Ho w t a x c u t s f u e l e d t h e Re a g a n Re v o l u t i o n : A Q&A with Jack Kemp

February/March 2008 Volume 42, No. 1

Fi r e d Up! Re a d y t o Go! With voters calling for change, Ma r k Sa n f o r d and Pa u l Ry a n fan the flames for one of the biggest changes of all — Ta x Re f o rm

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Volume 42, No. 1, February/March 2008

Politics & Perspective Cover Story (cont’d.)

4 Present at the Creation: How Tax Cuts 18 Why Tax Cuts Still Matter Fueled the Reagan Revolution By William Beach A Q&A with Jack Kemp With the economy slowing, now is not the The former Congressman, Cabinet Secretary, time to be raising taxes. Yet with the Bush and candidate for Vice President discusses his tax cuts set to expire, that is exactly what role in making tax cuts the centerpiece of the some are proposing. Reagan economic platform in 1980, and the state of U.S. tax policy today. Articles

Cover Story 20 Incentive and Inventive: Smart Tax Policy Needed to Promote U.S. Manufacturing 8 Fanning the Flames of Change By John Engler By Mark Sanford South Carolina’s Governor outlines his 22 A Sacred Trust: Health Care Begins plan for changing the tax system in his with Keeping the Doctor-Patient state and explains why he believes real Relationship Strong reform begins with giving people a choice. By Tom Price

10 In the Hands of the People 25 The Handwriting is on the Wall: The By Paul Ryan Increasing Importance of E-prescribing With Washington failing to act on reforming in Health Care the tax code, a plan is put forth that will put By Jon Porter the power for real change with the American taxpayer. 27 A Capital Idea: A Budget that Plans for the Future 12 Reforming the Tax Code: A Step-by-Step By Andrew A. Samwick Guide to Getting it Done By Scott Hodge 29 The Boldness of Theodore Roosevelt It’s easy to talk about scrapping the and the Politics of Today current tax system. But how do you go By William N. Tilchin about doing it? One of America’s leading experts on the issue tells how. Sections

15 Beyond Simplification 3 A Note from By Ernest S. Christian & Gary A. Robbins the Chairman Emeritus Reducing paperwork is an important goal of tax reform. But minimizing the government’s 32 Ripon Profile impact on the economy is key. Shelley Moore Capito

Publisher Editor The Ripon Society Louis M. Zickar One Year Subscription: Comments, opinion editorials and letters should be addressed to: The Ripon Forum, $35.00 individuals President Editorial Assistants 1300 L Street, NW, Suite 900, Washington, $10.00 students DC 20005 or may be transmitted Richard S. Kessler Meredith Freed electronically to: [email protected]. Alli Brennan The Ripon Forum (ISSN 0035-5526) is Chief Administrative Officer published bi-monthly by The Ripon Society. The Ripon Society is located at 1300 L Street, George McNeill In publishing this magazine, the Ripon Society NW, Suite 900, Washington, DC 20005. seeks to provide a forum for fresh ideas, Editorial Board © Copyright 2008 Postmaster, send address changes to: well-researched proposals, and for a spirit William Frenzel By The Ripon Society The Ripon Forum, 1300 L Street, NW, Suite of criticism, innovation, and independent William Meub All Rights Reserved 900, Washington, DC 20005. thinking within the Republican Party. Billy Pitts

