Restoring the American Dream

By Tom Smith

"Restoring the American Dream" is Tom's policy proposal that will bring jobs and fiscal sanity back to our economy.

America is in trouble. For more than 40 consecutive months, our misguided polices have led to unemployment in excess of eight percent. Nearly 13 million Americans remain unemployed, a half million here in Pennsylvania, and even more are underemployed or have left the labor force entirely.

The policies of regulating, taxing and spending, supported by the Obama Administration and Senator Casey have stifled private sector investment and job creation. In order to foster economic growth and create jobs, we must abandon these failed policies.

This November, voters will be offered a clear choice between two very different paths for our country's future. One path leads to federal government growth and private sector decline; the path of "You Didn't Build That", one of increasing government dependence. The other choice leads to private sector growth and federal government decline; the path of "You Did Build That", one of personal liberty.

As history has proven, our return to prosperity must be fueled by the American values of hard work and ingenuity. We can and will preserve the American Dream for future generations by promoting economic freedom, and allowing hard working Americans to pursue that dream, unencumbered by out-of-control government growth.

1. Simplify the Tax Code - Institute a Flat Tax and Close Special Interest Loopholes

The over complication of the current tax code, at more than 70,000 pages, stifles economic growth and saddles all American businesses and families with unnecessary administrative and compliance costs + while offering special interest loopholes to the politically connected.1 The tax code should provide equal treatment for all and special privileges for none, as well as tax stability that allows businesses and families to plan for the future. A flat tax will contribute to increased economic growth while producing fairness by treating all taxpayers equally.

Establish and maintain a low flat tax rate.

Eliminating special interest loopholes and corporate handouts will allow for a revenue neutral rate reduction. Deductions should remain in place for charitable giving, mortgage interest and student loan interest.

A single flat tax rate will reward hard work and investment by eliminating high marginal tax rates.

The increasing marginal rates in the current system negatively affect personal behavior by reducing the incentive for additional work and investment. This results in reduced wealth creation, which makes society poorer.

Retain protections for low income Americans.

Retain protections for low income taxpayers through standard deductions and personal exemptions. Retain the earned income tax credit to preserve income support for low wage workers.

End double taxation of savings and investments.

The current systems that enact unfair double taxation of income serve to stifle investment and disproportionately harm small business. Eliminate the death tax and capital gains tax.

Adopt a territorial system: Keep American dollars in America.

All businesses would pay taxes on income earned in the United States, territorial taxation, and would include expensing capital purchases. There would no longer be separate rules for different types of ownership arrangements and foreign earnings would no longer be trapped overseas.

Revenue Neutral Reform.

The flat tax system should be designed revenue neutral relative to the current system, with the expectation future government revenues will grow faster than with the current system due to improved tax system efficiency coupled with increased incentives for risk taking and investment.

No more gimmicks and temporary "fixes."

No temporary tax measures or gimmicks should be introduced. These temporary measures have proven to increase the deficit, while fostering uncertainty that discourages investment and growth. The multiplier effects of these programs tend to be at best 1.0, and are often less, which means society is worse off.

2. End Out-of-Control Federal Spending + Reduce annual spending to 20% of GDP

Out-of-control federal spending threatens to bankrupt our nation and destroy opportunities for our children and grandchildren. In 2011, government spending represented 24.1 percent of gross domestic product (GDP) and the Congressional Budget Office (CBO) projects more of the same far into the future.2 Nobel Prize winning economist Milton Friedman said, "To spend is to tax," which means every dollar spent by government comes from the pockets of hard-working taxpayers. Our national debt now stands at more than $16 trillion with projected growth of another trillion dollars each year.

This burden will be passed on to our children and grandchildren, lowering their standard of living because of our inability to set real spending priorities.

Federal spending slows economic growth by taking dollars away from private sector investment. Leaving those dollars in the free market economy provides additional resources for growth and job creation.

Establish real priorities to fund government.

Is it necessary that the federal government performs this function? Could the private sector provide this service more efficiently? Necessary means the activity must be performed by government because society requires it.

Reduce or eliminate wasteful programs, bureaucracy and departments.

All departments and agencies must participate in reducing spending. For all government departments, agencies and programs, an analysis needs to be completed validating the mission scope, whether the function is being managed efficiently and if these services are duplicated elsewhere in government. The larger our federal bureaucracy has grown, so too has the prevalence of waste and duplication.

