Remarks to the Econmoic Club of Chicago
Thank you very much. It's an honor to speak before such a distinguished gathering of business and economic leaders. And it's a pleasure to be back in Chicago to share with you my hopes and ideas about America's economic future as we enter the 21st Century — the enormous opportunities before us, and the obstacles standing in our way.
For generations, Chicago has stood squarely in the heartland of America — a proud symbol of our nation's work ethic, entrepreneurial ingenuity, and economic power. In the last century, you were the gateway for the railroads that opened the American West. And today, Chicago is on the cutting edge of the technological revolution that is reordering the global economy.
When the technological revolution began, there were dire warnings that it would lead to greater government centralization and confer more power upon the few who controlled it. But look around. Exactly the opposite is happening. Power is rippling out to the people -a positive force of change for both democracy and free enterprise.
This revolution is widening the horizons for business, while demanding new restraints from government. Capital flows, as it always has, wherever the greatest opportunities exist for people to create new wealth. But it flees even more quickly when governments try to "manage" markets or "soak the rich." Open trade is creating vast new markets for goods and services and vast new possibilities for growth. But those gains are easily lost when governments try to devalue their currencies or retreat behind bureaucratic barriers to trade.
This profound transformation makes this a time of dynamism and innovation not seen since the days of Carnegie, Ford, and Morgan. Between 1980 and 1990, fully half the companies on the Fortune 500 dropped from the list as bold new upstarts displaced mature, older firms. Entire new industries began in garage workshops and grew to employ millions — a renewal of an American tradition some people thought had died with Edison.
But perhaps the most exciting fact about our emerging global economy is that government had very little to do with it. It was not driven by state planners in fact, they hardly saw it coming. It came about by individuals acting freely in the marketplace. By entrepreneurs creating products we could only dimly imagine just a decade ago. By nations abandoning backward protectionism and embracing free and open trade. America stands on the threshold of a fabulous future, with greater opportunities for economic growth and prosperity than at anytime during our nation's history.
Against this brilliant backdrop of unbounded potential stands the jarring contrast of the Clinton Administration's obsolete economic agenda and the weakening American economy.
At the very moment when nations around the world have rediscovered the promise of entrepreneurial capitalism, President Clinton has turned his back on it. Rather than expand incentives for America's risk-takers and entrepreneurs, President Clinton imposed the largest tax increase in American history — and imposed it retroactively. He refused to lift a finger when just one more vote in the Senate would have given America a Balanced Budget Amendment. He bitterly opposes our efforts to reduce the regulatory burden on private enterprise. He fights every effort to cut government spending. In fact, on every key issue, his solution isn't less government, but more government. Bigger government. More meddlesome government.
If President Clinton wants to join us in forging fundamental change in government, we'll welcome him to the conservative revolution. He'll have many opportunities during the coming weeks as Congress takes up legislation to fix the welfare system, reduce taxes on working families, and put our nation on the path to a balanced budget. But he should know that we will never compromise away the mandate the American people gave us last November. We will fight to the end for fundamental conservative change, or we will take our case to the American people in 1996. This will not be an autumn of compromise. This fall, we will win our fight for revolutionary change vote by vote and bill by bill, and come next fall we will change the occupant of the White House.
Ultimately, our differences aren't just political, they represent two competing philosophies of government. President Clinton and his top advisors believe that with more taxes, more regulations, more spending, and more mandates, government can replace the individual as the engine that powers America's economic growth. They belittle the contributions of the risk-taker, the entrepreneur, the maverick innovator — people willing to risk everything just for the chance to make their dreams real. They insist that the government — not the individual — should control the wealth of our nation, taxing away our money in the belief that Washington can spend it more wisely and invest it more productively. They disparage what they call the "myth" of the "entrepreneurial hero" — a curious concept in a nation where the entrepreneurial spirit dwells within every one of our citizens.
The problem is clear: President Clinton and the Democratic Party today "distrust the market, preach government as the answer to our problems, and prefer the bureaucrat they know to the consumer they can't control." Those aren't my words. They were Bill Bradley's words when he announced his retirement from the Senate.
For months now, we've watched economists debate the consequences of President Clinton's policies: whether the U.S. is falling back into a recession or merely heading for what they call a "soft landing." The fact is, this has been one of the weakest economic recoveries the country has seen since the end of World War II. And compared with the Reagan economic expansion during the 1980s, the Clinton economy looks positively anemic.
