To Save America: Abolishing Obama's Socialist State and Restoring Our Unique American Way

by Newt Gingrich

  Throughout our history, Americans have found innovative and even revolutionary methods to accomplish what people thought was impossible. Benjamin Franklin harnessed the power of lightning. Samuel Morse’s telegraph and Alexander Graham Bell’s telephone allowed us to communicate across great distances. Henry Ford developed uniform car parts and from that created the assembly line, ushering in the system of mass production that would define twentieth-century America. Defying gravity, the Wright Brothers introduced manned flight. Charles Lindbergh extended this know-how to fly across the Atlantic Ocean, and NASA’s Mercury and Apollo programs later took man into space. J. Robert Oppenheimer and the Manhattan Project unlocked nuclear power, a source of energy several orders of magnitude beyond any that had ever been conceived.

  Government at every level can encourage thriving new businesses and job growth with low government costs, minimal regulation, low tax rates, solid education systems, and fair, predictable laws.

  But government itself cannot create sustainable jobs.

  The 2008 recession brought double digit unemployment, shut down businesses and factories, and put millions of Americans out of work. To overcome this adversity and spark long-term job creation, we need to focus on entrepreneurship, small jobs, innovation, and removing government obstacles to growth.

  The floundering command and control approach of the Obama administration and Congress is proving once again that government doesn’t create jobs. Introducing new taxes and regulations destroys jobs and restricts innovation. With unemployment hovering near 10 percent, we must change direction and position the United States to be the industrial powerhouse it can and should be.

  WHAT WORKS FOR SMALL BUSINESS

  When it comes to job creation, we know what works and what doesn’t. As the Small Business & Entrepreneurship Council’s “Small Business Survival Index 2009” puts it,

  In the end, government does not drive economic growth. Quite the contrary, growth comes from the private sector. The ultimate source of growth is economic risk taking in the private sector, that is, investing and entrepreneurship. . . . While consumers ultimately decide what works and what does not, the entrepreneurs, innovators and investors will invest the capital—including sweat equity—and offer the ideas that launch and build businesses, create new jobs, and grow the economy.

  Without a doubt, the biggest obstacle to entrepreneurship and investment is public policy gone awry. While most politicians talk a good game about entrepreneurs and small businesses, public policy too frequently raises costs, creates uncertainty and diminishes incentives for starting up, investing in and building a business.

  State-by-state economic records of the past decade show us conclusively that low taxes create jobs and high taxes kill them.

  For example, in 2003 North Dakota governor John Hoeven III encouraged the state legislature to overhaul the state’s corporate income tax, reducing the top rate from 10.5 percent to 7 percent and providing a two-year tax exemption to encourage natural gas drilling. Now the state’s economy is booming, boasting the lowest jobless rate in America—around 4 percent.

  Consequently, S&P Rating Services upgraded the state’s credit rating from AA to AA 1 in 2009. That lowered the interest rate on North Dakota’s state debt, which in turn lowered the tax burden on the state’s residents. With the economy growing quickly and government spending remaining frugal, the state began considering a big tax cut that would boost the economy even more. As Reuters reported in March 2009,

  For the next biennium, the legislature is contemplating $400 million in property and income tax relief as they craft the next $7.5 billion all-funds, two-year budget.

  As for general obligation debt, the state has none, opting to pay cash for most capital expenditures.

  Enacted the following month, the tax cuts sent a welcoming message to entrepreneurs looking to start or expand businesses. Note that the government has not created jobs in North Dakota, but its pro-growth policies have created a virtuous cycle that stimulates the private sector.

  Now, for another example, let’s compare Texas to Michigan and California.

  Texas is ranked as the third friendliest state for entrepreneurship and small business. The top five states on the list—South Dakota, Nevada, Texas, Wyoming, and Washington—have no state personal income tax, no state individual capital gains tax, and no state corporate income tax. In contrast, California and Michigan are both textbook cases of union-dominated, high-tax, high-regulation states. Here’s how these states have fared recently:

  • From 2006 to 2008, Texas gained 550,000 jobs, while California lost more than 66,000 jobs and Michigan lost almost 170,000 jobs.

  • Over a longer timeframe, from November 2004 to November 2009, Texas saw a net increase of more than 800,000 jobs, while California lost 444,500 jobs and Michigan lost more than 550,000 jobs.

  It’s clear which model works and which doesn’t, yet left-wing Democrats are trying to expand the California and Michigan model on both the state and federal levels. It’s almost as if they’re motivated by ideology and cynical machine politics instead of real efforts at job creation.

  SMALL BUSINESS OWNERS ARE AMERICA’S JOB CREATORS

  Jobs are created on Main Street, not Wall Street. Small business, manufacturers, and entrepreneurs are the job growth engines of the American economy. From 2003 through 2006, firms that employed fewer than 100 people created more jobs than companies with 500 or more employees. In fact, while larger firms lost 214,233 jobs, smaller firms provided 109 percent of total job growth for the year on a net basis. In effect, small business was creating more jobs than big business was eliminating.

