Cheer-Up America! The Case for American Optimism

Look for moments of maximum pessimism. To the legendary value investor Sir John Templeton, this was the secret to learning how to buy low and sell high.

In recent months, I've been feeling the pessimism in a big way. You probably have too. Watching the scroll of headlines on cable news channels this summer, I thought I was in an overdone disaster film. Riots break out across the globe, screamed a Drudge headline. Markets were crashing. An earthquake cracked the Washington Monument. In my hands, Mark Steyn's new book After America -- a rollicking read that makes a strong case that we should prepare for the apocalypse -- arrived perfectly timed with the S&P's downgrade of the United States' credit rating. The end, surely, seems nigh.

President Obama blames this -- the credit downgrade, the Carteresque malaise, virtually all the wreckage around us -- on our politics "being broken." Lots of Americans would agree with this assessment of their supposed representatives in Washington, D.C.

But I think they've got it all wrong. Politics today are at the healthiest state of my lifetime. And from this, I began to build the case for American optimism. Our future truly is bright...

The first and most important step in any 12-step program is to admit you have a problem.... We allowed our politics to be a personality contest, dominated by gotcha questions, sound bites, and cynical wedge issues. The madness reached its zenith in 2008; Obama's promise of "hope and change" will be remembered as an incredible parody of the vacuous politics to which we'd become accustomed. The candidate himself -- only four years prior, a state senator with no meaningful accomplishment to his name besides a self-aggrandizing memoir about his unaccomplished life -- was unsuited...

Interestingly enough, both the Tea Party and Occupy Wall Street movements have hit on the same thing: the current income tax system is an economy-inhibiting mess that in many ways only benefits the people that can afford to "work the system." Given that over 30,000 tax lobbyists (that's about HALF of all lobbyists working in Washington, DC!) are trying to "tweak" the Internal Revenue Code, no wonder we're in this mess.

In short, it's time to junk the current tax code to start all over again. We should right now get into law the Steve Forbes 18% flat-rate tax plan at the Federal level, where the only tax loophole is a generous initial household earned income (wages and pension payments) deduction of:

US$13,000 per adult in a two-adult household
US$20,000 for a single adult head of household
US$9,000 per child or adult dependent in household

We would end the alternate minimum tax, estate tax, FICA payroll tax, and especially taxation on bank account interest, capital gains and stock dividend payments. In turn, states who have income tax would implement a similar simplified flat tax, but their rate would be 1/3 the Federal rate (six percent).

The result would be an economic boom, as we drastically cut yearly tax compliance costs by 75% or more (since almost every taxpayer will be filing forms vastly simpler than the current 1040 EZ and state "EZ" forms!) and it encourages American residents to keep their savings and capital investments in the USA. And because the rich can't "work the system" like now, they will finally have to pay their fair share (though with no taxes on savings and investments, it would still encourage the rich to move to the USA, which means our banks and investment companies will be overflowing with liquid assets).

Yet, this would only the beginning of major tax reform. The next step is to start a two to three year transition process to eventually phase out the income tax altogether and replace it with something like FairTax (H.R. 25/S. 13). That way, yearly tax compliance costs could be cut as high as 95%, providing an even bigger boost to the US economy. It would be so financially attractive that cargo ships that now fly "flags of convenience" with registrations in the Bahamas and Panama become US-flagged ships for tax reasons, and that means many shipping ports in the USA will enjoy a huge uptick in business as cargo ships are built and repaired in the USA.

So what are we waiting for?

Great article.

Liberalism has always been a house of cards. Its bedrock tenets have been propped up by revisionist history, a now-tenuous hold on the moral high ground, and an educational-cultural-media axis that served only to affirm these bankrupt beliefs.

As the author pointed out, Obama has put liberalism into practice, the consequences of which are now there for all to see.

We will defeat the Democrats at the polls in Nov 2012, that much is clear. If they continue to shill for Obama, the media will go down with him. It will take a while to neutralize Hollywood and the education establishment, but the new media will eventually get that done too, IMHO.

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