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www.securitasinc.com 800-232-7465 THE RIPON SOCIETY HONORARY CONGRESSIONAL ADVISORY BOARD Senator Chuck Hagel (NE) Senate Chairman Senator Richard Burr (NC) A Note from Senator Norm Coleman (MN) Senator Susan M. Collins (ME) the Chairman Emeritus Senator Judd Gregg (NH) “Fired up! Ready to go!” Senator Orrin G. Hatch (UT) For some Americans, those five words, a familiar refrain at Senator Pat Roberts (KS) Barack Obama rallies, have become synonymous with change this Senator Gordon Smith (OR) election season. Senator Olympia J. Snowe (ME) Other Americans want more meat on their rhetorical bone. Senator Arlen Specter (PA) They’re looking for people who are not just talking about change. Senator Ted Stevens (AK) They want people who are actually working to get it done. Representative Judy Biggert (IL) Th e Ri p o n Fo r u m spotlights two individuals who are doing Representative Roy Blunt (MO) just that. One is the Governor from South Carolina; the other the Representative Ken Calvert (CA) Congressman from Wisconsin’s 1st District. What Mark Sanford and Representative Dave Camp (MI) Paul Ryan have in common is a belief that the tax system is broken, Representative Eric I. Cantor (VA) and that the tax laws as written are weighing down families and Representative Michael Castle (DE) businesses struggling to stay afloat. Representative Howard Coble (NC) Both are pushing plans that would dramatically change the status Representative Ander Crenshaw (FL) quo. We focus on their plans in this edition. We also look at the Representative Thomas M. Davis III (VA) broader issue of tax reform with some of the best known authorities Representative Vernon Ehlers (MI) on the subject. Scott Hodge offers advice on how to avoid some of Representative Jo Ann H. Emerson (MO) the landmines that stand in the way of reforming the tax code, while Representative Philip S. English (PA) Ernie Christian and Gary Robbins discuss why the goal of any reform Representative Mike Ferguson (NJ) effort should be to minimize the impact of government itself. And Bill Representative Vito Fossella (NY) Beach provides us with a reminder as to why keeping taxes low still matters. Representative Rodney Frelinghuysen (NJ) We kick things off, though, with an individual who perhaps did Representative Kay Granger (TX) more to change the tax debate in the United States than anyone else. Representative Robin Hayes (NC) More than 25 years ago, Jack Kemp convinced Ronald Reagan to Representative David Hobson (OH) make tax cuts the centerpiece of his economic platform for President. Representative Ray H. LaHood (IL) In the process, he also convinced a generation of Americans that Representative Steven LaTourette (OH) reducing taxes was good policy and good politics. We talk to Representative Jerry Lewis (CA) Secretary Kemp about the revolution he helped create and how its Representative Jim McCrery (LA) impact is still being felt today. Representative Thomas E. Petri (WI) This edition of the Fo r u m also features articles on health care and Representative Deborah Pryce (OH) the budget, and a splendid essay on one of the statesmen of our Nation Representative Adam Putnam (FL) and the Republican Party – Theodore Roosevelt. Representative Jim Ramstad (MN) We hope you enjoy this edition and encourage you to write us at Representative Ralph Regula (OH) [email protected] with any comments or questions you may Representative Christopher Shays (CT) have. Representative Fred Upton (MI) Representative James T. Walsh (NY) Bill Frenzel Representative Edward Whitfield (KY) Chairman Emeritus Ripon Society

The Ripon Society is a research and policy organization located in Washington, D.C. There are National Associate members throughout the United States.

RIPON FORUM February/March 2008 3 Politics & Perspective Present at the Creation: How Taxes Fueled the Reagan Revolution A Q&A with Jack Kemp

