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.

But let’s try to learn an economics lesson. In a previous post, I compared  long-term growth in Hong Kong and Argentina to show the difference between capitalism and cronyism.

But for a much more dramatic comparison, look at the difference between North Korea and South Korea.

Hmmm…, I wonder if we can conclude that markets are better than statism? I bet even Harry Reid can guess the answer.

And if you like these types of comparisons, here’s a post showing how Singapore has caught up with the United States. And here’s another comparing what’s happened in the past 30 years in Chile, Argentina, and Venezuela.

All of these comparisons show the importance of good policy. Nations with bloated pubic sectors and excessive government intervention don’t grow as quickly as countries with small government and free markets.

Using data from the Economic Freedom of the World Index, this video explains the variables that lead to more prosperity.

Sadly, the United States has been falling behind in this key measure of competitiveness. Thanks to the statist policies of both Bush and Obama, America has dropped from 3rd in 2000 to 10th in the most recent rankings.

Keep in mind that the battle between those who create wealth and those that want to redistribute it, mainly politicians, is as old as civilization itself.  We read of tax battles and even reform in every age, like Urukagina’s tax reductions in Babylonia/Sumer in 2350 BC.  Equally venerable are the constant set of demagogic lies by those against tax cuts and simplification.  It is important to note that politicians like complicated tax codes and high tax rates because they control those rates and dispense the loopholes and regulations that complicate the tax code.  Tax simplification means they lose power.  As a result, resistance to tax reform is more often the rule than reform. As for the lies, they abound, so let’s consider just a few:

Lie # 1: Tax cuts cause deficits/Tax hikes balance the budget.  The Media and the Left often say that the Reagan and Bush tax cuts led to deficits while Clinton’s tax hikes led to a balanced budget. In truth, according to the IRS, federal tax revenues rose dramatically after the overall Reagan tax cuts/reforms (98%) and the Bush tax cuts (a record $700+ billion). This is just as they did after the Harding/Coolidge cuts (61% revenue increase) and after the Kennedy/Johnson cuts (62% revenue increase).  Those are the four major income tax reductions we have had since the inception of the income tax in 1913 and every time revenues rose after they were in place – every time.

So did the tax rate cut cause a deficit? The lie, of course, is to blame the revenue gathering mechanism (tax code/rate cut) instead of the revenue spending mechanism, i.e. Congress/Presidents.  The spenders kept spending – often at an accelerated rate when they saw the new revenues.  Thus, the fault for continuing deficits lies not with tax rate cuts, which produced higher revenues, but with politicians who spent too much.

Wasn’t there a surplus after the Clinton tax increase? Indeed there was – but only temporarily. First, it must be said that the economy had recovered from the short, Bush 41 tax-increase-induced recession by the end of his Presidency. It then resumed the Reagan recovery that was based on the dramatic reduction in tax rates a decade earlier.

Clinton then raised taxes on the recovering economy, and by the end of his 2nd term, we had the highest tax burden in American history considering federal, state and local taxes combined. To no surprise, we slipped back into a recession by the end of Clinton’s Presidency because of that record tax burden. As a result of the recession, federal expenditures went up (as welfare-related payments rose automatically) and tax revenues faltered along with the economy. The deficit reappeared, fulfilling John Maynard Keynes warning that “high tax rates defeat their own object” — to collect revenue. Thus, the Clinton tax hike temporarily gathered more revenue and, when combined with spending slowed by the Republican Congress, a surplus emerged. But over time, the Clinton tax hike weighed down the economy and reproduced deficits just like the Bush 41 tax increases that also weakened the economy and wound up doubling the deficit during his term.  To give Clinton credit for the surplus, but not the later deficit, is to credit a pitcher with 6 good innings of pitching and fail to report when he lost the game in 7th inning.

Lie #2: Tax revenues would have risen even without a tax cut.  This lie posits that tax rate cuts cost the government money because the revenues would have increased without the cuts as part of a natural business cycle uptick.  Nothing can be further from the truth.  First, as the current economy proves, recoveries are not automatic nor do they necessarily significantly increase employment and/or revenues.