It's worth briefly comparing the two recoveries because they represent such dramatically different economic philosophies. President Reagan cut tax rates across-the-board, reduced government red tape, and encouraged enterprise. President Clinton raised tax rates, unleashed federal regulators, and sent Justice Department lawyers out after innovative, fast-growing companies like Microsoft.
The results were predictable. The Reagan economy kept expanding, producing the longest period of sustained peacetime economic growth in U.S. history. But the Clinton economy is slowing dramatically. Economic growth dropped to about 1 percent in the second quarter of this year. Real wages actually fell by 2.3 percent during the year that ended in March 1995 — the worst performance in 8 years. And the Index of Leading Economic Indicators — which predicts future economic conditions — dropped again in July, the fifth decline in six months.
The White House is now predicting 2.5 percent growth for the rest of the century. They congratulate themselves because, in their view, 2.5 percent growth represents the outer limit of America's economic potential. In the Clinton Administration's world, America's economy has hit a glass ceiling. We can see greater prosperity. We can watch our competitors achieve it, But we can never attain it ourselves.
Our whole history tells us that America can do better. Since World War II, our economy has averaged 3 percent growth. During the Reagan years, we averaged nearly 4 percent growth. Yet, the latest Economic Report of the President dismisses the chances for higher growth without inflation. The authors of the report react to those who believe faster growth is possible the way the Air Force reacts to UFO sightings, saying: "certainly there is no convincing empirical evidence to support such claims."
What is it about America today that makes President Clinton believe we can't even live up to our past, much less compete with the most dynamic economies in the world? Why does President Clinton think our best days are behind us? Does he distrust the power of millions of people acting freely in the marketplace? Does he question the creativity of our nation's entrepreneurs? Does he doubt the ability of America's workers?
Whatever his thinking, I believe he is profoundly wrong. I believe the only barrier preventing America from reaching her full potential is a failure of leadership ... a failure of vision ... not a failure of our people.
Maybe my faith comes from what I've seen from America. I have seen the duststorms of the '30s and the poverty of the Great Depression. I have witnessed the courage of Americans in war and the staggering splendor of American productivity in peace. I have watched as this country has been tested and tested and tested again. And you can't come through all of that without becoming an optimist about America. I've seen our country overcome too much adversity not to believe deeply in our potential and our future.
Many top Clinton Administration officials — including the President himself — claim degrees from the world's most prestigious universities. But in their graduate programs and policy schools, they seem to have learned everything about our economy except what really makes it go — the hard work, creativity, and idealism of a free people.
They view government's role in the economy as manipulating the levers of power to produce some desired result. A tax increase here, a subsidy there and everything will come out according to some master plan.
Worse yet, they are captives of grim, zero-sum thinking — the dangerous idea that for some Americans to succeed others must fail. The most popular weapon in the Clinton Administration's economic policy arsenal is a constant appeal to envy and class warfare. It's why they always talk about attacking "the rich." Hitting people they feel got a "free ride" in the 1980s.
The President speaks with great feeling about the need for civility in the political arena. In some cases, I believe the American people expect us to disagree — and disagree passionately. But there is one instance in which he is right: For the good of the country, let's agree to take Medicare out of the realm of politics. When Social Security was in trouble back in the early 1980s, both parties agreed the program was too important for playing politics. So we took Social Security off the political table and worked together to fix it. Medicare is no less important.
The President's own Cabinet warns that Medicare will go bankrupt within 7 years unless we fix it. The President himself has proposed sweeping reductions in the growth of Medicare spending. If there is one issue that should rise above partisan politics, it's Medicare. I call on the President today to join me in a commitment to America's seniors: Let's lift Medicare out of the general budget debate and put it on a higher plane so we can work together to save and strengthen this program of vital importance to older Americans.
There are many other opportunities to highlight the fundamental differences between our governing philosophies, and economic policy is certainly one. I have a very different view than President Clinton. Mine is based not on a desire to divide America, but on uniting our people and lifting our nation to new and higher levels of greatness. I grew up in a small business town where people pulled together. Small business is the heart and soul of Russell, Kansas. Our ancestors came to the Kansas plains with no guarantees. There were no promises of welfare ... no government assurances at the end of the trail. All they had were dreams pounding in their hearts. Faith in their Maker. The commitment to care for each other. And all they asked was the opportunity a free country offers to all its people - the chance to make the most of their God-given talents and abilities so they could build a better life for themselves and their children.
