Third, to alleviate the unemployment crisis, we should cut federal payroll taxes by 50 percent for two years, providing powerful, immediate relief to small businesses that create the most jobs. Follow this with a permanent personal account option for that portion of payroll taxes for younger workers, with the personal accounts subst.i.tuting for an equivalent portion of future retirement benefits. Given historical capital market returns, workers would get much higher benefits than Social Security promises, let alone what it will actually be able to pay in the future. Workers holding these personal accounts should get a guarantee to get at least as much as Social Security promises today. This would provide a continuing gusher of new savings for capital investment, resulting in more jobs and higher wages.

Fourth, instead of reinstating the death tax with a 45 percent rate, as Obama and the Democrats want, we can create hundreds of thousands of new jobs by abolishing the death tax altogether. Taxpayers have already paid considerable taxes on any money saved over their lifetime. Taxing it again at death is abusive and unfair. No one should be required to go to the undertaker and the IRS in the same week. And no one should see their lifetime of hard work, prudent spending, and careful saving confiscated by the government and given to others.

Fifth, we should provide for immediate expensing for 100 percent of new equipment purchases by businesses, stimulating investment in new, productive technologies. Allowing businesses to write off their productive investments in one year will lead to ma.s.sive investment in new machinery and new technology. It will ensure that American workers have the most modern and productive equipment in the world. It will also lead to a new birth of American manufacturing for machine tools and other expensable items.

Sixth, repudiating the regressive energy tax policies of Obama and the Democrats, we should implement the American Energy Plan discussed in chapter eighteen, which would unleash the private sector to produce low-cost, reliable energy supplies from American sources. This would create millions of new jobs and generate billions in new revenues for federal and state governments.

Seventh, we should repeal the disastrous mark-to-market accounting regulations and replace Sarbanes-Oxley with reasonable accounting requirements. We should also repeal the Community Reinvestment Act that contributed to the financial crisis. While we're at it, let's break up Fannie Mae and Freddie Mac and move their smaller successors off government guarantees and into the free market.

Eighth, we need to adopt Reagan-style strong-dollar monetary policies, guaranteeing the dollar remains the world's reserve currency, ensuring lower interest rates and more long-term capital investment, and averting any resurgence of inflation.

Ninth, a.n.a.logous to the Reagan budget cuts of 1981, we should immediately cut federal spending by $180 billion. We should then adopt a budget that cuts future federal spending by $1 trillion, as we did in the House in 1995. Terminating TARP and all bailouts and repealing all unspent stimulus funding would be a good start. With these measures and a resultant booming economy, we can and should balance the budget within seven years. We should then make that policy permanent with a balanced budget amendment to the Const.i.tution.

This comprehensive plan would cut unemployment to 3-4 percent and restore long-term economic growth. But we can do more. To generate another lasting economic boom, we need fundamental tax reform, similar to that proposed by Steve Forbes. We should adopt the optional 15 percent flat tax with generous personal exemptions of $12,000 per person. For a family of four, the first $48,000 in income would be tax free. Workers could stick with the current tax code if they prefer, but the new system would allow them to file with just a post-card. We could begin this transformation by cutting the current 25 percent income tax rate paid by the middle cla.s.s to 15 percent, leaving 90 percent of workers effectively with a flat tax of 15 percent or less.

Finally, we should adopt the ent.i.tlement overhaul discussed in chapter fourteen. Personal accounts would be expanded over time to pay for all the benefits now financed by the payroll tax, allowing us to abolish that tax completely. Fundamental welfare reform based on work would be the single most effective contribution to eliminating poverty in America.

These reforms are not particularly complex, and they won't require thousand-plus page bills to be rammed through Congress. They are common-sense solutions that replicate policies that have worked, both in America and abroad, and that reject those that have failed.

Just as Reagan ushered in a 25-year economic boom, with the right policies we could launch a new boom lasting till 2035 and beyond.

CHAPTER THIRTEEN.

A Small Business Plan by Small Businesses for Small Businesses With Dan Varroney, COO of American Solutions Small business is the engine of job growth, creating three out of every four new jobs. And many of the remaining jobs are created by companies that began as small start-ups. So if you want to expand the economy and create jobs, you have to focus on small business.