Second, prior to the Reagan tax cuts, the 12 years of combined Nixon/Ford/Carter bad policies resulted in stagflation and tax revenues dropping at a rate of 2.8% per year.  By the end of Carter’s term, the economy was dreadful and showed no appreciable signs of a turnaround. Reagan then dramatically cut tax rates and reduced regulations.  The lie is to assert that the Reagan tax rate cuts had no influence on the economic turnaround that resulted in more employment, more business transactions and therefore more tax revenues.  In truth, without the Reagan tax cuts, especially given the Federal Reserve’s inflation fighting tactics at the time, the economy would not have magically turned around and produced 92 straight months of growth, let alone led the revenue growth. Claiming otherwise is just silly.

Want more proof? Consider the tax rate cuts that produced the Roaring 20’s.  By 1917, just over three years after the income tax code was instituted with a top rate of 7%, Democrat Woodrow Wilson raised the top rate to 77%!  Not surprisingly, we were in a deep recession by 1918.  During the 1920’s, however, the economy turned around and after the tax rate reduction to a top rate of 25%, revenues jumped 61%. So, did the Roaring 20’s just happen to occur or did the tax cuts cause them? The tax rate cuts reversed a dynamic of capital being placed in tax-free government bonds and encouraged capitalists to put their money at risk.  As a result, people were employed, more business transactions occurred and – of course – tax revenues rose.  That changing dynamic would not have magically occurred without the tax reductions.

In sum, tax rate reductions produce more revenue over time because they provide incentives, which result in more business transactions, more income and more sales tax.  It worked in 2350 BC and it will work again once Obama is defeated.  On the other hand, tax hikes produce less revenue over time, because they reduce incentives and weigh down economies.

Lie #3:  Tax cuts  don’t lead to economic growth.  The four major tax cuts (Harding/Coolidge, Kennedy/Johnson, Reagan, and Bush 43) all were followed by economic growth.  The Harding/Coolidge cuts were followed by The Roaring 20’s, the Kennedy/Johnson cuts were followed by three years of growth averaging over 6%, and the Reagan cuts were followed by 92 straight months of economic growth. The Bush tax cuts were followed by 52 straight months of job growth.  Was that all just a mere coincidence?  Given that tax reductions were the only major policy changes shared by those times, the answer is no. Tax rate cuts do lead to economic growth.  Not only that, according to IRS figures, after each of those major tax cuts, the top earners paid a greater percentage of income taxes not less.

Lie #4: The rich don’t pay their fair share.  This is the rallying cry of those who want to raise tax rates.  According to the IRS, however, the top 1% pays nearly 37% of all income taxes.   The bottom 50% pays just over 2% of all income taxes.  For those that claim that is not a fair share, I submit to you that no percentage would be fair.  By using the “fair” card, they are seeking a rhetorical advantage and that will continue to be effective unless these lies are rebutted.

Lie #5:  The Bush tax cuts led to a bad economy in 2008.  It is true that there was a bad economy in 2008, something that occurred 5 years after the Bush tax cut.  So does that mean that those tax cuts caused the bad economy?  Certainly not. The main cause related to government distortion of the housing market combined with bad business practices and mistakes by the Federal Reserve.  There is no plausible economic theory as to how lowering tax rates across the board by a few percentages points (and removing millions from the tax rolls) led to the Wall Street/housing problems 5 years later.  In other words, it’s just a lie.