To me, that's America.
And that's why economic policy must never be reduced to dry numbers and stale statistics. Because it's a statement about how we view America.
If I am elected President it will be on the strength of a program that embodies opportunity and responsibility for our people - one that strives to create an economy which frees the genius of Americans from the heavy hand of government. I am not afraid to make this election a referendum on growth, hope, and opportunity versus stagnation, redistribution, and envy. I am confident we will win the hearts and minds of the people in 1996. Very few Americans believe in penalizing those who make it in this country because so many Americans are determined to make it themselves.
If anything stands in the way of realizing our full potential it is not some imaginary barrier beyond which our citizens cease to innovate and produce. No, it's the obsolete economic model which President Clinton is so zealously trying to save from extinction.
There's an irony here. The nation's first baby boomer president dedicating his Administration to preserving a Depression-era model of government designed for a world which no longer exists, developed during an Industrial Age economy that is receding into the pages of history before our very eyes.
I was a boy when that model took hold. Yet I hope to lead America in a new direction and make way for the promise of a new century.
Our greatest obstacle is a federal government that has grown too large, too intrusive, and too bureaucratic. We didn't dig ourselves into a $5 trillion debt because the American people are undertaxed. We got that $5 trillion debt because government overspends. And that's why we must start by reining in the federal government - and returning to the states and to the people the power and responsibility properly reserved to them under the 10th Amendment to the Constitution.
The new Republican Congress has already begun this process by passing a budget that will eliminate the federal deficit within seven years. As President, I will continue to downsize the federal government to accelerate our quest for a balanced budget. And I will use the veto pen to eliminate federal pork and insist that government lives by the same discipline as you do in your daily businesses.
But our efforts to expand opportunity and encourage economic growth must not stop there. If we are to truly release all the hidden potential of this nation, I believe we must scrap the current tax code and start again from scratch. There are many other elements to a pro-growth economic agenda — such as opening new markets to American products, scaling back government regulations, and pursuing a stable monetary policy. I will be discussing these ideas more specifically throughout my campaign: But dramatic tax reform has to be near the top of the list.
The federal tax code was first enacted in 1913 at a time when the Panama Canal was just being finished, Ty Cobb was at the top of his game, and Woodrow Wilson was the new president. Under the original system, most people paid no taxes at all. For those few who did pay, the usual rate was 1%. At that time, no one envisioned tax rates would soar to 70% — as we had until the Reagan years — or even 30%. No one could have imagined that middle and low income workers would someday face such punitive levels of taxation.
The problems of today's tax code are clear. With the Clinton surcharges, the top rate now stands at almost 40%. High marginal rates discourage work, reduce the rewards of entrepreneurship, and encourage tax avoidance. Middle class families are forced to work harder and harder just to keep up — their hopes for a better life taxed away by government.
The complexity of the code wastes billions of hours in compliance effort and — worst of all — convinces many Americans that the tax system has been hijacked by special interests. Today, there are more people working to comply with or avoid the tax code than serve in the armed forces of the United States. But is President Clinton proposing a tax reform plan? No — instead his Treasury officials are defending the current system, with all its complexities and unfairness.
When I announced my candidacy for president, I said I would fight for a lower, fairer, flatter, simpler tax system. House Speaker Newt Gingrich and I have appointed Jack Kemp to head a National Commission on Economic Growth and Tax Reform to determine how we might go about it. I am eager to hear the Commission's recommendations, which will be reported by the end of the year.
But today I want to describe in broad terms what I believe must be the essential elements of a sweeping, pro-growth tax reform that will lift America to a far more ambitious long-term growth plan - a path bold enough to secure our position as the world's economic leader well into the next century.
First, we need a new tax code that moves us toward a system with lower and flatter rates. During much of the past century, tax policy has been a primary tool with which government has wielded power, fed the bureaucracy, and redistributed wealth. Deleting the whole twisted wreck of federal tax law and starting anew is the surest way I can imagine to deliver real and lasting economic change to the American people.