Pass a Balanced Budget Amendment.

Congress has a responsibility to the American taxpayer to prioritize spending to provide the most efficient delivery of services. A Balanced Budget Amendment should cap government spending at 20% of GDP. Passage of such an amendment is necessary in stopping the continued growth of the national debt.

No Budget, No Pay.

For more than three years, Congress has failed to fulfill its constitutional obligation to pass a budget. Our elected representatives should live under the simple realities their constituents do + if you don't do your job, you don't get paid.

Permanently End Earmarks.

No more special interest handouts and no more "bridges to nowhere." For too long, career politicians have prioritized their own reelection over their responsibility to taxpayers. Wasteful earmarks have led to projects with little or no economic impact, all in the name of political favors. Cut spending, leave these dollars with states and/or taxpayers, and let them set priorities.

Freeze non-defense hiring and reduce the federal workforce through attrition.

In 2010, there were nearly 4.5 million federal employees including military personnel. Executive departments represent over half of that total at around 2.7 million employees.3 These employees come with a major cost. According to the U.S. Census Bureau, in one single month in 2010 the federal government paid over $16.2 billion in payroll.⁴ It is obvious that the federal government has become bloated and wasteful. In order to bring down this number, we must enact a hiring freeze immediately and begin to shrink the workforce through attrition.

Control Program Expansion.

Americans accept an obligation to help fellow citizens in time of significant need, such as natural disasters, unemployment and sickness. What they do not accept is abuse of their generosity. Today, we are increasingly seeing individuals with an attitude of entitlement, who see government payments as a way of life rather than temporary assistance. These individuals are capable of earning their own way, but instead exploit the system through programs like welfare, food stamps, unemployment insurance and disability payments. Administrators responsible for these programs should rigorously enforce the eligibility rules established.

Stop Crony Capitalism.

The federal government granting specific businesses favoritism such as tax breaks, financial grants, market protection and other incentives is referred to as "Crony Capitalism." The practice distorts the market, creating significant advantages for the firms receiving them, while seriously disadvantaging others who are excluded from participating. It creates a government cost passed on to taxpayers and serves to increase the price of products and services to consumers. Perhaps the greatest cost is the erosion of confidence in the political system. Government interference with the private market should stop.

Provide Adequate Defense Funding.

Providing for our national defense is a constitutional obligation of government. For the welfare of all citizens, as well as our troops who serve in harm's way, it is necessary that our military be funded adequately to perform its mission. The emphasis should not be on how much to cut defense, but rather how much is needed to defend the country.

3. Regulation - End the Oppressive Regulation that Suffocates Growth and Kills Jobs

Excess regulation slows the creation of new businesses, the expansion of existing business, and in many instances, has caused businesses to close. The Small Business Administration (SBA) in 2010 estimated the annual cost of regulation at $1.75 trillion, which would equal over $15,000 per household.⁵ Since the beginning of the Obama Administration, over 10,215 new rulemaking proceedings were completed. During this time, 106 of those regulations alone cost Americans an additional $46 billion per year and $11 billion in one-time implementation costs.⁶ The following are specific elements of a plan to reduce the regulatory burden:

Repeal Dodd-Frank and Sarbanes-Oxley.

These financial laws have created significant uncertainty for businesses and have restricted economic growth. Dodd-Frank is a 2000-page bill that failed to accomplish what it set out to do: eliminate the "too big to fail" problem. What it did do was set up a massive regulatory system that touches all aspects of the financial community, as well as consumers, putting firms like community banks at risk, while providing few, if any, consumer benefits. Sarbanes-Oxley was passed in the Enron aftermath with many of its requirements designed for large companies. Smaller companies attempting to grow larger and incorporate, face serious financial penalties because of the legislation.

Review and Eliminate Burdensome Regulations.

All departments and agencies should review regulations for which they are responsible, and repeal those that unduly burden the economy and job creation. Given the explosion in the number of new regulations in recent years, the economic cost associated with many regulations exceeds the benefits produced.

Impose a Regulatory Cap on Agencies.

