Michael  Franc

His State of the Union address began with a focus on our government’s foremost responsibility -- national security. This, the first of many bold policy proposals, would reverse the debilitating effects of the generation-long “procurement holiday” that has plagued our military since we prevailed over Soviet Communism in 1991.

The solution: make it the stated policy of the U.S. Congress to adequately fund the “weapons systems, the armament, and the number of troops that we need to secure the nation.” That translates into committing no less than 4% of our gross domestic product each and every year on what Pentagon experts refer to as the “base” defense budget.

Turning to the economy, he set forth an exciting alternative vision to the economic stimulus proposal being railroaded through Congress. He urged lawmakers to make the tax system “predictable” by making the current tax rates, which are set to rise dramatically at the end of 2010, permanent.

But giving businesses certainty as to their future tax burden isn’t enough. We must enable U.S. businesses to compete in the global marketplace. In the U.S., Uncle Sam socks businesses with one of the world’s highest tax rates -- 35%, with state taxes adding, on average, another 5%. That combined 40% rate, he observed, “is running jobs offshore.”

Indeed, the latest survey of corporate tax rates in 92 countries confirms that we must radically overhaul the way we tax business profits. The accounting firm of KPMG found that the average worldwide rate has fallen from 38% as recently as 1993 to only 27% today. In the European Union, rates have plummeted even further; the average rate there now approaches 24%. Most alarmingly, as of Jan. 1 China, our second-largest trading partner, lowered its top rate to 25%. The solution: lower our corporate tax rate to 25% “so that we’ll at least be able to compete with Europe.”

He also demanded that Congress consider a fundamental overhaul of our tax code, one that would make it “simpler” and “more understandable.” This translates to an optional flat tax with a top rate of 25%.

His proposals to rein in runaway federal spending were similarly ambitious. Enact a balanced budget amendment that makes it impossible to raise taxes. End the pernicious congressional practice of earmarking thousands of special interest projects. And, perhaps most dramatically of all, “stop spending Social Security [taxes] on other things.” This last item questions the legitimacy of some $100 billion of unrelated, and wasteful, federal spending each year.


Michael Franc

A long-time veteran of Washington policymaking, Mike Franc oversees Heritage's outreach to members of the U.S. House and Senate and their staffs.

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