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Don't be economic girlie-men

Sep 7, 2004
by Jack Kemp ( bio | archive | contact )

Last week's Republican National Convention was a success, as was the Democratic convention a month ago. The heavyweight speeches by Sen. John McCain, Rudy Giuliani, Gen. Tommy Franks, Gov. Arnold Schwarzenegger, "Give-'em-Hell-Zell" Miller and Vice President Dick Cheney were capped off by the president's own masterful performance - possibly the best of his life. The GOP got a tremendous bounce the Democrats failed to achieve, which launched the president into a double-digit lead over Sen. John Kerry.

Although the full shape of his vision has yet to be fleshed out, the president presented a comprehensive agenda for creating an ownership society through health-care savings accounts, personal retirement accounts and fundamentally reforming and simplifying our cumbersome tax code to maximize economic growth. With this bold outline, President Bush has thrown down the gauntlet for the Kerry campaign to answer even while the president goes about filling in the blanks that still remain.

For the Democrats, serious questions remain: Does Kerry have faith in free enterprise, faith in the resourcefulness of the American people, faith in the U.S. economy? Is he going to remain pessimistic about our economy? Will he keep saying this is the worst economy since the Great Depression? In short, is he going to allow the Democratic Party to fit Schwarzenegger's image of "economic girlie-men"?

The risk is real. Even New York Times liberal columnist Frank Rich titled his post-GOP-convention column "How Kerry became a girlie-man."

Economic statistics unambiguously contradict Kerry's pessimism. Last week the unemployment rate dropped to 5.4 percent, compared to 5.5 percent in 1996, when Bill Clinton was running for a second term, now lower than the average during the 1970s, 1980s and 1990s. Homeownership is at an all-time high, approaching 70 percent; the stock market has rebounded nearly 30 percent from post-recession lows; productivity remains strong; businesses are investing again in plants, equipment, technology and people; and technology continues to advance at a breathtaking speed, particularly in the area of communications technology.

Problems abound, but at least Bush and Republicans are doing more to answer them than are Kerry and the Democrats. The senator contends he's not really for tax hikes because the increases would only apply to the top 2 percent. That's pure class warfare. The Kerry-Edwards Web site states: "The measure of a strong economy is a growing middle class," and in Kerry's America, the "opportunities for our middle-class are shrinking." That is just not true. As economist Bruce Bartlett points out, according to new census data, "The ranks of the poor and middle class have shrunk for one reason only - more of them are rich!"

So what is Kerry's solution? Raise taxes, end corporate tax loopholes and end bilateral free-trade agreements. The Kerry-Edwards detailed international tax reform plan states, "John Kerry does not believe that we should force a U.S. company that chooses to create jobs in the United States to pay higher taxes and suffer a competitive disadvantage with a company that chooses to move jobs to a tax haven and keep profits there permanently." His solution? Eliminating the tax deferral for foreign-earned income as they earn it rather than being allowed to defer taxes.

In other words, Kerry would create incentives for companies to take not just the jobs overseas, but to move the entire operation overseas, as well. The Kerry campaign misses the obvious solution. As is written in their own report, a U.S.-based firm can "expect to pay an average tax rate of 31 percent. When this company invests abroad, it faces an average tax rate of 21 percent." The same Kerry report acknowledges that 80 percent of U.S. manufacturing assets abroad are based in countries with tax rates lower than the rate in the United States.

It seems obvious to most people that if U.S. tax rates are so high and uncompetitive that firms are being encouraged - driven - overseas, the solution is not to punish the firms, but to reduce the tax rates to more competitive levels.  Cutting the tax rates by 5 percent, as Kerry wants to do, is simply not going to make America more competitive.

At the Democratic National Convention, Kerry said he would not privatize Social Security. He also said he would not cut benefits. Therefore, the only thing left for Kerry to do is raise taxes.

After Bush announced his support for personal retirement accounts, Kerry countered that closing the budget deficit should be the first step toward fixing Social Security. What the senator didn't say is that Social Security is projected to run surpluses for the next 13 years or so, which could help finance allowing workers to take advantage of the marvel of compound interest in personal retirement accounts. He also didn't level with the American people about his plans to continue raiding Social Security surpluses of more than $1 trillion to pay for enormous new spending.

So far the Democratic agenda has been crippled by what Miller aptly described as a combination of Walter Mondale's tax increases, Herbert Hoover's tariff increases and George McGovern's foreign policy, not to mention they have no policy when it comes to Social Security reform. Indeed, by supporting tax increases, $2 trillion in new spending and having no plan whatsoever regarding Social Security, the Kerry-Edwards ticket offers no coherent agenda and shows no faith in the electorate, no faith in free enterprise, no faith in the resourcefulness of the American people and no faith in the U.S. economy. Democrats need to stop ranting about Benedict Arnold CEOs and recognize they are turning into the "economic girlie-men" Schwarzenegger warned about.

Jack Kemp is Founder and Chairman of Kemp Partners and a contributing columnist to Townhall.com.

Copyright © 2004 Copley News Service

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