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.

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The United States is at a fork in the road regarding which way we will go as a people. The 2012 election could be the most important in our lifetime, and conservative leaders have reached a consensus on how to channel the energy and concerns of the American people to realize historic change this year.

The status quo will not survive the year. Our debt and spending have reached catastrophic proportions in the context of global financial difficulties and political upheaval. Consequently, by the end of 2012, America will either have taken a decisive step toward socialistic collectivism in the name of “equality” and “social justice,” where businesses and owners are punitively taxed to “pay their fair share,” or America will take a major step in the direction of returning to our Founders’ constitutional government, restoring the rule of law, federalism, free enterprise, and individual initiative and responsibility.

The American people will decide which path to take in the 2012 elections, not only in the general election on November 6 but also in the nominating process in primaries over the next several months for all major offices, including the presidency. Conservatives must act in a concerted and informed fashion in all of these contests to shape the public dialogue and thoroughly vet the candidates.

To achieve these ends, top conservative leaders acting under the umbrella of the Conservative Action Project have released “A Conservative Consensus for 2012” announcing agreement on major policies. These issues span all three wings of the conservative movement: economic, social, and national security.

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Naturally I disagree with much of the opposition and my well-meaning colleagues on the left in regards to Keynes and his school of economics. Many in this school of thought cannot accept the fact that Keynesian economics has never worked; it did not work in the depression nor has it worked any time since then. The only time stimulus has “worked” is after the economy has already recovered and then becomes overheated by the stimulus. Keynesian economics is an excuse for politicians to buy off special interest and voters with other peoples’ money. Let me address some of the opposition’s specific points:

Stimulus spending creates jobs

False, stimulus spending financed by taxes substitutes relatively inefficient government spending for private spending. In other words, government spending “crowds out” private spending. The opposition may disagree that public spending is less efficient but the recent analysis of the government spending does not support their point of view.

It is not taxation but debt that is financing the government spending

I maintain that government debt crowds out private borrowing and investment. Many of my anti-capitalist colleagues say that government spending is not crowding out private investment because interest rates are low. Therefore there is plenty of money to finance private investment. Unfortunately, in an attempt to protect depositors, and the government guarantee of such deposits, the bank regulators have increased the credit underwriting requirements on banks. Consequently, they are not lending to small and medium sized businesses.

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Alan Blinder has a distinguished resume. He’s a professor at Princeton and he served as Vice Chairman of the Federal Reserve.

So I was interested to see he authored an attack on the flat tax – and I was happy after I read his column. Why? Well, because his arguments are rather weak. So anemic that it makes me think there’s actually a chance to get rid of America’s corrupt internal revenue code.

There are two glaring flaws in his argument. First, he demonstrates a complete lack of familiarity with the flat tax and seemingly assumes that tax reform simply means imposing one rate on the current system.

Here’s some of what he wrote in a Wall Street Journal column.

Many useful steps could be taken to simplify the personal income tax. But, contrary to much misleading rhetoric, flattening the rate structure isn’t one of them. The truth is that 100% of the complexity inheres in the definition of taxable income, which takes up millions of words in the tax laws. None inheres in the progressive rate structure. If you don’t believe that, consider the fact that the corporate income tax is virtually flat once a corporation passes a paltry $75,000 in taxable income. Is it simple? Back to the personal tax. Figuring out your taxable income can be quite an effort. But once that is done, most taxpayers just look up their tax bill on an IRS-provided table. Those with incomes above $100,000 must perform a simple calculation that involves multiplying two numbers together and adding a third. A flat tax with an exemption would require precisely the same sort of calculation. The net reduction in complexity? Zero.

I can understand how an average person might think the flat tax is nothing more than applying a single tax rate to the current system, but any public finance economist must know that the plan devised by Professors Hall and Rabushka completely rips up the current tax system and implements a new system based on one tax rate with no double taxation and no loopholes.

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I’m baffled by stupid Republicans (sorry to be redundant). Some GOPers have agreed to put taxes on the table. Not surprisingly, Democrats are praising them for this preemptive surrender, patting these Republicans on the head for being good little lapdogs. The Democrats are also high-fiving each other since they openly admit that tricking Republicans into a tax hike has been their top political goal, but that’s an issue for another day.

