Some dubious notions have burbled up from the GOP presidential campaign. Herman Cain wants to replace the entire U.S. tax code with a scheme that he and a couple of pals sketched out one day. Ron Paul would cut government spending so deeply that it would instantly induce a recession. Rick Perry has suggested turning Social Security—one of the most popular and well-run federal programs—over to the states, as if 50 administrative bureaucracies would stretch retirement dollars further than one.
But as the primary elections draw near—the first is in early January—the candidates have been stress-testing their themes and toning down some of their wackier campaign utterances. Each leading candidate now has an economic plan posted on the Web, for example, which forces them to substantiate their ideas and abandon sound bites that might not be so appealing when the details are spelled out. Perry, for instance, called Social Security a "Ponzi scheme" early in the campaign—but his formal economic plan makes no mention of that.
Every Republican candidate of course, insists that President Obama's economic policies have failed. And vitriolic partisan politics has replaced any talk of compromise or wimpy middle-ground seeking between Republicans and Democrats. Yet several GOP ideas have surfaced that could help guide sensible, centrist reforms once the 2012 elections are over—no matter which party wins. Here are 5 good economic ideas that have emerged from the Republican contest so far:
Streamlined regulation. Most of the GOP candidates sound as if they'd eagerly repeal every single rule passed under Obama, including his entire healthcare overhaul, the Dodd-Frank financial reforms and a variety of clean-air rules. To some extent, the candidates are simply saying what they think conservative GOP voters who are influential in the primaries want to hear. In reality, it would take large Republican majorities in both houses of Congress to completely undo Obama's policies and even then, many voters would question the sanity of deregulated the banks that just caused a severe recession or freeing oil companies to commit another Deepwater Horizon disaster.
But measured deregulation makes a lot more sense, especially if aimed at small businesses that have been the unintended victims of reforms meant to rein in the abuses of bigger firms. Perry and Romney, for instance, both favor changes to the 2002 Sarbanes-Oxley accounting reforms (signed into law by President Bush, after the Enron and Worldcom meltdowns) that would exempt smaller firms and spare them loads of paperwork they often lack the staff to complete. Some of the Dodd-Frank reforms could have similar unintended effects on firms that had nothing to do with the 2008 financial crisis.
Romney has proposed a set of reforms including deadlines for the approval of various types of business permits and a fast-track process when safety or public health aren't an issue. It might also make sense to streamline regulation when federal and state agencies both claim jurisdiction, so there's only one layer of rules that local businesses have to deal with. Even Obama supports streamlined regulation for some businesses, which suggests that a focused regulatory overhaul would have bipartisan support, with the right leadership.
Lower corporate taxes. The Occupy Wall Street crowd would probably object, but there's a strong case for a modest reduction in the corporate tax rate, as long as tax loopholes and various subsidies were also ended. The U.S. corporate tax rate, at 35 percent, is one of the highest in the developed world. But most companies pay far less, since deductions and other accounting maneuvers allow them to sharply pare their tax bill. The end result is a convoluted tax system that favors big companies able to lobby for tax breaks and hire the sharpest lawyers and accountants. General Electric, for example, earned more than $14 billion in 2010, but paid no U.S. tax on that income because much of it is parked overseas. GE's tax department alone, with a head count of nearly 1,000, is bigger than 99 percent of all U.S. businesses.
Virtually all the GOP candidates favor a lower corporate tax rate, and while Herman Cain's call for a 9 percent rate is probably too low to gain widespread support, Romney's preferred rate of 25 percent rate is more plausible. Obama has indicated he'd support a lower tax rate if accompanied by other reforms that kept the total amount of government revenue from business taxes stable. If done right, corporate tax reform would encourage U.S. multinationals to bring more of their overseas profit back home and invest it here, while giving other firms an incentive to set up shop in the United States instead of heading for other countries.
Fewer government agencies. Ron Paul's plan calls for eliminating 5 of the 15 cabinet agencies (Housing and Urban Development, Interior, Energy, Commerce, and Education) while slashing the budgets of most of the others. Such severe cuts are probably a non-starter in Washington, since those agencies all protect entrenched interests, including dozens of members of Congress who sit on oversight committees and direct spending toward favored constituencies. But Paul's general bent toward consolidating government has merit. At least new 5 Cabinet agencies have been created since 1945, and institutions that always grow and never shrink become bloated and inefficient by nature.
As a private-sector analogy, consider General Motors. For years, its leaders insisted that it needed all 8 of its divisions—an unwieldy and redundant structure that contributed to GM's descent into bankruptcy in 2009. In the aftermath, GM sold or killed half of its divisions—and is now nicely profitable. Hundreds of other companies have been forced to streamline and give up cherished departments and people, in order to survive. Surely the federal government could do something similar, consolidating departments while reducing overhead costs and preserving its most important functions. Yes, it would be a political bloodbath, and some interest groups would lose out. But we can no longer afford the sprawling government we've got. A strategic overhaul would subject the government to the same forces buffeting the rest of the economy and perhaps make Americans a bit more confident in their civic institutions.
Taxing consumption over income. Herman Cain's whimsical 9-9-9 plan has detractors on both left and right, and it probably wouldn't stand a chance if ever introduced as serious legislation on Capitol Hill. But the plan would do one thing many economists applaud: Shift the emphasis of taxation from income to consumption. Most workers under Cain's plan would end up with more take-home pay, since income would be taxed at a 9 percent rate. They'd also spend more to buy stuff, since Cain's 9 percent national sales tax would raise prices. Such a tax structure would create a strong incentive to spend less and save more, which would boost overall investment and help many families build a bigger cushion for retirement. Whatever tax reforms we end up with, it would be a good idea to include some kind of incentive like this.
More simplicity. One reason Cain's 9-9-9- plan has resonated with voters is its simplicity: While it might be unrealistic, a straightforward plan that imposes the same tax rate on individual income, business profits, and the sale of products is a welcome antidote to the mind-numbing complexity Washington usually churns out. Rick Perry has borrowed from Cain's playbook with his idea for a 20 percent flat tax on income that would allow taxpayers to file their taxes on a postcard, in minutes. Government is rarely that simple, unfortunately, but everybody knows that complexity is a way to make work for middlemen, generate unneeded fees and disguise duplicity. Less of that in government would benefit everybody who pays taxes—plus any politician able to make it happen.