The idea of a regulatory cap would be to establish a "regulatory budget" for new regulations, which at least initially, would be set at zero. So, if an agency wanted to issue a new regulation that was estimated to cost a certain amount, that agency would be required to eliminate existing regulation costing society an equal amount. The process would slow the implementation of new regulations.

Restore Congressional Control.

Congress has adopted the practice of passing poorly defined legislation and tasking federal bureaucrats to establish the implementation rules. As a result, rules are established without any checks and balances, often producing very aggressive regulations far afield from what Congress intended. The remedy is either for Congress to specify the rules within the legislation, or to pass legislation such as the REINS Act, which would require Congressional approval for new regulatory rules having in excess of $100 million of annual economic impact.⁷

4. Energize our Future + American Energy for American Jobs

The United States has been blessed with an abundance of domestic energy. A Congressional Research Service (CRS) report determined the U.S. has more fossil energy reserves than any other nation in the world. We are number one, with 17 percent of total world reserves.8 The energy industry's contribution to the American economy is substantial. Currently, the oil and natural gas industry generates more than $1 trillion to the economy, while creating 9.2 million jobs. ⁹ The coal industry is responsible for over $85 billion in gross output to the economy. 1⁰ Unfortunately, many energy-rich areas within the U.S. are currently off-limits to energy exploration because of government restrictions, or delayed by slow administrative approvals. By ending these restrictions and fully utilizing all of our proven reserves, we can move to becoming energy independent and no longer rely on energy from volatile areas of the world.

Remove Energy Production Restrictions.

The federal government has greatly limited domestic energy production through declaring acreage closed to development, drilling moratoriums, and through a host of other policies designed to stifle and delay energy production. These policies need to be modified or eliminated to unleash the production capability of the industry. They should be permitted to produce in Arctic National Wildlife Refuge (ANWAR), offshore and on federally owned lands. The attitude of the regulator should be how we can foster domestic energy production in an environmentally sound fashion. Additionally, Congress should empower the U.S. Department of the Interior and the Bureau of Land Management to permit the safe extraction of mineral resources on federal lands.

Protect Pennsylvania Energy Production.

Coal has and will continue to provide energy and job security for thousands of Pennsylvanians. The exploration of our Marcellus Shale gas reserves promises unbelievable future opportunity. The Pennsylvania Department of Environmental Protection is perfectly capable of ensuring that gas, oil and coal is produced in a safe and environmentally-conscious manner. The federal government has been increasingly trying to inject itself into this role. More federal bureaucracy is leading to duplicate oversight, delays and overall inefficiency. Proposed legislation, like the FRAC Act dealing with fracturing Marcellus wells, threatens the growth of this industry and should be left to the states.

Alternative Energy.

The development of alternative energy within our energy mix is a good trend. However, development should proceed on the basis of private market investment without the use of government subsidies or directives. Clearly, government should not be picking winners and losers, as they did with Solyndra and other similarly positioned firms. And government should not mandate that resellers of energy to purchase alternative energy at subsidized prices, such as requiring utilities to purchase wind produced electricity at a specified price. This merely forces the final consumer to provide the subsidy.

End the EPA's job-killing over-regulation.

Across the board, government over-regulation is suffocating economic recovery. Nowhere is this more evident than in the energy industry. Maximum Achievable Control Technology (MACT) regulations and new ozone rules have put so much financial pressure on the power generation industry in Pennsylvania that they have found it more cost effective to idle plants rather than go through expensive upgrades. Five power plants in Pennsylvania will be shuttered because of these regulations. These plants generate 3,140 megawatts of electricity and employ hundreds of Pennsylvanians. Additionally, analysis by the Unions for Jobs and the Environment (UJAE) indicate a total of 21 coalfired plants in Pennsylvania are "at risk." 11

Build the Keystone pipeline.

The Keystone xL Pipeline would bring Canadian oil to U.S. refineries near the Gulf of Mexico. In addition to creating American jobs, the project would help us meet our growing energy needs. Some 20,000 U.S. jobs were lost with the president's decision to stall the project.12

5. Healthcare and Social Security

Federal programs dealing with healthcare and Social Security are on a financially unsustainable path. Today, more than half of the federal budget is directed to entitlement spending. It is estimated that mandatory spending this year will increase by $45 billion to an estimated $2.1 trillion.13 In order for these programs to remain solvent and continue to provide essential assistance for our seniors and most vulnerable citizens, both must be reformed.