Lie #6:  The current American tax burden is lower.  That statement is partially wrong and used to demand higher taxes on the rich.  It is true that the federal tax burden has dropped to an abnormally low 14%. It generally is closer to 18%.  The biggest cause for that drop, however, is the prolonged and deep recession.  When a nation has considerably less income for such a prolonged period, tax burdens tend to drop because they are paying fewer taxes then when they had higher income.  Lower incomes leading to lower tax burdens is hardly something to crow about.  Beyond that, the current 14% refers to federal taxes and that number fails to take into account the massive growth in non-federal income taxes such state and local taxes.  Those non-federal taxes have replaced the federal burden.  So, the next time you hear that the top federal income tax rate is lower than in 1950 (true) – tell that person we didn’t have gas taxes, cell phone taxes, cable taxes, cigarette taxes in 1950.  When they say the tax burden is lower than before, tell them it came at the expense of a lower standard of living and that the way to raise tax revenues is to create a vibrant economy.

One last tidbit for your bushel of truths:

The last 8 Presidential winners were the perceived tax-cutting candidate.

1. Reagan over Carter,

2. Reagan over Mondale – who threatened to raise taxes,

3. Bush 41 (read my lips) over Dukakis,

4. Clinton (middle class tax cut) over Bush (who broke his pledge),

5. Clinton (promised to do it again even though he raised taxes) over Dole (who refused to take the No New Tax Pledge and made a career of brokering tax deals as the Republican Senate leader – and whose reputation overrode his tax plan which came too late in the game),

6. Bush 43 over Al Gore (who called tax cuts a risky scheme),

7. Bush 43 (who cut taxes) over Kerry,

8. Obama (promised to cut taxes for 95% of Americans) versus McCain who didn’t believe in the Bush tax cuts.

Knowing all of that, will the 2012 Republican nominee support tax cuts against the tax-raising Obama?  It seems likely if this discussion of tax code simplification continues.  To get it enacted, however, that nominee has to be able to make the case for tax cuts and expose the lies.  Not just in passing, but with all the passion of a true reformer.

That video looked at the relationship between economic freedom and various indices that measure quality of life. Not surprisingly, free markets and small government lead to better results.

Now they have a new video that looks at recent developments in the United States. Unfortunately, you will learn that the U.S. is slipping in the wrong direction.

The entire video is superb, but there are two things that merit special praise, one because of intellectual honesty and the other because of intellectual effectiveness.

1. The refreshingly honest aspect of the video is its non-partisan tone. It explains, in a neutral fashion, that Bush undermined prosperity by making government bigger and that Obama is undermining prosperity by increasing the burden of government.

2. The most important and effective argument in the video, at least from my perspective, is that it shows clearly that a larger government necessarily comes at the expense of the productive sector of the economy. Pay extra-close attention around the 2:00 mark.

It’s also worth pointing out that there are several policies that impact on economic performance. The Koch Institute video focuses primarily on the key issues of fiscal policy and regulation, but trade, monetary policy, property rights, and rule of law are examples of other policies that also are very important.

This video, narrated by yours truly, looks at economic growth from this more comprehensive perspective.

The moral of the story from both videos is very straightforward. If the answer is bigger government, you’ve asked a very strange question.

For Bloomberg to come out with this statement is irresponsible and incendiary. But you know what? He’s got a personal agenda. This is a desperate talking point to sell Obama’s jobs plan, which Bloomberg favors as a solution to high unemployment and zero growth.

There’s a whole history here of liberals threatening riots if they don’t get their way. WABC radio host Mark Simone reminded me that back in 1994, Matilda Cuomo warned there would be race riots in New York if her husband Mario weren’t reelected governor in his race against George Pataki.

So now the liberal Mike Bloomberg is trying to go to bat for his pal Obama. And he’s doing so in a very clumsy and inappropriate way.

In fact, Bloomberg is pitching for the whole Obama jobs package — the $450 billion stimulus plan and the $470 billion tax hike. The package is totally unpopular. A recent Bloomberg poll (how ironic) showed that voters disapprove of more Obama stimulus by 51 to 40 percent, and that 56 percent of independents oppose it. Other polls show that more than 60 percent of Americans disapprove of Obama’s handling of the economy.

Memories are long. The $800 billion stimulus package nearly three years ago didn’t work. So why do it again?