I don't believe Americans support taxation designed to punish success. Any fair system would not penalize, but instead reward people for working harder, investing wisely, and saving more. It would eliminate the lobbyist-drafted loopholes that benefit the few, but force the rest of us to pay.
And a fair tax system would relieve the burden on working families. A family of four - earning up to $25,000 to $30,000 per year - should pay little or no federal income tax. A fair system would recognize that a family's most important responsibility is raising its children. It would respect their efforts, instead of penalizing them as the current system does.
And a fair system would stop taxing capital twice: first as income and then as capital gains, reducing the return on risk-taking and investment. Today, we have the highest capital gains tax of any major industrialized country. Because the capital gains tax is not indexed, we tax imaginary gains that are due solely to inflation. When it comes to competition with countries like Germany and Japan who hardly tax capital gains at all - we're tying the hands of the most productive, most innovative people in our economy.
As a second step, I would end the IRS as we know it. I know a lot of tears will be shed, but Americans will just have to learn to live without it.
The IRS was never meant to be such an intrusive, oppressive presence in American life. Its purpose was to collect taxes. Period. But as the tax code has grown more complex, the IRS has grown more powerful and their agents have grown more aggressive.
Today, the IRS employs more than 100,000 people at a cost of nearly $10 billion per year. More investigators work for the IRS than the Drug Enforcement Administration - a sure sign that we've got our priorities wrong. The current tax code runs thousands of pages. The instructions for the easiest tax form the government can produce - the EZ form - run to 34 pages of fine print. Compliance costs attributable to the tax code total in the hundreds of billions of dollars every year, and some companies file tax forms thousands of pages long.
As former IRS Commissioner Shirley Peterson has pointed out, tax rules have gotten so complex, most Americans don't honestly know whether they've complied with the law. Turns out the IRS doesn't know either. In 1993, 8.5 million Americans who called the IRS Hotline couldn't get the right answers to even the most basic questions.
With an infinitely simpler tax system, the 1040 form would go the way of the vacuum tube. Americans could file their tax return on a post-card. And thousands of IRS investigators, accountants, and tax lawyers would be able to utilize their talents in more productive ways.
Third, to ensure that Congress doesn't turn a flatter tax system into a political football, we need to pass a Constitutional Amendment requiring a 3/5ths majority vote before Congress can raise income tax rates. This would guard the reforms, bias the system against high tax rates, and generally keep Congress out of your wallets.
Entrepreneurs and other agents of economic growth operate on the cutting edge. They fulfill their mission in our economy by being bold, daring, unpredictable. But the role of government is different. It must strive to be predictable ... to create a stable economic environment with clearly defined rules of the road.
A 3/5ths Constitutional Amendment would protect taxpayers from the shifting political winds. It would allow business leaders to make decisions based on the opportunities of the market, not the advice of their tax lawyer.
What results could we expect from such an agenda - an agenda of lower federal spending and radical tax simplification? I believe we would see an explosion of job creation, investment, and economic growth. Even if the economy just regained its historic level of 3% growth, our nation's GDP would be $410 billion higher by the year 2002. The federal deficit would be about $100 billion lower because of higher tax receipts and lower interest payments.
But 3% growth should be a floor, not a ceiling. I am convinced America can do even better.
So I have come to Chicago with this message: I believe we must chart a new course leading into a new century. It is long past time to abandon the out-dated economic mindset of the 1930s. And it is the worst time to politicize our markets with policies of envy and division.
Instead, we must recommit ourselves to our founding principle of opportunity and freedom for all - the principle which made the American idea an inspiration for all the world. We must place our faith, once again, in the unlimited potential of our people.
I believe we have not yet come even close to unleashing the full creativity of America. Before us beckons vast new sources of wealth and new paths to prosperity in a technologically ascendant land. And the pent-up human capital in our inner cities and low income communities is still waiting to be tapped.
This is no time for diminished expectations. This is no time to sell America's potential short. This is a time to let go of the 20th Century and embrace the 21st — to seize the promise of the new era by liberating the genius of the American people. Because by putting our faith in freedom and in our people we can build an America as big as our dreams ... as strong as our hearts ... and as great as our history demands.
Thank you very much.
Robert Dole, Remarks to the Econmoic Club of Chicago Online by Gerhard Peters and John T. Woolley, The American Presidency Project https://www.presidency.ucsb.edu/node/285589