Jack Kemp has spent most of his adult life in friend of mine. We go into the mid-‘70s, and I had been the public spotlight, first in the sporting arena as an toying with tax policy as a way of encouraging job creation All-Pro quarterback in the AFL and NFL, then in the in the country and obviously in my district of Buffalo, political arena as a Congressman, Cabinet Secretary, which was a heavy industry district, heavily unionized. and candidate for Vice President of the United Nixon had taken us off the gold standard in 1972. States. We went out of the Bretton Woods Agreement, which Kemp’s career is filled with many achievements. de-linked the dollar to an ounce of gold. Taxes were One of the most significant quite high particularly in New occurred when he persuaded York State. So we had the Ronald Reagan to make tax combination of both inflation cuts the centerpiece of his and unemployment, of slow economic plan for President growth with a weakening dollar. in 1980. The success of that The political climate was mixed plan changed the face of because there were rumblings the tax debate, convincing a of Ronald Reagan [running] to generation of lawmakers that Ford’s right. I had been, as I said, keeping taxes low was not flirting/toying with a job creation just smart politics, but smart piece of legislation. I happened policy that fueled economic to be reading a speech by John growth. F. Kennedy at the New York The Forum spoke Economic Club in November of recently with Secretary Kemp ‘62, I believe, and I came across about the state of the tax a paragraph in which he said it’s debate in the U.S. today, the paradoxically true that high tax role tax cuts played in making rates cause low tax revenues. The the Reagan Presidency a best way to get more revenue is to success, and whether the bring down the rates and expand issue of taxes is still relevant the economy. as America prepares to elect a Well, that appealed to me, new President later this year. because I had been frustrated by the Ford White House and the RF: To put things into Congressional Budget Office, who historical perspective, could you talk about the political always scored any reduction of tax rates in a static analysis. and economic climate in the late 1970s when the issue of All it did was hurt revenue. And I read this statement, and tax cuts first became part of the national debate. What I noticed going back into the history books, that the budget was the mood of the country at the time? of the United States came into balance in 1964-65, before JK: I was in the Congress from Buffalo, New York the Vietnam War got out of control for Johnson. So I since 1971, and we had suffered through the wage and price told my staff, “Please go get me an exact duplicate of the controls and the inflation and recession of the Nixon years. Kennedy tax cut.” And it came out to be the Kemp-Roth We never really got out of it under Gerald Ford, a dear 30% over three years tax rate reduction that was criticized

4 RIPON FORUM February/March 2008 heavily by both Republicans and Democrats. But I poured inner city economic development that I called enterprise my political efforts into and sold it to Reagan in ‘79. He zones. was the only national Republican leader to support it. I was called “the witch doctor” by Baker, “a snake oil RF: You mentioned Ronald Reagan earlier. You salesman” by another Republican, and George Bush called are credited with convincing him to make tax cuts the it “voodoo economics.” But it was the beginning of the central part of his economic platform for President in first attempt by the Republican Party since Coolidge to 1980. Could you talk a little bit about how that came bring down the high tax rates that at that time were 70% on about? ordinary income and 49% percent on capital gains, which JK: I worked for him in the off-season. I gave a speech Bill Steiger reduced to 28%, literally all by himself, with to the AFL-CIO convention of longshoremen, I think in ‘79, my help. But he advanced that idea in ’79 or early ’80, in Bal Harbor, Florida; and got a huge ovation from Puerto so that was the beginning of what we called supply side Rican and African American and Latino longshoremen. economics. Teddy Gleason, the longshoremen’s president from New York, was a good friend of mine. He was a Catholic RF: These days, the virtue of lower taxes is an Democrat who liked me because I played professional accepted political football. And I was reality. Back then, that talking about jobs and wasn’t the case. How lower tax rates on labor much of what you had and capital. I’ve never to do involved simple talked about capital education — making formation that I didn’t sure people understood talk about labor. And that the status quo was just as a parenthetical unacceptable, and that point, if you look at the higher tax rates were New York state income holding the economy tax in the 1970’s, it went and American workers up to 14% and the federal back? income tax was 70%. JK: It was tough. It Very few people paid was as tough in my own it obviously, but it was party as it was in the other 70%. And we’d had all party. Because it was not that inflation in the mid- Republican orthodoxy. ’70s, so working men and The Republican Party women, longshoremen en masse voted against who made good wages the Kennedy tax cuts — $40,000, $50,000, of ’61 and ‘62. Barry $55,000 — they had Goldwater, the champion been inflated into high of conservatism, voted Then-Congressman Kemp watching President Reagan sign the brackets, where half of against the Kennedy tax tax reform bill of 1986. their income almost, after cuts. Howard Baker’s taxes, was removed from father voted against their purchasing power. them. The Republican [Reagan] understood the steep They were a ready orthodoxy was balance progressivity of our code and how constituency, and I went the budget first and down to Bal Harbor then cut tax rates. Well, anti-work it was, how anti- and sold them on this we never balanced the investment it was... idea, quoted Kennedy budget because we never obviously. Reagan could get the economy growing enough, so convincing the read about it in Human Events, and he called me out to Republican Party was difficult at the national level. California to brief him. He supported it, and he said, “Jack, It was easier for me in the House where I had built up I remember when the top income tax rate was 91%.” He a lot of friends and allies by pushing pro-growth economic understood the steep progressivity of our code and how issues for almost five straight years and building kind of anti-work it was, how anti-investment it was, and, when it a, for lack of a better word, a progressive conservatism — intersected with inflation, how it pushed normal wages up conservative values but progressive ideas on tax policy and into tax brackets that were always reserved for the Mellons

