Unofficial transcript of remarks as delivered:
Well good afternoon everybody, thank you for indulging me – we just had a bunch of votes in Congress that caused me to be a little late. I hope your lunch went well. I understand we have the President of the United States coming here this afternoon with the Russian President Medvedev.
Perhaps he is coming to learn about free enterprise and free market principles and how it can help the Russian people. I am sure that this Chamber can give a lot of good advice on that front.
What we’ve experienced is an American economy that has endured almost three years of decline and stagnation, with little business expansion, little credit availability, and little growth. Americans want job expansion and a growing economy. A year and a half ago they voted in a new political party to deliver on just that. You would think that after three years of decline, stagnation, and cut backs, we would be blazing out of a recovery. Usually, the bigger the drop in our economy, the bigger the bounce coming out of it. Yet with a co-operative Congress dominated by the President’s party to pass everything he asks, there’s no sign that we are even close to getting out of this economic desert. Unemployment is staying up there at around ten percent.
To create prosperity you need entrepreneurs, workers, investors, and savers with enough trust and confidence to take the risk to lead to economic growth. Today, we’ve got uncertainty instead of confidence. We have mistrust, instead of trust. When they look up the economic road they see the prospect of rising taxes, exploding federal debt, they see the prospect of more regulations that will micromanage how they run their businesses. They see a dollar whose long term value is unpredictable. We have an administration whose highest priorities are to tax and spend your money, and I would argue to spread a more Progressivist bureaucratic control over every sector of our economy, whether it be health care, energy, or financial services. We have a Congress that this year won’t even pass a budget, even though the law requires it.
In short, we have a government that has lost the trust of America and sown economic and social mistrust everywhere. Who would invest in this forbidding environment? When investors are uncertain, capital flees to the security of long-term value: things like gold. Well, gold just hit the highest price ever – $1,258 per oz.
Uncertainty is abound. What we see on the horizon is a wave of tax increases in 2011, followed by another wave of tax increases in 2013, followed by an additional borrowing and spending binge, which puts pressure on interest rates, further debases the currency.
Let’s look at employment data. As late as November 2007, 115.5 million people were working in the private sector. Since then, we’ve lost 8 million jobs. Only this year have employment numbers begun to creep up. We are creating an anemic 99,000 private sector jobs per month this year. We have to create over a 125,000 jobs every month just to absorb new entrants in the labor force, and at this current 99,000 rate we are at, we will never get to where we were on unemployment two and a half years ago. If we want to get back to that unemployment rate, we would have to create 250,000 jobs a month for five years straight. At this rate we are courting our own “lost decade,” wandering in an economic desert of stagnant production, underutilized capacity, and high joblessness. To put it another way: we are beginning to look like the European social welfare models so beloved by many of the ideologues that we have in Congress and in our Federal government these days.
Now I know those are tough words but if you take a look at where we are today, I really believe, when I talk to entrepreneurs, large and small business people, they are sitting on their hands. You talk to the bankers who are telling you even the businesses that have excessive lines of credit, they are not utilizing them. America should be moving forward right now – removing barriers to growth instead of building new barriers on top of people.
I have no doubt that we could be on the road to solid economic growth if we addressed these barriers. Yes it took time to build them, and they are formidable: burdensome tax laws with excessive complication; regulatory state that is getting more punitive; distorted monetary strategies that don’t give people a sense of security of our value of our money in the future; and above all, we have uncontrolled spending without budget priorities and entitlement strategies that simply cannot be sustained.
No one will invest in the future if he doesn’t trust the future
… or is too uncertain of the future. And America’s fiscal, monetary, and economic future right now is filled with mistrust, uncertainty, and disincentives to entrepreneurial decision making. And make no mistake: these conditions were not caused by people, they were caused by government.
Now let me just run through a quick town hall presentation that I do with constituents back home and I will do this fairly quickly if I can.
Where are we headed if you want to take a look at our current fiscal situation? The current administration has increased taxes in their budget by $1.8 trillion and spending by $2.5 trillion over the next ten years. That is the current budget that is in place right now. $670 billion of those tax increases have just passed a couple of months ago.
The budget we live under now doubles the debt in five years and triples it in ten years. The President’s own budget director and treasury secretary, in a testimony to myself and others, has said that these debt levels are unsustainable. The budget that we are living under is not credible and sustainable. With each passing year our spending problem gets worse and the decisions become that much more difficult.