And what are Republicans getting in exchange for violating their no-tax promises? As you might suspect, they’re getting nothing. For all intents and purposes, the left is saying “that’s a good start” and waiting for GOPers to make further concessions. Needless to say, this is very irritating. And I’m not the only person who is upset. Here is a column that I co-authored along with Grover Norquist, Mike Needham, Phil Kerpen, Al Cardenas, and Duane Parde. We explain why higher taxes are a bad idea:

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Governor Rick Perry of Texas has announced a plan, which he outlines in today’s Wall Street Journal, to replace the corrupt and inefficient internal revenue code with a flat tax. Let’s review his proposal, using the principles of good tax policy as a benchmark.

1. Does the plan have a low, flat rate to minimize penalties on productive behavior?

Governor Perry is proposing an optional 20 percent tax rate. Combined with a very generous allowance (it appears that a family of four would not pay tax on the first $50,000 of income), this means the income tax will be only a modest burden for households. Most important, at least from an economic perspective, the 20-percent marginal tax rate will be much more conducive to entrepreneurship and hard work, giving people more incentive to create jobs and wealth.

2. Does the plan eliminate double taxation so there is no longer a tax bias against saving and investment?

The Perry flat tax gets rid of the death tax, the capital gains tax, and the double tax on dividends. This would significantly reduce the discriminatory and punitive treatment of income that is saved and invested (see this chart to understand why this is a serious problem in the current tax code). Since all economic theories – even socialism and Marxism – agree that capital formation is key for long-run growth and higher living standards, addressing the tax bias against saving and investment is one of the best features of Perry’s plan.

3. Does the plan get rid of deductions, preferences, exemptions, preferences, deductions, loopholes, credits, shelters, and other provisions that distort economic behavior?

A pure flat tax does not include any preferences or penalties. The goal is to leave people alone so they make decisions based on what makes economic sense rather than what reduces their tax liability. Unfortunately, this is one area where the Perry flat tax falls a bit short. His plan gets rid of lots of special favors in the tax code, but it would retain deductions (for those earning less than $500,000 yearly) for charitable contributions, home mortgage interest, and state and local taxes.

As a long-time advocate of a pure flat tax, I’m not happy that Perry has deviated from the ideal approach. But the perfect should not be the enemy of the very good. If implemented, his plan would dramatically boost economic performance and improve competitiveness.

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The latest Gallup poll pegs President Obama’s approval at a new low of 41 percent. That adds to the thought that the winner of the GOP presidential-primary sweepstakes is going to be the next president.

And inside that Republican contest, the policy pendulum is swinging toward pro-growth, flat-tax reform. A new agenda. With Herman Cain’s 9-9-9 plan and the announcement of a Steve Forbes-type flat tax from Gov. Rick Perry, the GOP flat-tax-reform competition is dominating the headline news.

While President Obama stumps for huge tax hikes — on incomes of $200,000 to the millionaire and billionaire level — and demoralizes businesses and entrepreneurs with his populist attacks on success and risk-taking, the GOP is fast coming up with a much better idea.

The handwriting is now on the wall. A huge part of the 2012 campaign will be pro-growth tax reform versus “fairness,” redistribution, and soak-the-rich. In a stalled-out economy, I’ll take the supply-side bet anytime. Pro-growth, flat-tax reform is going to win.

The stock market gets this. The flat tax is bullish. In late September, Herman Cain trumpeted his 9-9-9 flat-tax/fair-tax hybrid reform plan at the Orlando, Fla., debate. Since early October, stocks have come out of their funk, rising 12 percent.

Coincidence?

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President Obama and the Democratic Party effectively turned every controversial issue they faced over the past three years into a potential crisis, and convinced the American people to support their solutions without question to avert presumed dire consequences.  Important works of legislation capable of changing the American way of life were passed on the basis of “we have to pass this now – or else!”  Mr. Obama is preparing to face the nation again with another speech that will proclaim urgency and use panic to get his legislative desires passed.  We need to recognize what has been going on and put a stop to it.

