Family-Friendly Flat Tax and Social Security Reform

As you know, I have defined myself during this campaign as a Reagan conservative. I do that not as a P.R. gambit but because I believe Ronald Reagan taught us how to be the governing party of the United States. He knew that sound policy should rest on the foundation of a few simple ideas or, in some cases, on just one idea. For example, President Reagan's foreign policy was built on a few simple ideas: that the United States must win the Cold War; that America was an exceptional country with a special mission in the world; and that military strength is a condition of peace.

Today I want to speak about taxes and Social Security, complex subjects. Americans have been misled about both. Too often, taxes and Social Security have been tossed around like a political football. It is time to restate some simple truths and some fundamental principles that all Americans can easily understand. The principle on which I base my approach to taxes and Social Security is a simple one:

America's wealth resides in our people—not merely in "things".

America's elites have a hard time with this concept—whether it is Wall Street economists, Ivy League professors or Washington bureaucrats. But the working Americans I meet every day on the campaign trail understand it intuitively. Whether it is the waitress pouring coffee in Pittsburg, New Hampshire or the mill worker pouring steel in Pittsburgh, Pennsylvania, Americans know that what economists dryly call human capital is more important than physical capital, that our people are our most important resource.

Never in history has this been more obvious. We live in an age of Amazon.com, E-bay, Microsoft, cyber entrepreneurs and million-dollar athletes. The value of our people has never has been more readily apparent. Our wealth consists of all those talents, abilities, ambitions, hopes, dreams and qualities of inventiveness and ingenuity that give life to our economy.

Every marriage creates a new home economy in which people make significant investments.These investments go largely unnoticed by conventional economists, but they are vitally important, as important as the investments corporations make in new equipment or real estate.

Why should working Americans not be able to write off the costs of maintaining a home? Or raising children? Children, after all, are the country's future employees, entrepreneurs, inventors and CEOs. Children are our human capital. Consider for a moment the value of the investments that the parents of Tiger Woods and Bill Gates made in raising them. Those are famous names, of course, but I would contend that every child, famous or not, raised with the right values, raised to understand virtue must temper liberty, raised to know that liberty comes from God, and that understands the difference between right and wrong—that each of these children is a great asset to America.

We stand today on the cusp of America's third full century. I believe that my Republican Party, the party of Lincoln and Reagan, once again must put our people first, that in the spirit of Teddy Roosevelt my party must stand for the working American, blue collar and white collar, not just for the big corporate interests. For it is the working families of America who carry this country on their shoulders. We Republicans must stand for the interests of Main Street and the great American middle class.

If our nation is to remain happy and prosperous, if our children are to enjoy a better future, then we must promote sound and healthy families. The family is the vital core of our culture and the original Department of Health and Human Services. When it is working, our children are raised by helping hands and good neighbors, they experience night time prayers and lovingly packed lunch boxes.

Yet today the family is under assault. Americans work hard and try to put a little aside for the future, but we clobber them with taxes; we marginalize the family with judicial decrees; we undermine it with hostile government policies; and redefine it with trendy and bizarre notions.

If we are to advance America's values, then we must advance the interests of the American family.

Who is responsible for the current good times? Certainly it is not government, particularly not the big-government, high-tax crowd at the White House. The economy thrives despite Washington, not because of it. Wall Street's stock speculators and mutual fund managers make the headlines, but they have not created the enormous expansion of wealth in the '90s either.

No, it is the people, working Americans, entrepreneurs and risk-takers, who have made possible the economic boom of the '90s. What we are seeing is the return on an enormous investment made years ago by millions of American families, who raised and educated this generation. Our prosperity is forged on the anvil of working Americans through their dedication, ingenuity, inventiveness and productivity.

And how does Washington reward hard-working Americans? It loads them down with taxes. It lashes them to a tax code that is laden with benefits for special interests, but which penalizes marriage. This is outrageous! It chains them to a tax system that is a playground for Washington's well-heeled lobbyists, but a nightmare for America's working families. Our current tax code is needlessly complex and deeply unfair. It has been written by lobbyists and special interests who could care less about average Americans.

Today I am proposing an entirely new tax plan for America, one rooted in our core values and that puts our people first. I propose that we take a bold step to advance America's values by reforming both the federal income tax and the Social Security payroll tax. I propose that we take power out of the hands of Washington and return it, not to huge corporations and Wall Street investment managers, but to America's families, to the people who built this great country and who alone are responsible for its prosperity.

We can do this by replacing the current monstrous tax code with a fair, just and simple 16 percent family-friendly flat tax and by cutting the Social Security payroll tax by 20 percent for all Americans while preserving current benefits for retirees.

