Message to Mitt: A rising tide lifts all boats.
That great phrase was coined by the late Jack Kemp, who believed that growth and opportunity for all is the answer to poverty. In fact, Kemp believed it was the answer to all things economic. And he was right. The best anti-poverty program is the one that creates jobs. The answer to large budget deficits? Grow the economy, create jobs, watch incomes rise, and let the tax revenues come rolling in.
Partly from Jack Kemp’s work, and partly from his own experience, Ronald Reagan believed the same thing. He knew that growth is the single best solution for our economic ailments. And neither Reagan nor Kemp saw the world in terms of specific income classes or categories. They looked at the whole economy and realized that everyone is tied together. Dragging down the top earners will not help the middle class. And providing an ever larger safety net will not solve poverty. Reagan believed in the safety net, and maintained it. But he knew it was a stop-gap, not a solution.
Does Mitt Romney understand this?
The worry stems from Romney’s ill-advised statement this week. He said, “I’m not concerned about the very poor. We have a safety net there. If it needs repair, I’ll fix it.” That raises doubts as to whether he understands the Reagan-Kemp model. Perhaps he does. But he will have to tell us more.
Incidentally, the safety net has been expanding at an alarming pace. Transfer-program spending has been soaring. It’s up $600 billion, or about 35 percent, in the last three years. Medicaid, food stamps, and unemployment insurance have seen benefit levels rise and eligibility expand. This is a huge drag on the economy. We are paying too much to not work, and rewarding too little to work.
Welfarism is not compassionate. Opportunity is.
But now it’s up to Romney to propose moving the very poor out of the poverty trap by making it pay more after tax to work rather than not work. And he must persuade the electorate with a clear and detailed prescriptive agenda.
Part of the solution is tax reform, especially getting rid of the 10 percent bottom tax rate. Another part of the solution is education reform: Revive real choice and competition; spread merit pay and performance to judge the schools; and insist on high-school diplomas or associate degrees or streamlined training programs to bring the unemployed into the high tech age.
In his Florida victory speech, Romney said, “If this election is a bidding war for who can promise more benefits, then I’m not your president.” Good. But he must build on that. He has to make it clear that when the unemployed return to work they will not face huge marginal tax rates. In other words, there must be an incentive to leave government dependency and move into the productive economy.
That’s why a bold tax-reform plan is so important. The unemployed face a 10 percent bottom tax rate. But the middle class faces 25, 28, and 33 percent tax rates. That’s way too much. Why not flatten the code to just two rates, say 15 and 25 percent, and then simplify by getting rid of the other brackets and wiping out the unnecessary deductions, credits, and carve-outs?
Such tax reform will not only provide growth incentives, it will provide anti-poverty incentives as well. Job creation for everyone.
People know Romney is a successful business man. And I suspect most folks think he understands the free-enterprise economy better than Obama. But they’re not sure he has a specific plan that will translate his experience into real economic improvement for the whole country.
The same is true for the budget mess. Back in November, Romney put out an excellent statement on reforming entitlements, cutting $500 billion out of the budget by 2015, and getting spending down to 20 percent of GDP. It’s time he hit the reset button and started selling that plan all over again.
Railing against the Obama economy will not be enough to win. The latest jobs report shows a quickening pace of recovery: 243,000 nonfarm payrolls, 847,000 new jobs in the small-business household survey, and an 8.3 percent unemployment rate. Combine that with other strong readings on the manufacturing and non-manufacturing sectors (the ISM reports), car sales, chain-store sales, and jobless claims, and you have a 3 percent economy with good momentum.
Of course, coming from a very deep recession, growth and jobs should be better. The Reagan recovery was far stronger. But there’s no double-dip out there, and unemployment is not going back to 10 percent. So the trick for Mitt Romney is to show folks he has a detailed plan to make the economy and the budget better.
He needs to prove to people that he knows what to do and how to do it.
– Larry Kudlow, NRO’s economics editor, is host of CNBC’s The Kudlow Report and author of the daily web log, Kudlow’s Money Politic$.