The American Recovery and Reinvestment Act of 2009, the stimulus bill, was quickly passed by the Democratic controlled House and Senate without real debate in order to keep the unemployment rate from rising above 8%.  With unemployment at 9.1%, and over 17% when considering all those who stopped looking for work or are working part-time, that crisis was not averted.  All the stimulus bill did was to spend $800 billion of tax payer money to pay government workers salaries for one year and for a few temporary road construction projects.  The law did not provide any incentive for self-sustaining employment and our economy is now facing another recession.

The Patient Protection and Affordability Act of 2010, Obamacare, was crammed through the Democratic controlled House and Senate against overwhelming protests by the American people. All this ideologically designed legislation accomplished, with over 2,700 pages and the creation of 159 new bureaucracies, was to create uncertainty for employers and push up the cost of health care insurance.

The recently passed Dodd Frank Wall Street Reform and Consumer Protection Act of 2010, the last piece of hastily formed legislation passed by the Democratic controlled House and Senate before the November  2010 election shifted power in the House to the Republicans, is an empty bill passed for political purposes leaving its substance to regulations yet to be written.  Our nation’s banking system is now paralyzed by the uncertainty of what will be in those regulations.

From Cash for Clunkers to cash for Solyndra, everything this administration does is preceded by “pass it now, there is no time for debate.”  Economic conditions are difficult for most Americans and with 14 million citizens unemployed and an estimated 25 million Americans in total who are unemployed or under-employed, families are hurting and it would be easy to proclaim a crisis and cause panic.

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Congressman Paul Ryan, Chair of the House Budget Committee, has become the GOP’s go-to guy for everything economical, and there are two reasons why: first, he is courageous enough to jump into the water and get the pool party started. As with his Path to Prosperity, his budget, and his plan for Medicare, Mr. Ryan is clear that Americans need to talk about big changes in the amount of money we spend and ways we can grow our economy, increase productivity, and, of course, employment- none of which have been even remotely addressed by the current administration. His willingness to get out on the road and talk to Americans about his ideas, have conversations with them, and take on the darts and arrows demonstrates a strength of character that the president and his party might only dream of possessing.

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.

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Michael Barone in The Examiner:

Barack Obama looked and sounded angry in his speech to the joint session of Congress. He bitterly assailed one straw man after another and made reference to a grab bag of proposals which would cost something on the order of $450 billion—assuring us on the one hand that they all had been supported by Republicans as well as Democrats in the past and suggesting that somehow they are going to turn the economy around. He called for further cuts in the payroll tax (which if continued indefinitely would undermine the case of Social Security as something people have earned rather than a form of welfare) and for a further extension of unemployment insurance (perhaps justifiable on humanitarian grounds, but sure to at least marginally raise the unemployment rate over what it would otherwise be).

He called for a tax credit for hiring the long-term unemployed (unfortunately, these things can be gamed). He gave a veiled plug for his pet project of high-speed rail (a real dud) and for infrastructure spending generally (but didn’t he learn that there aren’t really any shovel-ready projects?). He called for a school modernization program (will it result in more jobs than the Seattle weatherization program that cost $22 million and produced 14 jobs?) and for funding more teacher jobs (a political payoff to the teacher unions which together with other unions gave Democrats $400 million in the 2008 campaign cycle). “We’ll set up an independent fund to attract private dollars and issue loans based on two criteria: how badly a construction project is needed and how much good it would do for the country.”

Yeah, sure. Like the screening process that produced that $535,000,000 loan guarantee to now-bankrupt Solyndra. And Congress should pass the free trade agreements with Panama, Colombia and South Korea. Except that Congress can’t, because Obama hasn’t sent them up there yet in his 961 days as president.

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From AFP:

Republican US presidential hopeful Mitt Romney unveils his economic plan Tuesday, focusing on lower taxes, less regulation, scrapping the Obama health plan and ending trade “surrender” to countries such as China.

The former front-runner in his party, Romney said President Barack Obama “has had his turn at fixing the American economy” and has failed.

“For my part, I believe America can do better,” Romney writes in the USA Today newspaper ahead of a speech later in the day on his economic plan.

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There he goes again. Out on the campaign trail, President Obama is proposing more federal spending as his answer to sluggish growth and jobs. That won’t do it, Mr. President.

He wants more infrastructure spending, undoubtedly in the form of an infrastructure bank. That’s a terrible idea. It’s borrowed from Latin America, where bloated and corrupt bureaucratic construction agencies have helped bankrupt any number of countries in the past.