RIPON FORUM February/March 2008 5 and the Rockefellers but never the blue collar working folks work, savings, investment, and entrepreneurship. of New York or California or wherever. Reagan understood In the current dilemma of what to do, I believe tax it, then adopted and ran on it. The rest is history. reform is back at the top of the Republican agenda, with simplification. But in the meantime, during this slowdown, RF: Let’s flash forward to this year’s election: we have the highest corporate income tax rate in the world some people believe that the tax cut issue has lost its other than Japan; it’s 35% and it should come down to, I effectiveness, and that the message of letting people don’t know, 20-25%. I think the income tax rate is too high keep more of what they earn just doesn’t resonate with at the top. We’ve indexed income tax rates; we’ve never voters like it used to. Do you agree with that? indexed capital gains rates. JK: No, I really don’t. I read David Frum, I read So I think it’s very much alive, particularly in the tax David Brooks in the New York Times. They both use reform movement, and something that should be at the that argument. But the issue was never leaving money in forefront of any Republican presidential campaign. people’s pockets. The money — the issue of leaving money in people’s pockets — was never used by Reagan or by RF: Following on to those comments, what do you me. see as the greatest challenge our nation faces today with What we were doing was shifting the incentives by regard to its tax policy? lowering the marginal tax rates and increasing the after-tax JK: First of all, our rates are too high both on personal income for work, savings, and investment. All of this was and corporate income. The double taxation on dividends is done at the margin where people make their decisions. Yes, counterproductive. The bigger challenge is reforming the you got to keep more after-tax income. But it also shifted tax code in such a way that you answer the static analyses working and investing decisions by creating a greater that are done by the opponents — by the Joint Committee incentive at the margin to put your money at risk or into extra on Taxation, the Joint Budget Committee. work. So it was sold by Kennedy almost as a Keynesian Those are real hurdles, and whoever is the candidate demand-side solution to the stagnation of the early ‘60s. — I’m supporting McCain — is going to really have to Reagan used it as an incentive to increase the reward for understand the issue and sell it to the American people

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6 RIPON FORUM February/March 2008 based upon a dynamic analysis of what it could achieve for One way I’ve done it or tried to do it is to appeal to the American economy. their desire to own a home. I think we have to appeal to their desire to take part in what Bush called the RF: Finally, let me ask you a question that goes ownership society. I don’t think he really sold it very well, beyond tax policy. Throughout your career, you have unfortunately. I think it’s a great idea. I was debating John always been very attuned to Reagan Democrats – those Edwards on poverty and he kept saying he liked Jack Kemp, hardworking, blue collar Americans who grew up and the trouble with Kemp and the Republican Party is they admiring Franklin Roosevelt but voted for Ronald represent investors and Democrats represent workers. And Reagan because they believed he understood their I said, “Wait a minute John. Workers and investors are not concerns and would make a two separate people. They’re the difference in their lives. Have same people at different stages Republicans lost Reagan I don’t agree with those of their life. A worker in the Democrats and, if so, how do office is an investor. A worker they go about winning them who say that the Reagan who has a 401k or a Roth IRA back? Coalition is over. It’s certainly is an investor. A worker who’s JK: I don’t agree with those undergoing some changes. got a pension is an investor.” who say that the Reagan Coalition The “investor class,” as Larry is over. It’s certainly undergoing Kudlow likes to talk about, is up some changes. I don’t think you can appeal to them simply to over 60% of the American people. So we should appeal the same way Ronnie Reagan did on defense and taxes. I to their desire to democratize capitalism. think we’ve got to be more, uh, compassionate if you will. Capitalism works great at the top of the ladder; it’s You’ve got to approach people from the standpoint that not working well enough down the rungs of the ladder they want the same things for their family that we want because we haven’t made more opportunities for workers for our families: good education, a chance at the American to participate in this great investor/ownership democracy Dream, upward mobility. of ours. RF