Large dollops of government spending combined with temporary tax cuts do not promote investment or entrepreneurship, which are the true job-creators. Tax-rate incentives must be permanent in order to grow the economy. Digging holes for infrastructure may be necessary, but it’s no job-creator for the private sector.

And that $470 billion tax-hike bill, due in 2013, comes on top of other scheduled tax hikes, such as higher personal tax rates on successful earners and small businesses and the Obamacare payroll-tax increases that encompass investors.

The Wall Street Journal’s Steve Moore calls this a steep tax cliff. It’s exactly what the economy doesn’t need for the simple reason that business people today have at least a three-to-five-year time horizon when it comes to making decisions to invest and employ. They know a temporary-tax-cut red herring when they see one.

As a formerly successful entrepreneur, Mike Bloomberg should know this. But he supports Obama’s tax increases along with the rest of the futile stimulus package. And he has taken to the radio airwaves to support these policies in an incendiary and self-defeating fashion.

Some political insiders I spoke to believe Bloomberg desperately wants Obama to win a second term. They say the New York City mayor wants to be Obama’s new treasury secretary. Therefore, Bloomberg is hammering Republicans today and absolving Obama from taking any blame or ownership of the current economic mess, which has placed the nation on the front end of yet another recession.

Riots are not the answer to our economic problems. Promoting private-sector investment is. As Bloomberg well knows from his own experience, businesses create the jobs that provide incomes for families and consumers. And businesses require capital investment. But if we keep raising taxes on investment, we will get less of it.

The American economy will continue to stall until we get a right-thinking new administration.

Consumers paid more for a range of goods and services last month, and unemployment benefit applications jumped last week to the highest level in three months. The latest data offered a picture of an economy facing inflationary pressures and a depressed job market.

The Consumer Price Index rose 0.4 percent in August, the Labor Department said Thursday. That followed a 0.5 percent increase in July. Excluding volatile food and energy costs, core prices increased 0.2 percent.

Prices for food, energy apartment rents, and clothing all increased.

Separately, the Labor Department said applications for unemployment benefits rose 11,000 to 428,000 last week. The four-week average, a less volatile measure, rose for the fourth straight week to 419,500, the highest level in eight weeks.

Applications need to fall below 375,000 to indicate that hiring is increasing enough to lower the unemployment rate. They haven’t been below that level since February.

“One bad week means nothing, but claims have been nudging higher since … early August. We await the next few weeks’ numbers with interest, and a degree of trepidation,” said Ian Shepherdson, chief U.S. economist for High Frequency Economics.

A third report from the Federal Reserve said manufacturing was mostly weak outside of strong auto production. Factory output rose 0.5 percent in August, after increasing 0.6 percent in July.

Most of the gain came from a 2.6 percent increase from autos and related products. The second straight month of increases in auto production was evidence that supply chain disruptions stemming from the Japan earthquake are easing.

The data suggest the economy isn’t improving much after it barely grew in the first six months of the year and employers pulled back on hiring.

Read the whole thing here.

Second, Congressman Ryan’s brilliant ability to explain aspects of the budget and economic data to Americans who may not be economists and budget analysts is on display in his new video, in which he describes the three necessary features of a new tax code: fairness, competitiveness, and simplicity.

Mr. Ryan told Tina Korbe of Hot Air, “If you tax something more, you get less of it. If you tax something less, you get more of it. If you tax work, savings, investment more, you’re going to get less of those things. If you lower tax rates across the board, we always see stronger economic growth result across the board.”

How simple is that? No jobs saved and created here. No double-counting Medicare in Obamacare. No tax increases to pay for investment, i.e., spending, in infrastructure.

In the same interview, the chairman made an important distinction between being “pro-market,” versus “pro-business.” He explained that Republicans need to be advocates for the former, a term which invokes the concepts of entrepreneurism, American creativity, and competitiveness in world markets.

While Paul Ryan has endured criticism from both Republicans and Democrats alike, he is a man who is not afraid to light a fire under Americans and our politicians, and to lead us to take a hard look at the kind of changes we need for growth. Let the next conversation begin.