Repeal and Replace ObamaCare.

The Affordable Care Act, better known as "ObamaCare," has greatly expanded government's role in the health market, seriously eroding consumer choice and healthcare quality without offering any mechanism except rationing to reduce costs. ObamaCare must be repealed and replaced with a new healthcare reform bill that leverages free-market competition to increase access, maintains the doctor-patient relationship, decreases costs, and promotes the quality and innovation that have made our healthcare system the envy of the world. In order to achieve these goals we must:

• Remove barriers that deny consumers the freedom to purchase insurance from companies in other states. More choices and more competition mean lower costs and better service.

• End the frivolous lawsuits that unnecessarily drive up costs for everyone. We must enact meaningful tort reform. A CBO report in 2009 found that healthcare providers would incur approximately $35 billion annually in direct malpractice liability, or two percent of total healthcare expenditures. This number accounts for insurance costs and settlements, awards and administrative costs.14 Additionally, the threat of frivolous lawsuits often forces healthcare providers to practice "defensive medicine," which increases costs even further.

• Tax equality for healthcare consumers. Today, personal purchased plans are paid for with after-tax dollars, while employers pay with pre-tax dollars. This employer subsidy distorts the market by discouraging individuals to acquire their own health coverage. This system minimizes customer choice and inserts an unnecessary and harmful barrier between the health consumer and provider. Of course, a flat tax system would eliminate this issue.

• Decrease mandates and increase choice. Get the government out of the business of mandating specific terms and conditions of health insurance policies, the concept of one size fits all. Insurance companies should be free to offer an infinite array of products, giving the diverse American consumer a wide variety of choices.

Social Security's expenditures exceeded worker contributions in 2010, a condition expected to be the future norm. And, the trust fund is projected to be exhausted in 2033, at which point we will be able to pay for only 75 percent of scheduled payments. 15 Government has an obligation to preserve a financially healthy Social Security system in order to honor the agreement between the government and its people.

• Allow younger workers to invest a portion of their Social Security contributions into a personal investment account of their choice. The participants would assume the risk of investment performance and any funds remaining upon death would flow to their estate.

• Gradual increase in retirement age. The retirement age for full benefit eligibility should be increased slightly in a gradual fashion over the next several years. The move is justified on the basis of increased longevity and generally better senior citizen health relative to when the program was created. Those in retirement and nearing it would be protected.

Medicare reform is necessary to ensure the long-term viability of the system. The federal government subsidizes medical care for more than 47 million elderly and disabled Americans through Medicare.16 It cost taxpayers about $480 billion in fiscal year 2011 after net offsetting receipts, and is projected to double over the next decade.17 Medicare can be reformed so that the system remains solvent while costing taxpayers less. This can be achieved by providing individuals the ability to decide for themselves how to spend their healthcare dollars, which will eliminate wasteful spending and improve the quality of care. Medicare should be moved from the current, government-planned system to a new system based on competition and individual choice.

• The current system will remain in effect for seniors and those nearing retirement.

• Medicare recipients receive their government-funded subsidy that would be available to purchase healthcare coverage from the private sector. This approach would give each recipient control over their plan and introduce market competition that would eliminate government price control and ultimately lower costs.

• Congress would establish an overall Medicare budget annually to be allocated among recipients. Sick and poor recipients should receive larger payments so they are not handicapped relative to healthier and wealthier recipients when purchasing insurance. The Centers for Medicare & Medicaid Services (CMS) has data and analytical techniques to determine appropriate payment levels.

• Medicare recipients would be free to purchase health plans from any provider licensed in any of the 50 states. Providers would be free to offer a wide variety of plans to satisfy customer demand.

• If a recipient purchased a plan that cost more than the government subsidy, the difference would be paid out of pocket. If the plan purchased cost less than the government payment, the excess would be returned to the recipient.

• Government should retain the current fee-for-service program, with both current and future Medicare recipients free to elect this option. However, current Medicare recipients would be free to switch to the new system if they choose.

Medicaid must be preserved as a safety net to protect those Americans who are in the most need. In order to ensure its long-term viability, the government should block grant Medicaid payments to states and limit requirements on states as to how they spend that money to cover the uninsured. States must also be granted flexibility to cover the chronically ill, such as through the use of high-risk pools, reinsurance and risk adjustment. This flexibility will allow the states to be laboratories and try out new practices in order to deliver this service to their citizens as efficiently and effectively as possible.