He wants to lengthen 99-week unemployment insurance, although numerous studies have shown that continuous unemployment benefits are associated with higher unemployment.

And he wants to extend the temporary payroll tax credit, which is not a permanent reduction in marginal tax rates, has no incentive effect, has not worked so far, and is really a form of federal spending — not real tax relief.

Earlier this week, when he signed the debt-ceiling bill, the president ranted on about the need to raise tax rates on successful earners, investors, and small businesses. He’s trying to bring back tax hikes as part of the phase-two special committee seeking additional deficit reduction, even though his own party rebuffed him on this in the late stages of the debt talks. All this is a prescription to grow government, not the economy.

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As we issue this week’s essay, the leadership of both parties and the White House have announced agreement to end the debt ceiling crisis.  The deal, which still requires congressional approval, will increase the nation’s debt ceiling by $2.4 trillion while, over the next ten years, cutting an equivalent amount in government spending. It is a complex and convoluted deal that will make few people happy, but it will end the default nightmare…at least for two years.  The process attested to Otto Von Bismarck’s famous lament over a hundred years ago, “Laws are like sausages, it is better not to see them being made.”

The spectacle, leading up to the agreement, of leaders from both houses of congress taking turns bloviating before the TV cameras about the stubbornness of the other side did not, in our opinion, inure to the credit of anyone or of either party.  It became an exercise of “pathetic” condemning “more pathetic.”

Incumbents, Republicans and Democrats (including the President), may, we believe, pay a stiff price when they face the voters next year.  The political jockeying over the debt ceiling crisis may well result in a plague on both houses as voters contemplate the stress to which Washington subjected them.  Most grating to most voters, we believe, is that the crisis didn’t have to be a crisis. Every party to the debate has staked out positions that are politically motivated, unhelpful and laden with risk to ordinary Americans throughout the land.

House Speaker Boehner initially staked out the high ground and than caved on the issue of revenue (even revenue that would be derived from eliminating special interest tax breaks that have long outlived their usefulness or otherwise distort the marketplace).  He had proposed, wisely we think, eliminating almost all tax deductions and then reducing marginal rates as a trade-off even though the revenue derived from that exchange might well exceed current tax revenue.  The elimination of these special interest tax breaks, which we had suggested in an earlier essay, was subsequently pulled off the table. We believe, and have often stated, that taxes, with few exceptions, should be used to raise necessary revenue rather than to influence, or distort, individual or corporate taxpayer behavior. His earlier insistence on a short-term resolution that would have had the country replaying this farce in a few months has been stricken from the deal.

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The on-again, off-again “Gang of Six” has come back on the scene and is offering a “Bipartisan Plan to Reduce Our Nation’s Deficits.”

The proposal is quite similar to the one put forth by the President’s Simpson-Bowles Commission, which isn’t too surprising since some of the same people are involved.

At this stage, all I’ve seen is this summary (A BIPARTISAN PLAN TO REDUCE OUR NATIONS DEFICITS v7), so I reserve the right to modify my analysis as more details emerge (and since I fully expect the plan to look worse when additional information is available, the following is an optimistic assessment.

The Good

o Unlike President Obama, the Gang of Six is not consumed by class-warfare resentment. The plan envisions that the top personal income tax rate will fall to no higher than 29 percent.

o The corporate income tax rate will fall to no higher than 29 percent as well, something that is long overdue since the average corporate tax rate in Europe is now down to 23 percent.

o The alternative minimum tax (which should be called the mandatory maximum tax) will be repealed.

o The plan would repeal the CLASS Act, a provision of Obamacare for long-term-care insurance that will significantly expand the burden of federal spending once implemented.

o The plan targets some inefficient and distorting tax preference such as the health care exclusion.

The Bad

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Blocking oil companies’ ability to benefit from two key tax relief provisions could drive up the deficit and the national debt, according to a study released Tuesday by Louisiana State University professor Dr. Jospeh R. Mason (PDF).

The study, sponsored by the American Energy Alliance, focuses on two tax relief provisions: dual capacity (foreign tax credits) and the Section 199 deduction, currently available to nearly all American businesses.  It concludes that while eliminating the availability of the provisions to oil companies would increase revenue by tens of billions in the short term, it would cost the country hundreds of billions in economic output, provoke about 155,000 job losses (with consequent impacts on wages and employment-derived tax revenues), and ultimately result in a net fiscal loss of $53.5 billion in tax revenues.

