In the early 1990s, Japan rapidly descended from a global economic powerhouse to a country that kept bailing out unprofitable “zombie” companies that were too big to fail but too in debt to succeed. The Japanese economy flat-lined. The United States made the same mistakes and is already halfway into the American equivalent of Japan’s “lost decade,” says former Virginia Gov. Jim Gilmore, who heads the nonprofit Free Congress Foundation after chairing the Republican National Committee and a national anti-terrorism commission.
At Gilmore’s behest, economists looked at exports, consumer and government spending and investment activity since the start of the Great Recession. “The only category falling relative to GDP is investment,” Gilmore noted in a Dec. 13 op-ed published in Investor’s Business Daily. “Net investment was down 80.5 percent during the recession, and is still down 66.9 percent during the so-called recovery.”
Without capital investment, new businesses can’t form, existing businesses can’t expand, jobs are not created, and economic growth just doesn’t happen.
However, Gilmore says that “unlike Europe, America is positioned to reverse that trend” by enacting five simple changes to tax policy he calls the Growth Code:
• Tax all businesses at the same 15 percent rate regardless of size;
• Allow entrepreneurs to write off any first-year investments;
• Lower tax brackets for individuals to 10 percent, 15 percent and 25 percent across the board;
• End double taxation on investments; and
• Replace deductions with a refundable $4,300 family tax credit and require all citizens to pay at least some income tax.
Gilmore maintains the Growth Code will increase gross domestic product — and federal revenue — 15 percent, and reduce unemployment to 5 percent. These “fixes” do not require a major overhaul of the federal tax code or a constitutional amendment, just a majority vote in Congress.
Economic growth is particularly critical for Northern Virginia, where Gilmore — who beat Democrat Don Beyer in the 1999 gubernatorial race on his “No Car Tax” pledge — is still reviled more than a decade later even though he only managed to reduce (not eliminate) the hated tax.
Last month, noting that the Washington suburbs are heavily reliant on defense spending, Moody’s assigned N.Va. a “negative” outlook based upon a projected $600 billion in looming defense cuts.
The area once considered “recession-proof” because of its proximity to the federal government now finds itself living next door to a deadbeat. “This is the new reality for Virginia,” Moody’s Managing Director Naomi Richman said when announcing the ratings change. “What we are seeing now is a structural shift.”
The “negative” rating specifically includes the Virginia counties of Arlington, Fairfax, Loudoun and Prince William, the cities of Alexandria and Fairfax, the towns of Herndon and Vienna, and the Fairfax County Water Authority.
Credit ratings were also downgraded to “negative” for Montgomery and Prince George’s counties in Maryland, the cities of Bowie and Rockville, and the Washington Suburban Sanitary District.
Having succumbed to the twin dangers of dependency and profligacy, downgraded local governmental units will have to pay higher interest rates on their municipal bonds while simultaneously dealing with declining revenues.
Because it restores incentives for investment in the productive private sector instead of relying on the redistribution of wealth taken from other taxpayers, the Growth Code would stimulate economic activity in the nation and offer a way out of the central-planning decline already happening all around us. But that’s only if voters — especially Democrat majorities in Northern Virginia and the Maryland suburbs — have the common sense to demand it of their congressional representatives.
Barbara F. Hollingsworth is The Examiner’s local opinion editor.
