At their national convention last week, the Republican party outlined their proposal on how to bring jobs, economic growth, and renewed prosperity to America. The plan is fairly straightforward: reduce federal spending on entitlements, payrolls, and employee benefits, lower personal income and corporate tax rates, and restrain the abilty of the Federal Reserve to raise and lower inflation.
The prevailing theory is that the federal government has spent the country closer to a "fiscal cliff" and that the influx of cheap capital into the economy (and in particular the financial sector) is holding back job creation and stagnating economic growth. So, reducing this spending will slow the advance of the national debt, while tax incentives will encourage new economic activity from private sector industries. It's a good sounding theory, until we consider that Greece, Italy, Spain and Portugal have pursued this same strategy in Europe, and their debt concerns worsened as deflation and unemployment permeated their economies. If enacted, the Republican proposals would produce similar results in the U.S. economy, increasing unemployment, and causing massive shortfalls in federal revenue, effectively putting America back on a path towards recession.
Cutting Down To The Nitty Gritty
So what exactly do the Republicans propose to do to bring back prosperity?
- Limit federal expenditure to 20% of GDP annually
- Return federal discretionary spending on non-security related items to 2008 levels
- Repeal the Affordable Healthcare Act
- Lower wages and benefits for federal employees
- Reduce the size of the federal workforce
- Repeal federal regulations in Dodd-Frank
- Decrease marginal tax rates by 20%
- Repeal the Alternative Minimum Tax
- Lower corporate tax rates to 25%
- Create a commission to conduct an audit of the Federal Reserve System and explore the feasibility of returning to a Gold Standard for the U.S. dollar
The purpose of all the cutting and repealing is twofold. Ideally, the reductions in federal spending are supposed to slow the increase of the public and intragovernmental debt while prioritizing federal expenses toward defense. The addition of a gold standard would restrict the powers of the Federal Reserve to expand its balance sheet by purchasing assets or selling Treasury bonds on the open market. Lowering tax rates should generate economic activity and growth by increasing the expendable income of consumers and corporations, allowing these entities to further invest their money into the general economy.