The 2004 elections on the one hand changed everything–there is now a clear majority party with a mandate for bold change. On the other hand, the same basic questions about competitiveness and updating civil institutions
remain unchanged. The over-arching domestic issue facing America is this: will the United States fundamentally transform its civil and economic institutions to meet the challenges of the new century? Seven questions can be asked in this regard:
1. Will America eat or plant its economic seed-corn?
The national savings rate is at an atrocious low. If our economy and aging workforce has any hope of competing with China and India, we need to increase our net national savings. Will America finally join Australia, the U.K., and many former Eastern Block nations in allowing younger workers to set up personal accounts under Social Security? Will we control federal spending by, among other measures, opening up non-essential federal jobs to Yellow Pages-style competition? Will we take the step of setting up HSA-style health care accounts for Medicare and Medicaid recipients? Will Congress enact the President’s savings simplification reforms that would create Lifetime, Retirement, and Employer Retirement Savings Accounts?
2. Will America empower its citizens to take control of the health care beast?
Health Savings Accounts (HSAs) were a monumental step in the right direction here. They should be expanded so that all Americans can get tax-neutral treatment for HSAs, poor people can afford them, and small businesses can more easily issue them. Small businesses should be allowed to share risk in purchasing health insurance. Freedom of interstate commerce should apply to all Americans wanting to purchase health insurance. Health information, such as pricing and availability, should be as universally-available as any other widely-used commodity.
3. Will America create a tax code that can compete in the world?
The tax code is the national embarrassment of the United States. We have a higher top marginal corporate income tax rate than any other industrialized country except Japan (and we wonder why some companies move overseas). We tax consumption only once, but savings and investment multiple times (including at death). Marginal corporate and personal income tax rates need to be brought down to a competitive level (probably no higher than 20%). Savings and investment must be tax-neutral. The whole system must be made more simple and transparent.
4. Will capital create more wealth or be squandered on frivolous lawsuits?
One of the nearly-unremarked phenomena of the 2004 Democratic Presidential primaries was the transfer of power from the dying labor unions (who backed Gephardt) to the newly-ascendant trial lawyer class (represented by John
Edwards). In recent years, predatory lawsuits and the insurance to protect against them have drained needed capital from American businesses–money that could be used to create jobs and raise the standard of living. Meaningful tort reform is needed that places a cap on punitive damages while allowing legitimate victims to have their day in court.
5. Will America’s workforce become more mobile?
One of the great competitive advantages America enjoys over its developed-world trading partners is a relatively fluid and open labor market. However, that advantage will be lost as the more free-wheeling societies of the emerging world compete with America’s workforce. The secular decline of labor union membership from one-quarter to one-eight of the workforce over the past half-century is a welcome development in this regard. More needs to be done. Union violence must be checked by a reauthorization of the defunt Hobbs Act and the blocking hostile takeovers of workplaces by unions. Minimum wage, overtime, and flextime rules must be updated to reflect our mobile workforce. All workers, especially government employees, should have the opportunity to move toward 401(k)-style defined contribution pension plans that they can take from job to job. The rules governing independent contractors should be made more flexible to reflect the explosion of LLC, Subchapter-S, and sole proprietorship small businesses created over the past decade.
6. Will America produce enough energy to fuel its needed high-tech growth?
Outdated energy laws will strangle our needed productivity boost in the cradle. You can’t open up a new office or communicate around the world if your computer won’t turn on. America faces a deep energy crisis, as evidenced by recent blackouts. 1970s-era environmental extremism has left America in the dark. Billions of tons of natural gas exist in our oceans and underneath Red State America. Oil can easily be pumped in from Alaska. In a half-century, we will no longer need to rely on depleting resources to fund our energy needs, as new technologies replace old. However, for now that fuel is needed if we are to remain competitive.
7. Will America do what it takes to educate its workforce?
For too long, American children have been the victims of a medieval guild mentality from public school teachers. You must learn from them, no matter how scandalously bad the teaching, and you are not free to take your business elsewhere. The key to American competitiveness is flexibility, fluidity, and choice. Education must be the most open and competitive of all, because the next hundred years are about accumulating more skills than the next guy. Public school choice and charter schools are a good first step, but ultimately all parents must be able to send their child to any school they want and not have to continue to fund the public school teacher guild no matter what their choice.
Equally important is lifetime learning for adults. Coverdell ESAs and 529 plans are a good first step in bringing tax-neutral treatment to lifetime learning, but more needs to be done. All Americans should be able to save for all types of education (accredited college or not) in a tax-neutral manner. They should be encouraged by social and professional peer pressure to not sit on their skill-set laurels. To re-write P-Diddy’s line from this campaign, “Learn or Die.”
America has two worlds open to it. The first is a world in which our workforce and institutions are simply not prepared to take on the challenges of the China-India trade competition of the next century. We will fall behind and eventually sink into the comfortable mediocrity of present-day France.
The alternative is an America that is continually dominant in the world; an America that retains the highest standard of living and makes everyone wealthier and happier every year. The gauntlet has been thrown–will we take it up?
Ryan Ellis is a writer living in Washington, D.C.