Now this is our deficit path right now. I’m not here to say that everything that is wrong is created by our current President – he inherited a mess. President Obama inherited a very difficult fiscal situation. The question is, is he going in the right direction or is he compounding the problem? I would argue that he is compounding the problem. These are the deficits we are having right now. It goes down to about $700 billion dollars in 2013 and then pops right back up – an average deficit of a trillion dollars a year.
What happens to your economy and country if you are piling up trillion dollar deficits every year? Well, you have a lot of debt
. We borrowed more than we were earning or producing to win World War II. You can raise levels of debt like that so long as the markets believe that is temporary. And in those days, the debt was all owed to ourselves. US citizens, my grandfather used to tell me about this all the time, he was a navy man in World War II, you know the citizens floated the money to the government by buying T-bills or war bonds so that we could pay for the war. Well that is not the way the debt goes anymore. In 1970, 5% of our debt was foreign held; 1990 about 19% of our debt was foreign held; today 47% of all of the US debt is held by foreign governments, China chief among them.
is what the Congressional Budget Office is telling us with respect to our debt. This is the path we are on right now. We are going to crush our economy if we continue going down this path. It is the interest itself that compounds so viciously and gets out of control.
We are looking at an era where we are on the cusp of giving the next generation such an unsustainable burden of debt that they are not going to have the kind of living standards we have enjoyed in this country.
I’m forty years old, my wife and I have three kids. They are five, seven, and eight years old. By the time my kids are my age, according to the CBO, the size of our government will literally be double what is today at that time. So instead of taking twenty cents out of every dollar made in America to cash flow of the federal government, we will be taking forty cents out of every single dollar, made in America, just to pay for the Federal government. This is a path we have put them on. That is the tax trajectory that we are on. You literally can’t have a growing economy when so much is being soaked up in the credit markets, when so much borrowing is occurring.
So, how does all of this end? Have we seen this movie before? Is there an example of somewhere else in the world we can look at to get an idea of what this ends up looking like? Well, turn on the TV. Look at Europe, look at Greece in particular. I think they are a cautionary tale of things to come. Basically what you have is a story of reckless government spending that has hit Europe with a deep debt crisis.
According to Robert Samuelson, a well known fiscal columnist, this tragedy is “death spiral of the welfare state.
” We know how cradle-to-grave social welfare states eventually end. They simply cannot cash flow themselves. You eventually run out of other people’s money to spend.
We realized that Greece was cooking the books, hiding the numbers. When it was truly revealed how bad their debt and deficits were, it was quickly then revealed that Portugal, Italy, Spain had the same problems. So now you have severe austerity plans being put into place to try to save their system in a crisis. Their currency is going down, their debt continues to go up, and their economies are slowing. Austerity means cutting current retirees, current benefits. Putting huge tax increases on your economy, on your labor force, on your businesses, on your young people. This slows down opportunity, prosperity, and job creation.
This is what happens if we let this get out of control. This is the future that awaits us if we go down this path of not preemptively dealing with our debt crisis.
Here is a study that the IMF put out about a month ago. The IMF is basically saying we are already up there with the PIIGS. Our total debt level right now is above Spain, Ireland, and Portugal as it relates to our economy, that’s the most important statistic. In five years, our debt level on our current trajectory is going to be up there with Greece and Italy. This is not a situation where we can think that we can run out the string much longer.
Now, we have certain advantages. We have advantages because we are the world’s reserve currency. We have advantages because we have a more entrepreneurial, nimble economy and if we can get the economy growing, if we can focus on spending, we can turn this around.
Now, in 2007, as I became Ranking Member of the House Budget Committee, these numbers were already up there. These are not new numbers – these are just updated numbers. I decided to write a plan called “A Roadmap for America’s Future”.
The idea of writing a plan was two-fold:
1) Show a pathway out of this mess. Show how we can fix this problem in a way that fulfills the mission of health and retirement security, pays off our debt, and grows our economy so that we have higher living standards for future generations.
2) I didn’t claim to have all of the answers. My goal in putting this plan out there was to encourage others to put out their plans, so in Washington we can get beyond the business of finger pointing, attacking each other in political campaigns – and get on to the business of actually solving the problem.
So what do I propose with the Roadmap? I will go over it very briefly.