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RIPON FORUM February/March 2008 7 Cover Story Fanning the Flames of Change In South Carolina, tax reform begins with giving taxpayers a choice

MARK SANFORD

The writer Thomas Friedman makes the argument that, “Relative marginal tax rates have a statistically that the most important competition today is between significant negative relationship with relative state “you and your imagination.” growth.” To translate that into everyday English: High As much as football fans may have been led to income tax rates slow the growth of people’s paychecks believe it was between the Patriots and the Giants at and low rates raise them. the Super Bowl – or as much as people might believe in A quick look at the U.S. as a whole bears this economic terms it is between America, China and India out. A recent study by Richard Vedder, Professor of – Friedman argues otherwise. Economics at Ohio University, He believes energetic, distinguished between nine innovative and connected “low-tax states” and a score individuals can now act on of other “high-tax states.” their imaginations farther, Vedder found that 41 million faster, deeper and cheaper than Americans “voted with their ever before. He also contends feet” by moving out of high-tax those countries and companies states and into low-tax states that empower their individuals over the last 15 years. They to imagine and act quickly on wanted more time out of the their imagination are going to shoebox filled with receipts thrive. and more time in imagining, In short, ideas matter, and creating and implementing about the time you come up ideas -- all foundational to with a good one someone else wealth creation. on the other side of the world is So I think we could sure to do the same. Therefore, rationally argue there are whoever acts first wins. benefits tied to lowering Are you really free to act, marginal rates. The problem much less imagine ideas on in the world of policy is not which to act, as you are rooting whether an idea is good or not, around shoeboxes of receipts for there are scores of good at tax time? I’d say no, and ideas that go nowhere. most would admit that acting The question is how might as a clerk for the government you get it done? during portions of the year does not represent one’s most creative time. Sadly, whatever From Pickett to Sun Tzu creative energies are mustered generally go to tax For the last four years we have tried the “Pickett’s avoidance rather than building things. Charge” approach and advocated an abolition of the Liberating human creativity and therefore providing income tax. for long-term economic prosperity has led a number Being straightforward fits my personality and our of policymakers in recent years to look closer at tax administration. And, as a result of this approach, we policy – in particular the ways in which lowering the were able to get the first cut to the marginal rate in our income tax presents lasting economic benefits. A recent state’s history – a cut from 7% to 5% for limited liability report by the Atlanta Federal Reserve Board stated companies, partnerships and sole proprietorships.