American prosperity is the c.u.mulative result of the creativity, courage, and leadership of individual men and women. In business, science, and the military, the relentless pursuit of innovative achievement has been the driving force of our success. This is the value of entrepreneurship. It is the spark of energy and purpose that leads individuals to create and manufacture something new and productive. It breaks through barriers, challenges the status quo, and draws upon the strengths of others to achieve results. It is the will to work hard, coupled with the intelligence to work smart. Fundamentally, entrepreneurship is the audacity, perseverance, and competence that turn an individual into a creator, whether of wealth, science, technology, or military success.

Throughout our history, Americans have found innovative and even revolutionary methods to accomplish what people thought was impossible. Benjamin Franklin harnessed the power of lightning. Samuel Morse's telegraph and Alexander Graham Bell's telephone allowed us to communicate across great distances. Henry Ford developed uniform car parts and from that created the a.s.sembly line, ushering in the system of ma.s.s production that would define twentieth-century America. Defying gravity, the Wright Brothers introduced manned flight. Charles Lindbergh extended this know-how to fly across the Atlantic Ocean, and NASA's Mercury and Apollo programs later took man into s.p.a.ce. J. Robert Oppenheimer and the Manhattan Project unlocked nuclear power, a source of energy several orders of magnitude beyond any that had ever been conceived.

Government at every level can encourage thriving new businesses and job growth with low government costs, minimal regulation, low tax rates, solid education systems, and fair, predictable laws.

But government itself cannot create sustainable jobs.

The 2008 recession brought double digit unemployment, shut down businesses and factories, and put millions of Americans out of work. To overcome this adversity and spark long-term job creation, we need to focus on entrepreneurship, small jobs, innovation, and removing government obstacles to growth.

The floundering command and control approach of the Obama administration and Congress is proving once again that government doesn't create jobs. Introducing new taxes and regulations destroys jobs and restricts innovation. With unemployment hovering near 10 percent, we must change direction and position the United States to be the industrial powerhouse it can and should be.

WHAT WORKS FOR SMALL BUSINESS.

When it comes to job creation, we know what works and what doesn't. As the Small Business & Entrepreneurship Council's "Small Business Survival Index 2009" puts it, In the end, government does not drive economic growth. Quite the contrary, growth comes from the private sector. The ultimate source of growth is economic risk taking in the private sector, that is, investing and entrepreneurship. . . . While consumers ultimately decide what works and what does not, the entrepreneurs, innovators and investors will invest the capital-including sweat equity-and offer the ideas that launch and build businesses, create new jobs, and grow the economy.

Without a doubt, the biggest obstacle to entrepreneurship and investment is public policy gone awry. While most politicians talk a good game about entrepreneurs and small businesses, public policy too frequently raises costs, creates uncertainty and diminishes incentives for starting up, investing in and building a business.

State-by-state economic records of the past decade show us conclusively that low taxes create jobs and high taxes kill them.

For example, in 2003 North Dakota governor John Hoeven III encouraged the state legislature to overhaul the state's corporate income tax, reducing the top rate from 10.5 percent to 7 percent and providing a two-year tax exemption to encourage natural gas drilling. Now the state's economy is booming, boasting the lowest jobless rate in America-around 4 percent.

Consequently, S&P Rating Services upgraded the state's credit rating from AA to AA 1 in 2009. That lowered the interest rate on North Dakota's state debt, which in turn lowered the tax burden on the state's residents. With the economy growing quickly and government spending remaining frugal, the state began considering a big tax cut that would boost the economy even more. As Reuters reported in March 2009, For the next biennium, the legislature is contemplating $400 million in property and income tax relief as they craft the next $7.5 billion all-funds, two-year budget.

As for general obligation debt, the state has none, opting to pay cash for most capital expenditures.

Enacted the following month, the tax cuts sent a welcoming message to entrepreneurs looking to start or expand businesses. Note that the government has not created jobs in North Dakota, but its pro-growth policies have created a virtuous cycle that stimulates the private sector.

Now, for another example, let's compare Texas to Michigan and California.

Texas is ranked as the third friendliest state for entrepreneurship and small business. The top five states on the list-South Dakota, Nevada, Texas, Wyoming, and Washington-have no state personal income tax, no state individual capital gains tax, and no state corporate income tax. In contrast, California and Michigan are both textbook cases of union-dominated, high-tax, high-regulation states. Here's how these states have fared recently:* From 2006 to 2008, Texas gained 550,000 jobs, while California lost more than 66,000 jobs and Michigan lost almost 170,000 jobs.