. The tax code penalizes all those qualities that make us great: saving, investing, raising a family, starting a business, growing the economy, creating jobs, working. So I would replace the current tax system with a modified flat tax, retaining its progressivity. 10% on the first $100,000 for couples, 25% above that. No other taxes on capital or savings – no dividends, capital gains, or death tax. Those are double taxes on capital and retard economic growth and innovation. You can choose. If you want to keep the current system, with all of its bells and whistles, you can do that as well. If you want a simplified system, you can have it. If you want, you can give up all the loopholes, all those deductions, all those cats and dogs that are in the tax code. It’s a very simplified system, so that businesses, entrepreneurs, and individuals, can actually have an easy clean postcard to fill out and move on.
I would also replace the corporate income tax, with a better system. The corporate income tax is a killer of growth in this country. It is the second highest rate in the industrialized world (it’s about to be the highest rate), and it punishes growth. It rewards companies who move their operations overseas. We should have a territorial tax system, not a worldwide system. We should have a system that says to businesses you ought to be able to expense every investment in plant and equipment the year in which it takes place. We also should have a border-adjustable system. Why don’t we do to our competitors what they are doing to us? Take the tax off our exports and put it in on our imports to better level the playing field, to reward businesses for building things in America and exporting them. Let’s acknowledge the fact that 97% of the world’s consumers are outside of this country. Let’s get our businesses in a situation where they are ultra competitive. Let’s make sure that when businesses invest and build and grow here in America, that’s the smart business thing to do. We don’t want to have a situation where we are penalizing businesses for keeping their money, their capital, their headquarters, and their manufacturing facilities in America. So rather than having Ireland and the Cayman Islands to be the haven for capital formation, the place you park your money, why don’t we make it America? I have no doubt in my mind that if we advance these tax reforms, not only can we raise the revenue we currently raise for the Federal government; but we can restart the American engine of economic growth.
I also think you need to strengthen job training
assistance. We have so many different job training programs in the Federal government – dozens of them, duplicative and overly complicated. Let’s consolidate them so if a person loses their job in an industry that is not working – the auto industry in my area – give the person the ability to go back to school, learn a new skill and a new trade, mid-life, mid-work career, so that they can get back into the work force with a high paying job that gives them the skills to be mobile in a dynamic economy. You don’t have the same job for your entire life like you used to in our parents’ generation. You’ve got to have a system of life-long learning.
. We can do this save these programs right now without changing any benefits to current retirees or those near retirement. That is the benefit of acting now. We do not have to force austerity, where you slash and cut people’s benefits and raise taxes. For those over fifty-five, no changes. The benefits you organized your life around, that you planned your retirement around, that is not going to change. Even though they are unfunded and they have a huge liability, we will come up with a plan to actually finance those benefits.
But if you’re under 55, if you are in X generation, like I am, or the Y generation, you know that these benefits aren’t going to be there for you anyway. There is no way that the government can come up with the $72 trillion dollars that it right now has to come up with to actually finance these benefits for younger workers. We can reform Medicare into a system that works like the one I have as a member of Congress. I get a payment, I get a book from the Federal government, a list of competing plans to choose from, and I pick the plan that is best for me and my family. I would adjust that payment in three ways: give people more money to cover all of their out of pocket expenses if they are low-income; if you are wealthy, we’re not going to give you as much money; and as your health condition deteriorates, as you get sicker, you will get a better payment to make sure that your premiums stabilize. According to the Chief Actuary of Medicare, according to the Congressional Budget Office, my plan makes Medicare permanently solvent and wipe out its $38 trillion unfunded liability.
For Social Security, don’t change anything for people over the age of fifty-five. Make sure that we can guarantee their benefits. But if you are under fifty-five, the money isn’t going to be there for you anyway. So why don’t we reform the system so that it will actually be there for you. If you want to stay in the traditional system, you can remain in the current program as structured – that is your choice. If you want a system where you can take a third of your payroll taxes and put them in a thrift savings account, exactly like I as a member of Congress or any other federal worker can, where it will be managed Social Security with safe indexed funds, my reforms will allow you to do that. You can grow your money. You can harness the power of compound interest. The funds become your property. It goes to your spouse or your heirs when you pass on.
At my age, I am probably going to get a one percent rate of return if Social Security can pay me my money. My children, under the current formula, will get a negative one-percent rate of return if Social Security can even pay them their money. More people, eighty percent, pay more in payroll taxes than they do in income taxes. You ought to give young people the option and the opportunity – the choice – of getting a better benefit for themselves when they retire so it is a program that they have faith in.
