once asked when he said government should only do for people what they cannot do so well, or do for themselves. If we come to the conclusion that the American people would be better served with that kind of increase in their own capacity to direct their own resources--and I have come to that conclusion--I think we need to be working toward a substantial downsizing in government.

I believe that downsizing is important in terms of agency reductions. I also believe downsizing is important in terms of function reallocation. As governor of the state of Missouri, I once called Gary Stangler, who is a noted technician in the area of health and human resources, to come to my office. I asked him, how much could we do if we were to have the Medicaid funds in Missouri available to us without the inter-meddling, officious micromanaging from Washington and the bureaucracy? What difference would it make? He told me that instead of serving 600,000 people, we could serve 900,000 people with that same resource.

I think it is time for us to get those kinds of efficiencies into the system by redirecting resources to the states and allowing the American people to benefit from the efficiencies of doing things effectively and efficiently at the state level, rather than hoarding them in the bureaucracy in Washington.

Frankly, the argument for that transfer of function is much stronger today than it was several years ago. When you look at the transfer of the function of welfare in substantial measure to the states, allowing them to have more flexibility and creativity in terms of reducing welfare rolls, I think it is fair to say that we have witnessed a substantial delivery of more efficient government at the state level, with welfare rolls almost plummeting in a number of settings. I think it recommends that operation to us.

The presumption of the Great Society in the 1960s was that greatness was to be found in Washington, not necessarily in America, and that if Washington could impose its greatness on America, we would have a country that was worth showing the rest of the world.

As we sought to impose great mandates on America, we began to have troublesome feedback. As we sought to impose a great welfare system on America, we had troublesome feedback. More and more, we understand that it's not all that great to mandate one-size-fits-all solutions pressed on states and communities from Washington.

It is time for us not only to downsize, but in that process to relocate much of government, and that will be a formula which will provide for prosperity in the next century.

Creating a Debt-Free America

Number three, I believe that as Americans of responsibility who pay our own way, who set an example in the world with responsible behavior, we should propose in our own hearts to be responsible for delivering to the next generation of Americans an America which is debt-free.

We have a choice before us: We could either say to the next generation of Americans, you can pay for our past, or we can say to the next generation of Americans, you can build your dreams. I think we should simply say to the next generation of Americans that we will deliver to them an America that is debt-free.

My wife and I, I think, represent a lot of families around the country, because we're sort of fundamental, ordinary people. If we need something, we know how to go to the store and buy it. If we're hungry, I can go get peanut butter and jelly at the grocery store, and if we have a little extra in the operating account, I can even get the chunky kind.

If we need a new car, it's not always easy, but we know how to manage that. We know how to make payments for a car. When it came to buying the farm, we knew what to do, and we knew what to do when it came to buying a place for us to live in Washington. It's not our home; our home is in Missouri. But it's our house, and it has a mortgage.

Every family knows that, with the monumental things you have to pay for, you simply plan to pay for them. You schedule the payments and you make the payments. In my judgment, America should make the same decision, and we ought to look carefully at Senator Allard's plan to schedule the payments of the national debt and to say that we are going to pay it off so that the next generation, 30 years from now, has an America that is debt-free.

Not only is giving to the next generation a debt-free America a very important thing to do financially, I think it is an important thing for us to do responsibly. I think it demonstrates to the next generation that there is a tradition in America of responsibility and we are those who pay our debts and pay for our own consumption. America should accept the challenge and the responsibility of delivering this great country to the next generation debt-free.

Pursuing Open Markets and Free Trade

Number four, I believe that America is so good that we can compete with virtually anyone, anywhere, and that we should have as our objective open markets and free trade.

I just talked to a friend of mine who came back from Europe. It kind of inspired me. He told me how the Europeans take an average of eight weeks vacation, 40 days vacation a year. And I said, if we can't beat people who don't even show up for work, we're in trouble.

I believe we can beat people whether they show up for work or not, but we can and ought to move with intensity toward free trade. I believe we should adopt a policy and a strategy--a policy of free trade and a strategy of aggressive reciprocity--by which we seek to open markets which have previously not been open to us, so that with all who will trade freely with us, we will trade fairly with them, and with those who will not trade freely with us, we will make it in their serious interests to consider so doing.

