From poverty to prosperity

Jack Kemp
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Posted: Aug 30, 2004 12:00 AM

The Republican National Convention is under way in New York City - the capital of capital, the epicenter of economic exuberance. This year, the Republican Party has a historic opportunity to capture the hearts, hopes and imagination not only of current shareholders but also the rest of America yearning to participate in the Ownership Society. By offering a pro-growth, pro-family tax system and creating opportunities for all Americans to own their own retirement accounts, their children's education and their own homes, Republicans have an opportunity to garner support from the Democratic base and reshape the political landscape for decades to come.

Workers are no longer concerned merely with wages and salaries; they are increasingly interested in saving and investing - in the process of wealth creation. One can't get rich on wages; the only way to get rich is to earn, save and invest.

I cringe when I hear the rhetoric of class warfare, which seems to have become the raison d'etre of the Democratic Party, whether they are ranting about "the people versus the powerful" or increasing taxes on the "top 2 percent." They just don't get it. The American dream is to become rich, not to punish them.

It's not that Democrats hate the rich - so many of them are rich - or that they care more about the poor; they have little faith in poor people and think the only way the poor can improve their lot in life is for government to take from the rich and redistribute the lucre to them.

Poverty in America is a disgrace and must be addressed through expanding ownership opportunities. It is also, in many cases, more a function of the life cycle than one's station in life. Research shows that as much as 25 percent to 40 percent of Americans move from one income quintile to another in a single year. Today's laborer is tomorrow's investor, owner and job creator. The worker and investor is the same person, just at different stages of his or her life.

Stock ownership in America has expanded dramatically and is at all-time highs with well over half of American households owning stock. While stock ownership has expanded dramatically in America, far too many Americans are still being left out of this new prosperity. After many American workers are through paying Social Security payroll taxes, they have no discretionary income left to save. The problem is not capitalism run amok or too much capitalism, as Democrats suggest, but rather that some areas of the economy are starving for lack of access to capital.

The day after the Census Bureau released its annual report recently, the headline in USA Today proclaimed, "Poverty rose by million." These numbers are overstated and misleading. For one, we should not measure poverty by income but by standard of living. Roughly 50 percent of people living in "poverty" own a home. Two-thirds have air conditioning, 97 percent own a television - 50 percent of those own two - and 26 percent are obese. We don't have a poverty problem in the traditional sense of the word; poverty in this country generally does not mean people are going without food, clothing or shelter. More importantly our poverty numbers, because they are based on income, omit many kinds of cash and noncash income such as Medicaid, food stamps and public housing.

That said, we can do better, and indeed we must. In the past we made the mistake of treating poverty as if it were a chronic disease from which we could alleviate the pain but for which there was no cure. We created welfare and entitlement programs to ease the pain of poverty. Social Security was originally designed to save older Americans from poverty, and for years it did just that. But today, 80 percent of workers are paying more in payroll taxes than in income taxes. The program that was designed to keep seniors out of poverty is preventing too many workers from escaping it.

We reformed our welfare laws by enacting welfare-to-work to restore incentives to work, but that was not enough. Now we must take the next step and make it possible for all workers to save for their homes, their education and their retirement.

The real problem of poverty in this country is a poverty of ideas and imagination among public officials such as Federal Reserve Chairman Alan Greenspan, who said recently that we must cut Social Security benefits because the government can't "afford" to pay what it promises retirees.

Of course it can't; neither could the Soviet Union for all those years nor can communist Cuba today keep the promises it makes. The key to modernizing Social Security is not to cut benefits to save the socialistic tax-and-transfer program that demands each successive generation of workers pay for the retirement of preceding generations but rather to transform Social Security into a true worker-based investment program that allows each worker to save for his own retirement.

The pain of paying for the transition to personal retirement accounts should fall on obese government, not individual Americans. The Congressional Budget Office projects that under current trends, the size of government will increase by two-thirds between now and midcentury.

nly a small fraction of the increased spending (about 5 1/2 percent) would be required to pay for the transition to personal retirement accounts without cutting benefits or raising taxes. Empower more workers; pay fewer bureaucrats!

The key to creating an investor nation and making every worker an owner by creating a fully funded personal retirement system will be modest government spending, growth restraint and continued long-term economic growth, which is where tax reform enters the picture. By offering voters a realistic vision of these reforms, the Republican Party will take a giant leap toward becoming the All-American Party capable of competing for every vote in every district in America. Sen. John Kerry has demonstrated he intends to keep the Democratic Party as a cradle-to-grave security blanket.

President Bush intends to position the Party of Lincoln as a party of poverty-to-prosperity opportunities.