“The administration’s proposal to eliminate tax deductions on U.S. oil and gas companies is grossly counterproductive toward the goal of increasing federal revenues,” said Dr. Mason in a statement. “Such a move would have a net negative impact on revenue, thereby increasing federal deficits.”

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Are we headed for more political business as usual, where Republicans give up too much and get too little back in the debt-ceiling fight? Friday’s papers are loaded with stories on the GOP giving up Paul Ryan’s Medicare-reform package. It’s being called “political reality.”

But let me ask this: Will they also give up any attempt to slow Medicare spending in the next couple of years, at least a down-payment on the budget deficit?

And I don’t see much talk anymore about tax reform as part of the new package. But the economy still needs an incentive jolt, which could be supplied at least by dropping the business tax rate.

Conservative Canadian Prime Minister Stephen Harper is moving to a 15 percent corporate tax rate. We’re still at 35 percent. Canada’s open for business. Are we?

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Since it is tax-filing season and we all want to honor our wonderful tax system, let’s go into the archives and show this video from last year about the onerous compliance costs of the internal revenue code.

Narrated by Hiwa Alaghebandian of the American Enterprise Institute, the mini-documentary explains how needless complexity creates an added burden – sort of like a hidden tax that we pay for the supposed privilege of paying taxes.

Two things from the video are worth highlighting.

First, we should make sure to put most of the blame on Congress. As Ms. Alaghebandian notes, the IRS is in the unenviable position of trying to enforce Byzantine tax laws. Yes, there are examples of grotesque IRS abuse, but even the most angelic group of bureaucrats would have a hard time overseeing 70,000-plus pages of laws and regulations (by contrast, the Hong Kong flat tax, which has been in place for more than 60 years, requires less than 200 pages).

Second, we should remember that compliance costs are just the tip of the iceberg. The video also briefly mentions three other costs.

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We thought tax reform meant lowering rates and broadening the base by eliminating or cutting back on various deductions, credits, and loopholes. That’s what the Bowles-Simpson commission proposed. That’s what Paul Ryan and David Camp are working on. And that’s the pro-growth model.

But President Obama unveiled a much different tax-reform vision in his much-anticipated debt speech on Wednesday. He would raise tax rates on upper-income earners and small businesses. He also would eliminate deductions and credits, or so called “tax expenditures.” The president referred to these tax-expenditure reductions as “spending cuts.” In his context, they most certainly are not. They are more tax hikes.

Basically, the president is giving successful earners and small-business filers a double tax hike. That’s what it really is.

Of course, the president’s formula of estimating higher revenues to lower the deficit is completely wrong. The reality is that higher tax rates will slow the economy, inhibit new start-up companies, penalize investors, and may very well lose revenues and increase the deficit.

In the latter part of his speech the president did mention some kind of middle-class and corporate tax reform. But he gave no specifics.

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From The Wall Street Journal:

Our budget, which we call The Path to Prosperity, is very different. For starters, it cuts $6.2 trillion in spending from the president’s budget over the next 10 years, reduces the debt as a percentage of the economy, and puts the nation on a path to actually pay off our national debt. Our proposal brings federal spending to below 20% of gross domestic product (GDP), consistent with the postwar average, and reduces deficits by $4.4 trillion.

A study just released by the Heritage Center for Data Analysis projects that The Path to Prosperity will help create nearly one million new private-sector jobs next year, bring the unemployment rate down to 4% by 2015, and result in 2.5 million additional private-sector jobs in the last year of the decade. It spurs economic growth, with $1.5 trillion in additional real GDP over the decade. According to Heritage’s analysis, it would result in $1.1 trillion in higher wages and an average of $1,000 in additional family income each year.

Here are its major components:

• Reducing spending: This budget proposes to bring spending on domestic government agencies to below 2008 levels, and it freezes this category of spending for five years. The savings proposals are numerous, and include reforming agricultural subsidies, shrinking the federal work force through a sensible attrition policy, and accepting Defense Secretary Robert Gates’s plan to target inefficiencies at the Pentagon.

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