  Total small business employment represented nearly 40 percent of total U.S. employment from 1996 to 2006. During that period, the number of people employed by small businesses increased by 4.2 million, or roughly 11 percent.

  During the present job crisis, leaders at all levels of government must understand the needs of our small-business job creators. With that goal, American Solutions, a citizens action network for which I serve as general chairman and Dan Varroney serves as chief operating officer, conducted an online poll in December 2009 of more than 1,500 small business owners. Here is what they told us:d

  • Forty-seven percent of small business owners cite high taxes as the toughest challenge facing their business.

  • A cut in payroll taxes is preferred 2 to 1 over President Obama’s proposed targeted cut to capital gains for small businesses.

  • Government regulation is a concern for one out of every four small businesses.

  • Two out of three small businesses plan to lay off a worker in the next six months.

  • Only 20 percent of respondents plan to purchase new equipment.

  • Most small business owners want permanent tax reforms.

  • Stimulus money funneled through big-government programs has not reached small business owners.

  • Small business owners have little confidence in President Obama’s claim that the healthcare reform will create jobs.

  • Small businesses believe they will be hurt if the new energy tax (so-called “cap-and-trade”) approved by the House of Representatives passes the Senate and becomes law.

  A December 2009 survey of small business conducted by the National Federation of Independent Business found similar results—that a major reason for declining earnings at small businesses is increased costs, including taxes and regulation. Of the top three concerns for small business, two of them constitute government restrictions on small business growth—taxes and regulations.

  AN AMERICAN SOLUTIONS JOBS PLAN FOR SMALL BUSINESS DESIGNED BY SMALL BUSINESS

  At American Solutions, we know the job-creating potential of small businesses is being undermined by Washington’s irresponsible tax-and-spend policies. And most Americans agree. In February 2009, a CBS News poll reported that, by a 59-22 margin, the American people favor business tax cuts over more government spending as the most effective way to create job
s.

  Based on input from our small business members, American Solutions developed the following three-step job-creation plan:e

  1. Reduce spending and replace inefficient and often corrupt government programs with limited, effective government in order to balance the budget.

  From 1995 to 1998, while I was Speaker of the House, we had four straight balanced budgets while we paid off $405 billion in federal debt. During that time, all federal spending rose by an average of 2.9 percent per year (including entitlements), the lowest increase since the 1920s. We need to apply those same principles to create jobs today: smaller government, less spending, lower interest rates, and less debt. We also need, where necessary, to replace bad government with limited, effective government, as we did in the 1990s when we replaced a destructive welfare system with a new model of work and training.

  2. Enact five key tax reforms to reward job creation, entrepreneurship, savings, and investment.

  • Immediate payroll tax relief. Enact an immediate, two-year, 50 percent reduction of the payroll tax, which would boost the take-home pay of every worker and dramatically free up cash for every employer to hire and invest.

  • Incentives for investing in new equipment. Allow small businesses to expense 100 percent of new equipment purchases each year to help them invest in new, more productive technologies.

  • Zero taxes on capital gains. Match the Chinese capital gains rate of zero. Former Fed Chairman Alan Greenspan testified in the 1990s that this was the best rate for economic growth.

  • Reduced tax rate for business. America has the second highest business tax rate in the world. We should match the Irish business tax rate of 12.5 percent. Combined with a zero capital gains tax rate, America would become the most desirable country in the world in which to invest and start a business.

  • Eliminate the death tax. Inheritance is the most powerful accumulator of capital. Studies show that eliminating the death tax would create hundreds of thousands of new jobs.

  3. Implement an American energy plan to create American jobs and keep American money at home.

  Developing more domestic energy while protecting the environment would mean millions of new American jobs and billions in new federal tax dollars, largely without the need for any new federal spending. Unfortunately, the federal government effectively embargoes new domestic oil, natural gas, and oil shale development, and has done little to expand our nuclear power generation. Our economic recovery largely depends on affordable domestic energy supplies.

  AMERICAN SOLUTIONS ENTREPRENEURS REACT TO OUR JOBS PROGRAM

  Eugene Sukup, Chairman of the Board (Sukup Manufacturing, est. 1963, Sheffield, Iowa)

  • The payroll tax cut “would be a real benefit to our employees. . . . If we can add $2,000 to their take home pay through the year, think what that does to 350 employees. . . . It’s a real boost to this town and to them.”

  • “Reducing the corporate tax will give us close to half a million dollars to add to our machinery” and would contribute to “adding jobs.”

  • “This is what we need to create jobs in the United States . . . more money to offer better machinery and better jobs to our people.”

