Shays Shares Plan For Economic Growth

On the day Republican delegates to the state party convention in Hartford will endorse a candidate for U.S. Senate, former Congressman Christopher Shays of Bridgeport explains why his economic plan will create prosperity and why the plan of his chief opponent Linda McMahon will not. From Shays:

Christopher Shays vs. Linda McMahon: Different Visions for the Economy

There is a big difference between Linda McMahon’s plan for the economy and mine. My plan would restore the American Dream, and hers would not. My plan would create prosperity, and hers would not. My plan would produce full employment, better jobs, rising incomes, 4% real economic growth, and a balanced federal budget within six years, and hers would not.

Real Prosperity

McMahon’s plan misses the three most important policy changes that are required to produce real prosperity:

• Sound monetary policy, including a strong, stable U.S. dollar

• Corporate income tax rate that is not just competitive, but sufficiently compelling to accelerate capital investment within the U.S. and produce rapid job growth

• Top marginal personal income tax rate that would encourage our most productive workers to work more and produce more

Despite her claim to be a “job creator,” McMahon does not seem to appreciate the overwhelming importance of economic growth, nor does she understand the most important policy changes that must be made to produce fast, sustained growth.

If football coach Vince Lombardi had been an economist, he would have said, “Economic growth isn’t the most important thing, it’s the only thing.” Here’s why.

During the past 11 years, U.S. real gross domestic product (real GDP) has grown at an annual rate of only 1.6%. This is by far the worst 11-year economic performance in American history. In contrast, from 1790 to 2000 our economy grew at an average rate of 3.9%.

If our economy had grown at 1.6% over our entire history, right now our GDP would be only about $190 billion, rather than $15.5 trillion. Instead of having the world’s #1 economy, we would be #49. And we would not have won WWII and the Cold War.

On the other hand, if our economy had grown just as fast during the past 11 years as it did from 1790 to 2000, 2011 GDP would have been $19.3 trillion, 28% larger than it actually was. And, even with today’s excessive federal spending, the budget deficit would have been a more manageable $200 billion, rather than a scary $1.3 trillion.

My economic plan is all about economic growth: why we need it, and how we get it. My plan will produce 4% real annual growth, a rate that would support rapid progress toward full employment, better jobs, higher incomes, and a balanced budget.

A real growth rate of 4% is realistic. It is what America averaged between 1790 and 1973. We can achieve and sustain 4% growth with the right government policies.

Here is why 4% economic growth is imperative. At the anemic growth rates being delivered by President Obama, unemployment will continue to stay high and real incomes will continue to fall. Half of new college graduates will come home with crushing debts and be forced to live with their parents. Seniors will continue to be forced to liquidate their retirement assets to pay living expenses. This is not normal for America, and it is not acceptable.

Sound Monetary Policy

It is telling that McMahon’s plan does not address the single biggest factor that has held back America’s economic growth; our flailing Federal Reserve. If we don’t restore monetary sanity, our other economic reforms will not work.

Money is the most powerful force in our economy. Since 1970, the Federal Reserve has grossly mismanaged monetary policy and the dollar. Since then, our dollar has lost 83% of its value against the Consumer Price Index (CPI), 96% of its value vs. crude oil, and 98% of its value in terms of gold.

As a result of Fed-created inflation, the real wages of the average American worker are 16% lower today than they were in 1973.

There are tremendous costs to monetary instability. The U.S. economy grew almost 50% faster when we had a defined dollar than it has during our current, 38-year-long experiment with an undefined fiat currency subject to the whims of the Fed.

The Federal Reserve’s mismanagement of the dollar has been our single biggest economic problem over the past 40 years. And Congress must insist the Fed stabilize the real value of the dollar.

My plan stabilizes the dollar with three measures: 1) replace Fed Chairman Ben Bernanke; 2) conduct a full and thorough audit of the Fed’s operations; 3) remove the Fed’s power to pay interest on bank reserves.

What does McMahon have to say about stabilizing the dollar? Nothing. The terms “Federal Reserve” and “the dollar” do not appear in her economic plan.

Compelling Corporate Income Tax Rate

McMahon’s plan does address the second biggest factor holding back U.S. economic growth, our corporate income tax rate, which at 35%, is now the highest in the entire developed world. However, her proposal to cut it to 25% wouldn’t solve the problem. It would still leave our corporate tax rate above those of many developed nations, including Canada, which recently cut their corporate tax rate to 15%.

McMahon’s “level playing field” approach won’t get Americans back to work anytime soon. We need a powerful surge of capital investment. To get this, we must make our corporate income tax rate not just competitive, but compelling. My plan calls for cutting our corporate income tax rate to 15%, the same as Canada’s.

Invigorating Top Personal Income Tax Rate

McMahon’s economic plan attempts to address the third most important factor impacting economic growth, personal income tax rates, but her solution is off target. The middle class needs more and better jobs, paying higher wages, more than it needs a tax cut amounting to a few hundred dollars a year.

When it comes to producing economic growth, what matters is the top marginal tax rate. Her plan would leave it at 35%. My plan would cut it to 25%, while cutting back deductions to maintain federal revenues. Many economic studies have concluded that a 25% top tax rate will maximize federal revenues over the long term, and that this rate is essential if we are to produce 4% real economic growth, and rising incomes for everyone.

A Plan for “The 100%”

A troubling element of McMahon’s tax plan is that by singling out “the middle class” for special treatment, she implicitly buys into President Obama’s “class warfare” rhetoric. We don’t need class warfare from Republicans–we have Democrats for that.

The truth is we are all in this together, and we will either prosper together, or we will stagnate together. Rapid economic growth will produce full employment, better jobs, and rapidly rising incomes. This will put far more money into middle class pockets than would McMahon’s middle class tax cut.

My plan calls for 4% real economic growth. At that rate of GDP expansion, the total size of our economy would double every 18 years. Average real wages would finally begin a sustained rise, after falling since 1973. Also, this rate of growth, coupled with commonsense spending restraint, would balance the federal budget by the end of my six-year Senate term.

America and Connecticut need rapid, sustained economic growth. My plan will produce it, and McMahon’s plan will not.