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The GOP Alternative

The GOP Alternative

Investors Business Daily

MARCH 27, 2009

Fiscal Policy: President Obama claims that Republicans "don't offer an alternative budget." In fact, they do, and it costs far less and does more.

When 8-year-old Virginia O'Hanlon wrote her famous letter to the editor of the New York Sun in 1897 inquiring about the existence of Old St. Nick, the Sun responded that "Yes, Virginia, there is a Santa Claus."

Today, it isn't that those in Washington intent on spending over three-and-a-half trillion dollars don't accept Santa Claus; it's that they think Uncle Sam should be Santa on the 364 days of the year the real Santa takes off.

House Speaker Nancy Pelosi, Senate Majority Leader Harry Reid and the president all view approaches not in sync with their big-spending ideology as . . . well, not really there. But the House Republicans' "Road to Recovery" budget is not fantasy; it applies the clear lessons of economic history to our current economic woes.

After the economically debilitating 9/11 terrorist attacks, President George W. Bush cut income and investment tax rates across the board. The result was well over 8 million new jobs generated and about 4.5% unemployment for a long time.

Similarly, Ronald Reagan's response to the deep recession early in his presidency was to cut income tax rates by 25% and lower the capital gains tax rate to 20% from 25%. A massive expansion ensued, extending well beyond his two terms. Today, House Minority Leader John Boehner, GOP Conference chairman Mike Pence and their colleagues want to prescribe the same medicine for what ails us.

With Democrats trying to sneak a sweeping overhaul of the country's medical system into law, including a government-run health plan that would unfairly compete against private insurers, the GOP is offering "tax incentives for millions more working families and small-business owners to obtain access to coverage." The GOP plan would also let people "shop across state lines to purchase affordable policies that best meet their needs."

Most important, however, the Republican alternative replaces the biggest spending spree in history with deep tax cuts - a proven economic jump-starter. It would establish "a simple and fair tax code with a marginal tax rate for income up to $100,000 of 10%, and 25% for any income thereafter, with a generous standard deduction and personal exemption."

Prefer the current system? The GOP plan lets you stay in it. The capital gains tax would be cut and the Alternative Minimum Tax would be fixed to prevent huge surprise tax hikes each year.

Also, businesses with fewer than 500 employees would get a deduction of 20% of their income, so "these engines of growth will continue to fuel our economic recovery and companies can compete with their foreign counterparts, while keeping jobs here at home."

On energy policy, the plan would open the Outer Continental Shelf to oil and gas drilling and use part of the federal share of revenues for alternative fuel programs. The Arctic Coastal Plain would be opened for exploration and development. Obstacles to new nuclear power plants would be removed.

As to restoring financial stability, the GOP program would incrementally privatize government-sponsored enterprises like Fannie Mae and Freddie Mac - similar to the Sallie Mae privatization of a decade ago. Laws like the Community Reinvestment Act, a major cause of the financial meltdown, would be reformed - finally.

Last, the GOP would require the Federal Reserve to set a definition of price stability and stick to it over the long term.

The House Republicans admit President Obama and Democratic congressional leaders aren't about to undergo a Damascus-like conversion on economic policy. But they refuse to let the president suggest that spending trillions at the expense of future generations is the only way out of the jam the economy is in.

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