  D. L. Wright, CEO and Chairman of the Board (Wirco Inc., est. 1978, Avilla, Indiana)

  • “About $2,000 per employee per year would go back into their hands [with the payroll tax cut]. That’s a lot of money for my employees.”

  • “[Global competitors] have state of the art equipment; we have a 60-year-old foundry. [The expensing of new equipment purchases] would mean for me somewhere around a half a million dollars over a period of two years that I could reinvest in our company to buy new equipment to better compete.”

  • “The death tax is of concern to me as I’ve been in this business 40 years now and my son now is the president.”

  • “The corporate income tax cut would be very meaningful to many of our customers. It would also be very meaningful to us. And I’d like to see it expanded in some fashion to incorporate S-CORPS, LLCs, and LLPs.”

  • “This is the right direction. It’s a direction for growth.”

  Small business plays a vital role in nearly every American community. As Mr. Wright explained, “We impact about 800 lives. It’s not just the people that work for us that count, it’s their families. We pay their mortgages, we buy their food, we buy their clothes, we send them to school.”

  The backbone of America, small businesses deserve a smart, new government policy to help them lead our economy back to prosperity. So let’s give it to them.

  CHAPTER FOURTEEN

  Replacing the Entitlement State with the Empowerment Society

  With Peter Ferrara, Director of Entitlement and Budget Policy at the Institute for Policy Innovation

  Even before Barack Obama took office, politicians had already promised far more entitlement benefits than Americans could possibly afford. The massive increase in government responsibility (and corresponding decrease in citizen responsibility) since 1932 had built a mountain of entitlements that threatened to crush the economy, impoverish taxpayers, and leave future generations mired in debt.

  Federal projections showed that without reform, our big three entitlement programs—Social Security, Medicare, and Medicaid—would explode total federal spending in the coming decades from about 20 percent of GDP today, where it has remained stable for more than fifty years, to close to 40 percent.

  Including state and local spending, government would consume more than 50 percent of GDP. That would fundamentally change our economy from a high-growth, market-oriented, free-enterprise system to a no-growth, European, socialist system. It would make our system similar to Greece, now on the verge of economic collapse, where 52 percent of the economy is run by government.

  But that wasn’t enough for the secular-socialist machine that took over Washington in 2008. Ignoring any pretense at budget discipline, President Obama, Speaker Pelosi, and Majority Leader Reid sought to increase the already unsustainable entitlement burden through their healthcare overhaul. That legislation will expand Medicaid to at least 15 million more people and will adopt a new entitlement program providing federal subsidies for the purchase of health insurance by families earning up to $88,000 per year.

  The problem, of course, is that Medicaid, like Medicare and Social Security, is fiscally unsustainable. These programs can limp along in the short-term, but they will eventually cause an existential budget crisis. At that point, we’ll have two stark choices: either radically slash these programs or enact unprecedented tax increases. The Left will never take the first course, so if they remain in charge, we can look forward to the second.

  Do you want an economic system in which you pay most of the money you earn to the government, and the government gives you back benefits on terms and conditions decided by politicians and bureaucrats? That is not the America of freedom and prosperity we have known for more than 300 years. That is the vision of Karl Marx. Yet, this is what Washington’s secular-socialist machine is giving us.

  Americans firmly support a safety net for those in need. We are a compassionate people, and we don’t want to see anyone suffer from want, especially when we live in a land of plenty. But what began as a safety net has transformed into a deluge of untenable spending that is jeopardizing our entire economy. So we need to replace our unsustainable entitlement programs, and do so with a clear goal: protect the vulnerable at a cost our country can afford, while offering everyone maximum economic opportunity and personal freedom.

  Some want to empanel a commission of Washington experts to report to Congress on how to close long-term entitlement deficits and the resulting federal deficit. But Americans have learned over the past year we can’t trust our future to unelected Washington insiders. Besides, any such commission would inevitably propose both major tax increases and large entitlement benefit cuts. And we know how that story will end: the benefit cuts will gradually be reversed, but the tax increases will be here to
stay.

  Instead of hiding behind opaque panels, our political leaders should present their specific solutions for entitlement reform directly to the people. That is what we elect these leaders to do, and if they can’t do it they should step aside and let others lead.

  Reformers must recognize we cannot avert the looming entitlement crisis by trying to cut promised benefits. The gap is too big, and the American people will oppose massive cuts that shred the safety net and leave vulnerable people suffering. Only a genuine replacement approach based on traditional American principles can solve the problem—and can solve it without cutting benefits.

  The key is fundamental structural replacement to create the right incentives to promote productive activity and discourage dependency, while ensuring that efficient capital and labor markets serve the social goals of our current entitlements. Through such a replacement system, we can create new safety net programs that would be far more effective and cost much less than our current system.