I believe that America has the capacity to continue to lead the world. I believe that we can compete and will compete.

Unleashing the Information Economy

Last but not least in my five-point economic plan for the next American century, it is important for us to have and maintain the conditions that unleash the information economy on our shores.

There are some who are failing to understand the special needs of the information economy, but there are things which we must do as government and things we must refrain from doing as government in order to make sure that this opportunity for leading the world continues to be an American strong suit.

First of all, we should make sure we provide a framework within which the property developed in the information economy is secure and protected. This means that we have to provide the basis for robust encryption so that we cannot have an illegal taking of property or data which is developed in the information industry.

It means we have to have, and seek to enforce and to urge other nations around the world to respect, a set of copyright laws in a regime of copyright enforcement that will protect the hard work of American entrepreneurs and developers of the information economy.

It also means that when we need individuals to work in that particular sector of our economy so that it can continue to grow here, we want to be able to allow those individuals to come here. Spencer Abraham, the Senator from Michigan, has sponsored legislation which would provide the basis for individuals who are needed in the economy but who do not reside in our country to become a part of our country in order to fill the need in the economy.

We have before us a stark choice of either importing certain workers or exporting that industry. It is important for the United States of America to continue aggressively to welcome the future by making sure that Missouri and America have the capacity to welcome those workers.

No new taxes on the Internet would be a good rule for us follow. The whole idea of the Internet being something that provides a chance for government to prosper instead of America to prosper would be a corrupting and contaminating influence and should be avoided.

A Choice for America

This five-point plan gives us a tremendous choice. It allows us either to stay with the status quo of incredible trade deficits, the status quo of the highest taxes in history, the status quo of all these problems that I think are potentially on our horizon, or to seize the opportunity to take care of the debt. It gives us the opportunity for real growth that is very substantial, and lower taxes and lower trade deficits.

I think that is a stark choice. It is a fundamental choice. It will give us an opportunity to build America with savings. The 10 percent rate not only represents the rate at which people will pay income tax below the $68,000-plus, which is the amount on which payroll taxes are based; it also represents the rate at which capital gains would be taxed. This program represents a real incentive for savings and for investment.

Further, there is a special effort for investment savings accounts in the program which would provide Roth-type IRAs for $5,000 per year to each individual in the economy. That kind of savings, that kind of capital developed for this country, would spur us into real growth.

Compared to the current situation--and I thank The Heritage Foundation for some of the number crunching here--we would find ourselves with a 1.4 percent increase in growth in the gross domestic product, 1.2 million new jobs, family income up $4,500 per family over a five-year period.

There are choices that we make. I believe that the choice should be for this kind of opportunity, this kind of intensity, this kind of creativity, this kind of activity in the private sector. But in order to it, we have to have a new tax code of massive restructuring and reduction. We have to significantly reduce the needless invasion of government into the lives of the American people and re-allocate government to state and local entities where it's far more efficient.

We should make a commitment to the next generation that debt will not be their inheritance, that they will have the ability to build their dreams rather than pay for our past. We should make sure that we do not strangle the goose that laid the golden egg in the information economy. And, obviously, we ought also to make sure that we have an aggressive reciprocity which will, as a strategy, carry us to the policy of free trade.

Last year, as I was walking from my farm house to the shed one morning just after Thanksgiving, I looked up and I saw an eagle maybe 150 feet from me, from one loop in the river to the other. It struck me that we have seen a great comeback of eagles in this country, the symbol of America, and I would like to see a great comeback of America.

I think our future is incredibly bright, so I sat down and wrote some words, and I am just going to leave you with these words. They reflect my feelings about the United States of America, our opportunity for a new beginning, our opportunity to be something special for the future:

This eagle's place is in the sky.
She's still got a lot of flying to do,
And you can see it in her eye,
Though she's cried a bit
For what we've put her through.
She's soared above the lifted lamp
That guards sweet freedom's door,
In the dews, the damps, the watch fires
Of a nation torn by war.
Oh, she's far too young to die.
You can see it in her eye.
She's not yet begun to fly.
It's time to let the mighty eagle soar once more.

--The Honorable John Ashcroft, a Republican, represents the state of Missouri in the U.S. Senate.


The Honorable John Ashcroft

Visiting Fellow


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