It is necessary to reform the overall tax system. Adjusting it at the edges with, for example, a deduction here or a credit there always will be less effective than lowering and simplifying overall rates. We must make the U.S. a warmer home for economic entrepreneurship and investment; not a temporary haven.
Moreover, rather than approve new bailouts, the federal government should cut regulatory burdens on hard-hit businesses. Environmental rules are noteworthy for their cost and inefficiency, for instance. It makes more sense to relax, or, better yet, end Corporate Average Fuel Economy standards on vehicles, which have imposed a huge cost burden on the auto industry, than to provide the companies with billions of dollars in loans in order to help them meet ever-increasing regulatory mandates.
Washington should carefully reconsider its regulatory strategies more broadly. Policymakers should initiate a detailed audit of federal rules, relaxing or eliminating any regulations for which costs outweigh benefits.
Fixing federal tax and regulatory policies also is necessary to improve America’s competitiveness in the global economy. The U.S. retains many advantages over other industrialized states, but has fallen well behind in tax policy. With economic turmoil at home, America cannot afford to lose its comparative advantage elsewhere.
Obviously, many of these steps will take time to implement – but we must start. And, in the short-term, government should look for ways to ease the burden on people hit hard by the current crisis. For example, Washington should reduce penalties on people for delayed tax payments and premature withdrawals from IRAs.
Policymakers also need to formally and clearly end the bailouts. This step is critical to promote private economic retrenchment and corporate work-outs. Significant financial cutbacks are painful, but inevitable. However, companies will resist taking these necessary steps if they believe they can count on a federal bailout. Distortions caused by government injecting billions of dollars into certain preferred banks and not others, only further impedes essential market based decisions by banks and other financial institutions to bring the markets back into balance.
Nonessential federal spending must be cut. With the 2008 fiscal year budge deficit close to $500 billion, and the 2009 deficit now expected to run at least $750 billion and as much as $1 trillion, we can no longer afford frivolous special interest outlays.
Over the longer term, we must deal with the mountain of future federal liabilities and obligations—FDIC bank guarantees, Pension Benefit Guaranty Corporation promises, Social Security and Medicare liabilities, and more. So far just in the past few weeks, the federal government has undertaken roughly $2 trillion in bailouts. Total unfunded liabilities for Social Security and Medicare, that is, the excess of promised benefits over expected revenues, exceeds $100 trillion -- more than 50 times as much as these recent, costly bailouts!
Still, nothing is being done to address the looming fiscal catastrophe they portend.
Although the federal government can try to bail-out everyone else, there is no one to bail-out the federal government. We won’t be able to count on the Chinese, Japanese, or anyone else to purchase our increasingly high mountain of debt.
The American people have repeatedly demonstrated their capacity to meet great challenges. The government must stop interfering with their ability to prepare for future challenges. America can and must once again lead the world in economic power and growth, through exercise of a free-market economy; not follow meekly behind the U.K. and our other European friends that for decades have been pushing our country to emulate their model of centrally-managed economies.