* Over a longer timeframe, from November 2004 to November 2009, Texas saw a net increase of more than 800,000 jobs, while California lost 444,500 jobs and Michigan lost more than 550,000 jobs.

It's clear which model works and which doesn't, yet left-wing Democrats are trying to expand the California and Michigan model on both the state and federal levels. It's almost as if they're motivated by ideology and cynical machine politics instead of real efforts at job creation.

SMALL BUSINESS OWNERS ARE AMERICA'S JOB CREATORS

Jobs are created on Main Street, not Wall Street. Small business, manufacturers, and entrepreneurs are the job growth engines of the American economy. From 2003 through 2006, firms that employed fewer than 100 people created more jobs than companies with 500 or more employees. In fact, while larger firms lost 214,233 jobs, smaller firms provided 109 percent of total job growth for the year on a net basis. In effect, small business was creating more jobs than big business was eliminating.

Total small business employment represented nearly 40 percent of total U.S. employment from 1996 to 2006. During that period, the number of people employed by small businesses increased by 4.2 million, or roughly 11 percent.

During the present job crisis, leaders at all levels of government must understand the needs of our small-business job creators. With that goal, American Solutions, a citizens action network for which I serve as general chairman and Dan Varroney serves as chief operating officer, conducted an online poll in December 2009 of more than 1,500 small business owners. Here is what they told us:d * Forty-seven percent of small business owners cite high taxes as the toughest challenge facing their business.

* A cut in payroll taxes is preferred 2 to 1 over President Obama's proposed targeted cut to capital gains for small businesses.

* Government regulation is a concern for one out of every four small businesses.

* Two out of three small businesses plan to lay off a worker in the next six months.

* Only 20 percent of respondents plan to purchase new equipment.

* Most small business owners want permanent tax reforms.

* Stimulus money funneled through big-government programs has not reached small business owners.

* Small business owners have little confidence in President Obama's claim that the healthcare reform will create jobs.

* Small businesses believe they will be hurt if the new energy tax (so-called "cap-and-trade") approved by the House of Representatives pa.s.ses the Senate and becomes law.

A December 2009 survey of small business conducted by the National Federation of Independent Business found similar results-that a major reason for declining earnings at small businesses is increased costs, including taxes and regulation. Of the top three concerns for small business, two of them const.i.tute government restrictions on small business growth-taxes and regulations.

AN AMERICAN SOLUTIONS JOBS PLAN FOR SMALL BUSINESS DESIGNED BY SMALL BUSINESS.

At American Solutions, we know the job-creating potential of small businesses is being undermined by Washington's irresponsible tax-and-spend policies. And most Americans agree. In February 2009, a CBS News poll reported that, by a 59-22 margin, the American people favor business tax cuts over more government spending as the most effective way to create jobs.

Based on input from our small business members, American Solutions developed the following three-step job-creation plan:e 1. Reduce spending and replace inefficient and often corrupt government programs with limited, effective government in order to balance the budget.From 1995 to 1998, while I was Speaker of the House, we had four straight balanced budgets while we paid off $405 billion in federal debt. During that time, all federal spending rose by an average of 2.9 percent per year (including ent.i.tlements), the lowest increase since the 1920s. We need to apply those same principles to create jobs today: smaller government, less spending, lower interest rates, and less debt. We also need, where necessary, to replace bad government with limited, effective government, as we did in the 1990s when we replaced a destructive welfare system with a new model of work and training.

2. Enact five key tax reforms to reward job creation, entrepreneurship, savings, and investment.* Immediate payroll tax relief. Enact an immediate, two-year, 50 percent reduction of the payroll tax, which would boost the take-home pay of every worker and dramatically free up cash for every employer to hire and invest.

* Incentives for investing in new equipment. Allow small businesses to expense 100 percent of new equipment purchases each year to help them invest in new, more productive technologies.

* Zero taxes on capital gains. Match the Chinese capital gains rate of zero. Former Fed Chairman Alan Greenspan testified in the 1990s that this was the best rate for economic growth.

