I am going to assume that by the early fall of 2012 the United States economy is more assuredly moving back towards the natural rate of unemployment – which now hovers approximately between 6 and 7 percent as a consequence of the post-2008 growth of federal government. This implies that the specter of long-term high unemployment will not hang over the head of the incumbent. The election, therefore, will be fought out on the basis of an even playing-field.
How should Mitt Romney prepare for the upcoming battle?
First, it is now clear that Mitt Romney must repair important gaps in his understanding of the American economy. Benefiting from Barack Obama’s disastrous first term, Romney should take out one month prior to the general election to immerse himself in market economics and public choice. N. Gregory Mankiw and John B. Taylor for economics and Charles K. Rowley for public choice would surely set him on a beter political economic foundation than presently he has mastered; or that Barack Obama ever will.
Three salient issues will determine the 2012 presidential election. First, and most important, is whether the United States should hold to a more laissez-faire capitalist or to a more social market economy model. Barack Obama is already located left-of-center on the social market economy model. Mitt Romney should identify his position a little right-of-center, tilting in favor of laissez-faire capitalism. But not too far to that right. The electorate will expect supportive evidence before they will move too far out of the middle ground.
Second, is the issue of the public debt crisis, an issue that cannot be avoided in a global economic system. A sound right-of-center position would be that of moving towards budgetary balance by 2016, with the federal budget accounting for 20 percent of GDP. This implies a 4 percent of GDP increase in tax revenues and a four percent of GDP reduction in federal spending.
To achieve this goal, right-of-center, tax reform is inescapeable. All households other than the truly poor will be required to pay more in federal taxes. The key issue is that of incentives and excess burdens. A flat tax devoid of all exemptions save for the very poor, is the best solution. No personal exemptions, no child allowances, no mortgage relief, no charitable donations relief, no tax-subsidies to business enterprise of any kind. Almost every tub would be expected to stand on its own bottom.
The same flat tax would apply to all dividends and capital gains. Only households would be taxed, at the point of receipt. The corporation tax and the payroll tax would be eliminated (as would the entirely fictitious Social Security Trust Fund). The flat tax rate would have to be slightly above 20 percent across all income for all non-poor households to reach the tax revenue target. The flat tax ensures that all households – other than the poor – pay exactly the same proportion of their income to the federal government. Of course, the rich pay far more in absolute taxes than do their less rich compatriots.
Regarding federal expenditures, the Romney goal would be to remove the government from the business sector. Bureaucrats have neither experience nor skill in picking winners and losers, except in terms of a political calculus. The removal of all subsidies would be center-stage.
Entitlement reform would have to be central to down-sizing government expenditure. Again, the electorate will be understandably suspicious of excessive radicalism. Raising the age of eligibility for Social Security and Medicare to 70 years is widely anticipated, although doing so very quickly is politically dangerous. A 10 year laddered movement to that target is feasible . More means testing of Social Security and Medicare benefits is inevitable. The most attractive methods of so doing require more debate. Medicaid should not be deal with at the level of the federal government. The individual states should become fiscally responsible for the entire program.
The military role of the United States is also politically salient. Barack Obama has chosen a reactive, declining role. In an increasingly dangerous world, this is electorally unattractive. Romney should pursue a more robust defense budget designed to maintain U.S. hegemony as a world power. He should pursue much more proactive roles with respect to North Korea, Iran, Syria and Palestine. Such a policy position should be attractive to the politically important Jewish vote.
This column offers a broad-brush framework for a right-of-center election platform that should take Mitt Romney to the White House. In many respects, it is similar to the policy platform that took Ronald Reagan to the Oval Office in November 1980. Not a bad model to follow, one might justifiably speculate.