Sen. John Kerry has begun to elaborate on the economic agenda that he presented in just a few lines during his speech at the Democratic National Convention. However, he fails to realize that the burden of a tax increase on the "upper 2 percent" will fall disproportionately on the small businessmen and women who create more than two-thirds of all new jobs.
Moreover, as Steve Forbes recently observed, it seems Democrats "are afflicted with the curse of Robert Rubin." He wrote that Democrats actually think that the 1993 tax hikes "cut the deficit, which, in turn, reduced the 'crowding out' of private investment by government borrowing, which, in turn, drove down interest rates. Result: a golden age of prosperity. The lesson: Raising taxes works!" This is utter nonsense, indeed.
Given Kerry's anti-growth agenda, it is not surprising that a recent Investor's Business Daily/TIPP survey shows that he lost 9 percentage points from the shareholder vote following his speech at the DNC. And given the fact that Kerry is up in most polls, it is not surprising the major stock indexes are down from early year peaks. The only thing markets like less than uncertainty over policy is certainty that policy is going to get worse. The longer Kerry remains ahead in the polls, the more certain markets will become that their investments will decline over the long run.
Kerry made a strategic error by gambling his election hopes by almost exclusively wrapping himself in the flag at the convention, leaving an economic vision deficit and opportunity for President Bush and Republicans to exploit during the Republican National Convention and throughout the fall campaign.
Bush grabbed hold of the so-called third rail of politics and campaigned in 2000 successfully on transforming Social Security with personal retirement accounts. He successfully enacted pro-growth tax-rate reductions, including marginal tax-rate reductions, for the first time in 15 years, slashed the capital gains and dividend tax rates, accelerated depreciation allowances for businesses and made an effort to eliminate the death tax.
Given recent speculation that Bush's soon-to-be-unveiled second-term economic agenda will include both fundamental tax reform and reforming Social Security with personal retirement accounts, some have suggested that he must choose one or the other. With all due respect, he should do no such thing. Tax reform and personal accounts are not mutually exclusive; they are mutually reinforcing, indeed mutually dependent.
Congressional Budget Office projections reveal that if the Bush tax cuts are repealed, due to the progressive nature of the tax code, tax revenues as a percent of GDP will grow well beyond the historic average (18.5 percent of GDP) to 20.5 percent in 2015, 22.6 percent in 2030 and 24.7 percent by midcentury. Without continued tax reform to lower the rates back at least to where they were when Ronald Reagan left the presidency, the economy will stagger under an increasing burden each year. Without tax reform to properly define how income will be subject to taxation, it will make the transition to a new fully reformed Social Security system more difficult and require more borrowing than necessary. Bush is on the right track to be talking about both personal retirement accounts and tax reform - what can be called an ownership society agenda, or what I would call the democratization of capitalism.
The idea of an ownership society is not new; it is the logical extension of Abraham Lincoln's Homestead Act in 1862 America, where clear title to 160 acres of federal land was "given" outright to citizens to settle and cultivate the land. The vision of an ownership society is one that looks back at a road long traveled, but one that is forward-looking and far-reaching; it is a vision that sees opportunity ahead, sunlight on the horizon.
We have come a long way since the creation of the Party of Lincoln. We have healed the wounds of a bloody Civil War that divided a nation, we have made great strides to overcome the evil legacy of slavery and Jim Crow - a permanent stain on our national honor. We have watched an infant nation mature into a global superpower, we have survived recessions, depressions and won two world wars; we have defeated Nazism, fascism, communism and, in due time, we will defeat the terrorist threat we now confront. But there is much to do.
Looking over the horizon, we must make good on promises made to our seniors and near retirees, but we must provide a better system, a better future for today's and tomorrow's workers. The cornerstone of the president's ownership society agenda is personal retirement accounts. These accounts must fully utilize the power of compound interest to maximize rates of return. This can be done - indeed, must be done - without raising tax rates or cutting promised benefits.
The key to transitioning to a fully funded personal retirement system will be modest spending restraint and continued long-term economic growth, which is where tax reform enters the picture.
By providing a detailed road map to fulfill his vision of creating an ownership society, Bush can ask all Americans to look to the future with hope, optimism and equal opportunity for all - what Lincoln called our true American system.