* Reduced tax rate for business. America has the second highest business tax rate in the world. We should match the Irish business tax rate of 12.5 percent. Combined with a zero capital gains tax rate, America would become the most desirable country in the world in which to invest and start a business.

* Eliminate the death tax. Inheritance is the most powerful acc.u.mulator of capital. Studies show that eliminating the death tax would create hundreds of thousands of new jobs.

3. Implement an American energy plan to create American jobs and keep American money at home.Developing more domestic energy while protecting the environment would mean millions of new American jobs and billions in new federal tax dollars, largely without the need for any new federal spending. Unfortunately, the federal government effectively embargoes new domestic oil, natural gas, and oil shale development, and has done little to expand our nuclear power generation. Our economic recovery largely depends on affordable domestic energy supplies.

AMERICAN SOLUTIONS ENTREPRENEURS REACT TO OUR JOBS PROGRAM.

Eugene Sukup, Chairman of the Board (Sukup Manufacturing, est. 1963, Sheffield, Iowa)

* The payroll tax cut "would be a real benefit to our employees. . . . If we can add $2,000 to their take home pay through the year, think what that does to 350 employees. . . . It's a real boost to this town and to them."

* "Reducing the corporate tax will give us close to half a million dollars to add to our machinery" and would contribute to "adding jobs."

* "This is what we need to create jobs in the United States . . . more money to offer better machinery and better jobs to our people."

D. L. Wright, CEO and Chairman of the Board (Wirco Inc., est. 1978, Avilla, Indiana)

* "About $2,000 per employee per year would go back into their hands [with the payroll tax cut]. That's a lot of money for my employees."

* "[Global compet.i.tors] have state of the art equipment; we have a 60-year-old foundry. [The expensing of new equipment purchases] would mean for me somewhere around a half a million dollars over a period of two years that I could reinvest in our company to buy new equipment to better compete."

* "The death tax is of concern to me as I've been in this business 40 years now and my son now is the president."

* "The corporate income tax cut would be very meaningful to many of our customers. It would also be very meaningful to us. And I'd like to see it expanded in some fashion to incorporate S-CORPS, LLCs, and LLPs."

* "This is the right direction. It's a direction for growth."

Small business plays a vital role in nearly every American community. As Mr. Wright explained, "We impact about 800 lives. It's not just the people that work for us that count, it's their families. We pay their mortgages, we buy their food, we buy their clothes, we send them to school."

The backbone of America, small businesses deserve a smart, new government policy to help them lead our economy back to prosperity. So let's give it to them.

CHAPTER FOURTEEN.

Replacing the Ent.i.tlement State with the Empowerment Society With Peter Ferrara, Director of Ent.i.tlement and Budget Policy at the Inst.i.tute for Policy Innovation Even before Barack Obama took office, politicians had already promised far more ent.i.tlement benefits than Americans could possibly afford. The ma.s.sive increase in government responsibility (and corresponding decrease in citizen responsibility) since 1932 had built a mountain of ent.i.tlements that threatened to crush the economy, impoverish taxpayers, and leave future generations mired in debt.

Federal projections showed that without reform, our big three ent.i.tlement programs-Social Security, Medicare, and Medicaid-would explode total federal spending in the coming decades from about 20 percent of GDP today, where it has remained stable for more than fifty years, to close to 40 percent.

Including state and local spending, government would consume more than 50 percent of GDP. That would fundamentally change our economy from a high-growth, market-oriented, free-enterprise system to a no-growth, European, socialist system. It would make our system similar to Greece, now on the verge of economic collapse, where 52 percent of the economy is run by government.

But that wasn't enough for the secular-socialist machine that took over Washington in 2008. Ignoring any pretense at budget discipline, President Obama, Speaker Pelosi, and Majority Leader Reid sought to increase the already unsustainable ent.i.tlement burden through their healthcare overhaul. That legislation will expand Medicaid to at least 15 million more people and will adopt a new ent.i.tlement program providing federal subsidies for the purchase of health insurance by families earning up to $88,000 per year.

The problem, of course, is that Medicaid, like Medicare and Social Security, is fiscally unsustainable. These programs can limp along in the short-term, but they will eventually cause an existential budget crisis. At that point, we'll have two stark choices: either radically slash these programs or enact unprecedented tax increases. The Left will never take the first course, so if they remain in charge, we can look forward to the second.