The middle class tax squeeze is real. The average American family today pays more in taxes than it does for food, housing, clothing and transportation combined! Enough is enough! I am proud that the Family Research Council, a group I formerly headed, played a role in passing the $500 per child tax credit, which has helped lift some of the burden on our families. I will never forget the disdain some of my libertarian friends expressed at the idea. I pushed for 3 years for a $500 per child tax credit to help average families. It wouldn't help investment, they moaned. But parents working two jobs so their children can have a better education, families forgoing pleasures now for a better life for their kids—that is an investment in our future. Still, more needs to be done. Much more.

The total federal tax bite is bigger today than when our fathers and grandfathers marched off to defend freedom in World War II. In the Bible, God only asks for a tithe, one-tenth. And feudal lords were prohibited from confiscating more than a third of their serfs' crops. Yet today the tax burden on the typical working family exceeds even what humble serfs were required to pay the robber barons of the Middle Ages.

One reason for this is that our tax code is tilted in favor of things over people. The tax code grants far more incentives and credits for physical capital than for working families. It treats real estate, investments, machines, factories and equipment far better than it does parents and children. Working Americans earn about two-thirds of the gross domestic product but they pay nearly four-fifths of all federal taxes. This is simply unfair.

If businesses can write off the costs of machines, why can't America's families write off the cost of keeping body and soul together? Why isn't a family's investment in children as highly valued as investment in new plant or upgraded machinery? My family-friendly flat tax would relieve the pressure on America's working families by leveling the playing field.

It is time our tax code began again to reflect our values, to put as much value on the American people as on machinery, equipment, and pieces of paper.

The Cambridge physicist Stephen Hawking was warned when he began writing "A Brief History of Time" that for every statistic he included in his book he would lose half his readers.But this is a speech on taxes and economics, so I must include some statistics and risk losing some of you along the way.

What makes my 16 percent family-friendly tax plan different from other flat tax schemes that have been proposed is that I treat human and investment capital as equals. By bringing roughly $800 billion of currently exempt corporate property into the tax base, my plan is able to offer the lowest overall tax rate.

But more importantly, my approach is more consistent with American values. Treating labor and property income the same means banishing the legions of special-interest write-offs, credits, loopholes, shelters and other tax breaks that big businesses now enjoy, but which are denied America's working families.

Other flat tax schemes reflect purely conventional economic thinking that favors investment capital over human capital, that values property more than people. One of my competitors would allow big corporations to write off the full cost of capital investment in the first year. In many cases this would virtually wipe out corporate taxes. Now there is an idea that will destroy the GOP. Let's allow our corporate friends to pay zero while secretaries, cab drivers, waitresses, farmers and schoolteachers pay 17 percent. Al Gore and the attack team at the White House will have a field day with that one.

As for the GOP frontrunner, well, someday he may unveil a tax plan. But I suspect that when he does it will reflect yet more conventional Republican thinking, more tinkering at the margins of the existing anti-family system that is biased in favor of big business and things at the expense of human capital and working families.

In America, most wealth is generated by workers, the men and women who get up every day, go to work, play by the rules, do their job and in the process, out-produce the world. To redress the imbalance in the tax code, I propose the following:

*A 16 percent family-friendly flat tax on all income, corporate and domestic. No loopholes, no write-offs, no special breaks for the rich, privileged and politically powerful. And no lobbyists putting the devil back into the details.

*Businesses pay a flat 16 percent on gross receipts, minus purchases from other businesses, maintenance costs, wages and pensions. No special tax breaks. All investment, whether in people or machines, will be on an after tax basis.

*Families would receive a new Earned Personal Tax Credit so that no federal taxes will be paid on their investments in human capital, up to a minimal cost of living. This adds up to roughly $5,000 per family member and a tax credit worth about $1,400 per person, which would replace the existing jumble of exemptions and deductions.

*Families would retain the option of deducting home mortgage interest payments (taxable to the lender) as well as charitable contributions.

*Capital gains would be taxed at the same rate as family income -- 16 percent.

*Abolish the anti-family, anti-small business death tax, thereby allowing parents to pass on to their children the fruits of their labors.

But a family-friendly flat tax would only bring us half way toward relieving the middle class tax crunch. Something has to be done about the cruelest, most onerous and burdensome tax of all—the payroll tax, which is hurting young families and is now higher than the income tax for more than half of all Americans.

Social Security has been a wonderful program. In my blue-collar neighborhood in Newport Kentucky, the elderly would have been living in poverty if it were not for Social Security. I want to reassure my Mom out in Newport and her friends that as President I will not take $1 out of their benefits. We made a promise to our parents and grandparents and we are going to keep it.