You need to do a few common sense reforms for the traditional benefit to make it sustainable. I would index it so that wealthy people do not get as much of a benefit and it increases for everybody else. I would slowly raise the eligibility age over the latter part of the century, not in the near future, in the latter part of the century, to just reflect longevity. When Social Security was created, the retirement age was 65, life expectancy was 63, the numbers added up great. It is not like that anymore. So we need to make some adjustments to save this system.
. Let’s give the States – the laboratories of democracy – the ability to customize their programs to meet their citizens’ needs. We would give individuals a voucher to get private health insurance, with protections to people with pre-existing conditions. Where I come from, if you’re on Medicaid and you walk into a doctor’s office, you’ve got “poor person” stamped on your forehead. Fifty percent of the doctors won’t even take you because they lose forty cents on the dollar for every person that they see. So why don’t we have a system where we don’t segregate the poor into an inferior health care system? Why don’t we have a system so that we can give them the access the kind of private health insurance that everybody else has. You can do that in the way that we are proposing and save the system from insolvency and bankruptcy.
Under current policy, government spending is exploding. By the time my kids are my age we go from twenty percent of GDP to forty percent and then on up to sixty percent. That’s unsustainable. That extinguishes the American idea. With the Roadmap, according to the CBO, you can keep the size of our government relative to our economy to where it has historically been.
What it really is all about is about standard of living. What does the future look like? Are we going to maintain the legacy that our parents told us about this country? Every generation confronts its challenges so that the next generation is better off. We are –irrefutably, mathematically, statistically, without a shadow of doubt, according to every fiscal authority – giving the next generation a lower standard of living. This is what the CBO says is happening in the future, standard of living we measure is economic growth per capita. How fast does the economy grow per person? The standard of living, because of the debt, starts to decline. The reason this line ends in about 2058 is the computers crash. The economic models of our government literally stop working because they cannot conceive of any instance in which the American economy can continue under the burden of debt that we are imposing upon it.
If you get ahead of this debt problem – if you reform these programs, doing it on our terms, not imposing austerity but advancing prosperity
– you can guarantee that we will have higher standards of living for future Americans. The next generation will be better off than our generation. There can be more jobs, better wages, and greater opportunity in this society. That at the end of the day is really what this is all about.
We have had tough problems and hard knocks in society before. We have had issues in America that we thought we were down and out and other regimes were going to beat us. We were the laughing stock of Europe shortly after the founding of our country during our first debt crisis. You can go back to the Nixon inflation, the Carter stagflation, and more recent recessions.
Always voices were heard saying that America was finished, our greatest days were past, and some other nation’s economies were overtaking us: Hitler’s Germany or Khrushchev’s Soviet Union, or Japan under MITI’s industrial policy. Now those same defeatist voices are back: we can’t do any better than we did before. And China will soon overtake us.
That is nonsense.
In every case, the courage and imagination of Americans have found prudent ways out of these crises. Our founders created a Constitution, sound money and a system of credit so that we could build a prosperous society. More recently, efforts to lower tax rates, reform welfare to incentivize work and investment, lowering trade barriers, these reforms allowed for sustained economic growth. The potential of our people to grow knows no limits
. It is this government that’s imposing barriers on imagination, enterprise, work, innovation, and savings.
The rising tide of debt, the rising tide of red ink, the failure of our political system to tackle these challenges means we will consign ourselves to that kind of a fate.
We know how this movies ends. We’ve seen it across the Atlantic. So why don’t we prevent it from happening here. There is a real battle over ideology and destructive populism. You can’t love jobs and hate the people who create them.
We need to remove the imposed barriers that prevent entrepreneurs from making decisions about the future. If we knock the future problems out of the way, we get a handle on this debt, reform our entitlements, we secure our currency, and we have a tax system that rewards rather than punishes wealth creation, job creation, and growth – we will succeed and we will grow.
We need a prosperity agenda. This is not about imposing austerity – far from it. It’s not an either/or tradeoff between either austerity now to handle the debt or force feeding growth by government spending more money. That is a false dichotomy, a false tradeoff.
This is a prosperity plan to get ahead of the debt crisis and fix it. This is a plan to instill confidence in our future. Americans – not our government – will get us back to growth and create jobs.
Thank you for having me. I appreciate it. I’d be happy to answer your questions.
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