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Practically Speaking

Kyle and her husband moved to Brookfield in 1986. She became active in local politics and started blogging in 2004. Her focus is primarily on local issues but often includes state and national topics, too. Kyle looks at things from the taxpayers' perspective in a creative, yet down to earth way, addressing them from a practical point of view.

Not the Party of NO, but possiblities

http://online.wsj.com/article/SB123595257066605147.html

A Republican Road to Economic Recovery

March 2

Inheriting countless challenges, Congress and the Obama administration have moved quickly on many fronts to implement their economic agenda. After two months of drastic interventions, has hope replaced fear, and confidence pushed aside uncertainty? Hardly.

The budget the president released last week, however, does provide some certainty about where we are headed: higher taxes on small businesses, work and capital investment.

Add to this the costly burdens of a cap-and-trade carbon emissions scheme and an effective nationalization of health care, and it is clear that the government is going to grow while the economy will shrink. In a nutshell, the president's budget seemingly seeks to replace the American political idea of equalizing opportunity with the European notion of equalizing results.

A constructive opposition party should be willing to call out the majority when it falls short. More important, Republicans must offer alternatives. In this spirit, here is what I would do differently:

- A pro-growth tax policy. Rather than raise the top marginal income tax rate to 39.6%, it should be dropped to 25%. The lower tax brackets should be collapsed to one 10% rate on the first $100,000 for couples. And the top corporate tax rate should be lowered to 25%. This modest reform would put American companies' tax liability more in line with the prevailing rates of our competitors.

We've seen 10 years of growth in our equity markets wiped out in recent months, while 401(k)s, IRAs and college savings plans are down by an average of 40%. The administration and congressional Democrats want to raise capital gains tax rates by a third. Instead, we should eliminate the capital gains tax. It supplies about 4% of federal revenues, yet it places a substantial drag on economic growth. Individuals already pay taxes on income when they earn it. They should not be socked again when they are saving and investing for their retirement and their children's education.

Capital gains taxes are a needless burden on investment, savings and risk-taking, activities in short supply these days. Getting rid of this tax could help establish a floor on stock prices and stem the decline in the value of retirement plans by increasing the after-tax rate of return on capital.

Democrats oppose this, playing on emotions of fear and envy. But while class warfare may make good short-term politics, it produces terrible economics.

- Guarantee sound money. For the last decade, the Federal Reserve's easy-money policy has helped fuel the housing bubble that precipitated our current crisis. We need to return to a sound money policy. That would end uncertainty, help keep interest rates down, and increase the confidence entrepreneurs and investors need to take the risks required for future growth.

I believe the best way to guarantee sound money is to use an explicit, market-based price guide, such as a basket of commodities, in setting monetary policy. A more politically realistic path to price stability would be for the Fed to explicitly embrace inflation targeting.

Transcripts from recent meetings of the Federal Open Market Committee meetings suggest that the Fed may already be moving in this direction. This would be an improvement over the status quo: It could help combat near-term deflation concerns while also calming the market's longer-term inflation fears.

- Fix the financial sector. A durable economic recovery requires a solution to the banking crisis. There are no easy or painless solutions, but the most damaging solution over the long term would be to nationalize our financial system. Once we put politicians in charge of allocating credit and resources in our economy, it is hard to imagine them letting go.

The underlying structural problem at our financial institutions is the toxic assets infecting their balance sheets and impairing their operations. In order to help purge these assets from the system, we need a government-sponsored, comprehensive solution, but one that is transparent and temporary, and which leverages -- rather than chases away -- private-sector capital.

The general idea is to establish an entity or fund to purchase troubled assets from financial institutions and then hold them until they could be sold once the market has recovered. The Treasury has announced its intention to use capital from the Troubled Asset Relief Program, along with financing from the Fed's soon-to-be operational Term Asset-Backed Securities Loan Facility, to set up such an entity. It will be a tall task to get all the details and incentives right, but the administration's general strategy appears to be sound.

A good model for this government-sponsored entity is the Resolution Trust Corporation (RTC), which helped clean up bank failures in the wake of the savings-and-loan crisis in the late 1980s and early 1990s by absorbing and selling off bad bank assets. The circumstances of today's financial sector are different, but the goals of our current efforts should mirror the general merits of an RTC-like entity. We should aim to recoup a portion of our initial expenditures, and we should leave only a fleeting government footprint on the financial sector and the economy.

- Get a grip on entitlements. With $56 trillion in unfunded liabilities and our social insurance programs set to implode, we must tackle the entitlement crisis. President Barack Obama deserves credit for his recent efforts to build a bipartisan consensus on entitlement reform. But we can't solve the entitlement problem unless we acknowledge why the costs are exploding, and then take action.

I have proposed legislation, called "A Roadmap for America's Future," that would bring permanent solvency to Medicare, Medicaid and Social Security. By transforming these open-ended entitlements into a system with a defined benefit safety net for the low-income and chronically ill, in conjunction with an individually owned, defined contribution system for health and retirement, we can reach the goal of these programs without bankrupting the next generation. It would also show the world and the credit markets that we are serious about our debt and unfunded liabilities.

Republicans can help Washington become part of the solution, not part of the problem. We can do this by pushing to enact tax policies that boost incentives for economic growth and job creation, focus the Fed on price stability, fix our banking system to get credit flowing again, stop reckless spending, and reform our entitlement programs.

Our economy is begging for clear leadership that inspires confidence and hope that the entrepreneurial spirit will flourish again. Our goal must be to offer Americans that leadership.

Mr. Ryan, from Wisconsin, is ranking Republican on the House Budget Committee and also serves on Ways and Means.

 

 

 

 

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