Social Security remains the most pro-family federal program because it is structured to favor marriage and children. The tax burden to support the system, however, is squeezing the middle class family. The coming retirement of the Baby Boomers has brought the system to the verge of crisis and something must be done to ensure the program's future while avoiding crushing tax increases.

The payroll tax is our most regressive. It taxes every dollar earned by working men and women in America up to an income of almost $70,000. Take that waitress pouring coffee in New Hampshire. She pays a 7.65 percent tax on every dollar she earns. No deductions. No credits. Her employer pays the same 7.65 percent and takes it straight out of her weekly paycheck. She is effectively being taxed at a rate of 15.3 percent on every dollar she earns.

An independent entrepreneur pays the whole 15.3% himself!

My plan to save Social Security begins with a 20 percent cut right now in the Social Security payroll tax for all working Americans and their employers. This money would go directly back into the pockets of working families. I would trust working Americans to invest this money.

Some might invest in stocks. Others might put the tax savings into an IRA, 401K or other retirement account. Still others might choose to invest it to educate their children. It would be up to families, working men and women, to decide how to spend their own money—not government bureaucrats.

Other plans offer no tax relief to working families. Some schemes would "privatize" a portion of the payroll tax, but none of the money would be returned to working families. Instead, Americans would be required—required! -- to invest a portion of their Social Security taxes in the stock or bond markets. That's not conservatism; that's an unholy alliance between big government and Wall Street.

One side wants to force you to give your money to Washington. The other side wants to force you to give it to Wall Street. I want to give it back to you!

Unlike some in my party, I trust Americans to spend their own money as they see fit without the dead hand of government bending them to the will of Washington bureaucrats or Wall Street tycoons. In the true spirit of liberty, I say, "Give the money back!"

Social Security is an intergenerational compact, a pay-as-you-go system. Preserving it for future generations of working Americans requires some simple honesty: For years Washington politicians in both parties have plundered the Social Security Trust Fund to pay for other government programs and disguise the size of the budget deficit. This must stop.

Both parties claim they have agreed to stop the looting, but the American people have heard such promises before. They are right to be skeptical.

I am glad that my fellow Republicans have proposed putting the Social Security surplus into a "lock box." The trouble is that Washington is filled with safecrackers. Even now Congress is contemplating breaking the spending caps and raiding Social Security to pay for more of Bill Clinton's big government schemes.

If we leave Social Security money in Washington where politicians can get their hands on it, even in a lock box, then politicians will spend it. The only way to make absolutely certain this does not happen is to give the money back to the people who earned it.

To preserve Social Security we first must keep our word to all the Americans who worked hard, paid their dues and who now or soon will depend upon the program's benefits for financial security in their retirement. If we do nothing, as the Democrats propose, Social Security will go broke sometime early in the next century. If we privatize it, as many of my fellow Republicans suggest, then the tax increases needed to fund the transition would bankrupt our families.

While cutting the Social Security payroll tax immediately by 20 percent, I also would reduce the growth of future benefits by a like amount for young Americans just now entering their working years. I would not reduce benefits of current retirees. Benefits for older workers would be reduced according to the number of years they paid the lower tax rate.

This is important. My plan would still allow Social Security benefits to grow 60 percent faster than the rate of inflation. The system would remain solvent for our parents and grandparents while younger workers like my daughter would not be hit with punishing tax increases.

By the way, my plan uses honest accounting, not tricks and gimmicks and wildly optimistic economic forecasts.

My two tax cuts—a 16 percent family-friendly flat tax and a 20 percent cut in the payroll tax not only would deliver the lowest overall tax rate to working families of any proposed reform plan. They also would align the tax code with our most cherished values, especially the American family, without the risk of renewed budget deficits. This is a true conservative vision for America.

What would my plan mean for a typical family? A significant tax cut to help pay for rising medical costs, education expenses, or a down payment on a home.

In addition to lower taxes, my family-friendly flat tax would make the IRS bureaucracy obsolete. Americans no longer would have to worry about bringing down upon themselves the wrath of the IRS because of an innocent mistake on a tax return. Neither would they have to pay billions of dollars to have their taxes prepared because of the mind-boggling complexity of the tax code—a code that not even IRS bureaucrats understand.

The precise details of my approach doubtless will be debated, fine-tuned and refined by economists. It will be met with opposition from those incapable of thinking outside the box and who are wedded to convention. Ronald Reagan faced the same attacks in 1980 and I am prepared to face them, too.

The President's job is to chart the course ahead. This is my vision for America. I want to lead the country into a new tax system that is family-friendly and based on our deepest held, most cherished values, a tax system rooted in one simple idea: the American people are more important than things.