1 "Federal Tax Law Keeps Piling Up." CCh Incorporated. N.p., n.d. Web. <http://www.cch.com/TaxLawPileUp.pdf>.

2 United States. Congressional Budget Office. CBO's 2011 Long-Term Budget Outlook. Congress of the United States, 22 June 2011. Web. <http://www.cbo.gov/publication/41486>.

3 United States. Office of Personnel Management. Total Government Employment Since 1962. N.p., n.d. Web. <http://www.opm.gov/feddata/historicaltables/ totalgovernmentsince1962.asp>.

4 United States. Census Borough. Federal Government Civilian Employment. N.p., Mar. 2010. Web. <http://www2.census.gov/govs/apes/10fedfun.pdf>.

5 United States. Small Business Administration. Office of Advocacy. The Impact of Regulatory Costs on Small Firms. By Nicole v. Crain and W. Mark Crain. N.p., Sept. 2010. Web. <http://www.sba.gov/sites/ default/files/The%20Impact %20of%20Regulatory%20Costs %20on%20Small%20Firms%20(Full).pdf>.

6 Gattuso, James, and Diane Katz. "Red Tape Rising: Obama-Era Regulations." The heritage Foundation, 13 Mar. 2012. Web. <http:// http://www.heritage.org/research/reports/2012/03/red-tape-rising-obama- era regulation-at-the-three-yearmark>.

7 Regulations From the Executive in Need of Scrutiny Act of 2011, H.R. Res. 10, 112 Cong., Congressional Printing Office(2011). Print.

8 United States. Congressional Research Service. U.S. Fossil Fuel Resources: Terminology, Reporting, and Summary. By Gene Whitney, Carl E. Behrens, and Carol Glover. N.p., 30 Nov. 2010. Web. <http://epw.senate.gov/public/ index.cfm?FuseAction=Files.view&FileStore_id=04212e22-c1b3-41f2- b0ba-0da5eaead952>.

9 The State of American Energy: A Summary. Rep. American Petroleum Institute, 2011. Web. <http://www.api.org/~/media/Files/News/2011/ SOAE_Exec_Summary.ashx>.

10 "Industry Data." U.S. Bureau of Economic Analysis. U.S. Department of Commerce, n.d. Web. <http://www.bea.gov/iTable/iTable.cfm?ReqID=5>.

11 "Keystone Job Claims Released as Pipeline hearings Begin." CBCnews. CBC/Radio Canada, 10 Jan. 2012. Web. <http://www.cbc.ca/news/ business/story/2012/01/10/transcanada-keystone-jobs.html>.

12 "Issues."U.S.Senate Committee on Environment and Public Works. N.p., n.d. Web. <http://epw.senate.gov/public/index.cfm?FuseAction=Issues. view&Issue_id=87c1303a-7e9c-9af9-7d81-37771c380b87>.

13 United States. Congressional Budget Office. The Budget and Economic Outlook: Fiscal Years 2012 to 2022. Congress of the United States, 31 Jan. 2012. Web. <http://www.cbo.gov/sites/default/files/cbofiles/attachments/01-31-2012_Outlook.pdf>.

14 United States. Congressional Budget Office. Tort Reform. Congress of the United States, 9 Oct. 2009. Web. <http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/106xx/doc10641/10-09-tort_reform.pdf>

15 Novack, Janet. "Will Social Security Be There For Your Retirement?" Forbes. Forbes Magazine, 23 Apr. 2012. Web.<http://www.forbes.com/ sites/janetnovack/2012/04/23/will-social-security-be-there-for-your-retirement/>.

16 United States. Centers for Medicare and Medcaid Studies. Medicare Enrollment: National Trends 1966-2010. N.p.,2010. Web. <http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and- Reports/MedicareEnrpts/Downloads/hISMI2010.pdf>.

17 United States. Congressional Budget Office. The 2012 Long-Term Budget Outlook. Congress of the United States, n.d.Web. June 2012. <http://www.cbo.gov/sites/default/files/cbofiles /attachments/LTBO_One-Col_2.pdf>.