President Bush's speech at the Republican National Convention has created quite a buzz inside the Beltway and around the country - not just because of his strength in the war on terrorism or his critique of the opposition, but because of his vision of an ownership society worthy of the American people. The president's vision is perhaps the boldest domestic policy vision since FDR's "New Deal" or LBJ's "Great Society," but unlike FDR and LBJ, Bush's vision is consistent with individual liberty, free markets and entrepreneurial capitalism.
Three components of the ownership society, as articulated by the president, are Social Security reform, tax reform and Opportunity Zones. House Speaker Dennis Hastert has been an early, forceful and powerful spokesman for tax reform. Some cynically have suggested that Hastert only became serious about tax reform to put Social Security reform "on ice" during an election year, but the cynics have it backward. The speaker realizes, as Bush does, that tax reform and Social Security reform are not mutually exclusive but mutually reinforcing policy initiatives.
Politically speaking, it would be virtually impossible to move fundamental tax reform and Social Security reform concurrently. Because this is almost certainly true, the first 100 days of a new administration must be devoted to Social Security reform. As even columnist Robert Samuelson recognized in a recent opinion piece, "These (entitlement reforms) are hard issues. But they are harder today because we didn't face them yesterday, and they will be harder tomorrow because we are not facing them today."
For Social Security reform, time is of the essence, and the issue is ripe. Besides, we have already had a Social Security Commission. Serious Social Security reform proposals consistent with the president's principles are already pending in Congress and with presidential leadership reform legislation could pass in the first 100 days.
Tax reform, like Social Security reform, has been extensively debated. We also had a bipartisan commission, which I chaired in 1996. However, unlike Social Security, for fundamental tax reform to pass much political work is needed to bring powerful special interests together working toward a common goal - increased economic growth - without devolving into a food fight over specific provisions of the code. It is simply not feasible to get this done immediately following the election. More realistically, tax reform would come two years after Social Security reform.
This does not mean tax reform cannot or should not happen; indeed, it must happen. That is why it's imperative for the president, the speaker and members of Congress to start work now so tax reform does happen in the next few years. In the interim there is still much we can do. In fact, one of the major policy proposals introduced during the president's speech that has not received as much attention is the president's proposal to create Opportunity Zones.
During his speech, Bush observed, "In this time of change, opportunity in some communities is more distant than in others. To stand with workers in poor communities and those that have lost manufacturing, textiles and other jobs, we will create American opportunity zones. In these areas, we'll provide tax relief and other incentives to attract new business and improve housing and job training to bring hope and work throughout all of America."
The Bush-Cheney campaign Web site elaborates on this concept: "In exchange for reducing local barriers to growth and investment, these Opportunity Zones would receive tax benefits to encourage businesses to locate, invest and hire new workers in the community."
The one area where I disagree with the president's idea of opportunity zones is the issue of tax credits. We do not need more tax credits; we need more fundamental incentives that will encourage work, saving and investment on a larger scale, including zero capital gains, low marginal corporate and individual income tax rates and full "expensing" for investments in business plants, equipment, machinery and technology. Here, as with Social Security reform, much of the legwork has already been done.
Two rising stars in the Congress, Rep. Paul Ryan, R-Wis., and Sen. Sam Brownback, R-Kan., have recently introduced "National Enterprise Zones" legislation. These zones would not only be available to urban centers, but to underdeveloped rural areas as well as areas adversely affected by trade and the U.S. territories. They include many of the incentives the president promoted during his speech - they would encourage people and businesses to live, save, invest and hire within the community.
Here's how it would work: Individuals who reside in those zones would be able to opt into a reformed tax code where they would pay a flat 17 percent tax rate, where all saving would receive IRA tax treatment, and they would pay zero capital gains on property acquired and sold while residents of the zone. Similarly, businesses operating within the zones would be able to opt into a reformed corporate tax code and receive a flat 17 percent tax rate, they would get to deduct the full cost of machinery and equipment placed in the zone and they would get to deduct inventories held in the zone when acquired.
National Enterprise Zones of Choice are really a part of the broader Opportunity Zones the president introduced during his speech. These zones would give depressed urban and rural areas an economic jump-start and serve as observable demonstration projects for fundamental tax reform nationwide.
Bush is embarking on an ambitious and exciting economic agenda. If he wins this November and implements these three important proposals, he will have forged a legacy worthy of our greatest presidents.