8 RIPON FORUM February/March 2008 Unfortunately the head of the Senate Finance Committee in our instance since anything not revenue neutral is dead in our state dug in his heels in going any further than on arrival with the head of Senate Finance -- and because this, and is dead set against what he calls “cutting rates of the way it prevents others from taking the cigarette for rich folks and losing money to help people.” money and growing government. So we have been forced to take the sixth-century B.C. Chinese military strategist Sun Tzu’s counsel to pursue The Benefits of Reform one’s aims with subtlety. For that reason, we recently We believe the benefits of taking this course would proposed an optional “flat tax.” be incredible. A 3.4% flat tax would mean that people in It harnesses three thoughts. The first is the need the top income bracket – in our case those making more to expand individual freedom, time and initiative in than $12,850 per year, or almost everybody with a full- Friedman’s flat world. The second is the simplicity of a time job – could see their income tax rate cut by half. flat tax. And the third is an incredible push by a range of That kind of tax change could also lure entrepreneurs interest groups in our state to raise the cigarette tax. in search of better-tax environments to start businesses Our proposal would here. Seven other states have simply allow an individual come to the same conclusion: the choice to either pay taxes Colorado, Illinois, Indiana, at the current 7% or forgo Massachusetts, Michigan, exemptions and pay 3.4%. Pennsylvania, and Utah have The choice would be the each implemented a flat tax. taxpayers, and it allows you to The case for a low flat tax avoid the endless debates that is now being made literally all stall tax reform. In general over the world. Since enacting most people like the idea of a flat tax, Slovakia has seen moving to a flat tax. But the foreign investment grow by general public does not drive 500%. Russia did the same the inner workings of the tax and saw its revenue double. writing process. Those debates So did Estonia, which is now are driven by a long list of averaging 5% yearly growth. constituencies and businesses In short, a lowered and that lose or make money with flattened tax represents a each exemption in the code. I significant step towards making don’t begrudge the realtors, for our economy more attractive, example, for arguing in favor and in this debate it would be of home interest deductibility. hard to improve on the words But each one of these voices of Rhode Island House Speaker collectively heard make William Murphy – a Democrat. changes that would make our The goal of the flat tax, he said, overall code more competitive “is to put more money directly impossible. ... 41 million Americans in people’s pockets both by So our reform is premised giving relief to those who need on what all of America seems “voted with their feet” by it and by making Rhode Island to want these days – a choice. moving out of high-tax states a more attractive place for From restaurants to magazines business.” and media to the car you drive, and into low-tax states over Given the importance we insist on an endless array the last 15 years. of human imagination, and of choices. Why should it be the freedom necessary to see different in the tax code given our different stations and it flourish -- not to mention the fact that we’re now seasons in life, if it can be done in a way so that the haul competing against economies literally all over the world to the government is all the same? -- the time to re-think our tax structure is now. This is where the cigarette tax comes in, because A closer look at the flat tax seems to me a great place rather than taking that money to grow government, we to start because, in short, I believe the system that most apply it to lowering the marginal rate. And since all taxes effectively maximizes human freedom wins. RF are not created equally, raising our lowest in the nation cigarette tax of 7 cents a pack by a relatively modest 30 Mark Sanford is the Governor of South Carolina. cents to us seems good policy. This is particularly true

RIPON FORUM February/March 2008 9 In the Hands of the People With Washington resistant to tax reform, a plan is put forth to let taxpayers choose what kind of system they want

Paul Ryan

Millions of taxpayers dodged a bullet when Unfortunately, in last year’s politically charged Congress in December finally passed a clean, one- environment, with the majority in the House of year “patch” on the exemption level for the Alternative Representatives committed to a flawed version of pay- Minimum Tax (AMT), though many of them may not as-you-go policy, even enacting a temporary AMT “fix” know it. This eleventh-hour legislation was needed proved contentious. To his credit, the Chairman of the to protect middle-income taxpayers from the ever- House Ways and Means Committee, Charlie Rangel, expanding reach of the AMT – an illegitimate tax that, acknowledged the need for a permanent repeal of the if left unaddressed, would impose a stealth tax hike on AMT as well as a reduction in America’s corporate tax numerous Americans. rate. Too bad his proposal – dubbed the “mother of all Adjusting the poorly crafted AMT has become tax reform” – would raise other taxes by $3.5 trillion something of an annual over 10 years, amounting tradition in Congress, to the largest individual and our perennial need income tax increase in to fix this element of our U.S. history. tax code suggests an even If this were allowed greater need: overall to occur, the federal reform and simplification government would end of the individual income up consuming an ever- tax system. growing share of the To get a sense of how American economy. our tax code has evolved Instead of keeping tax into the behemoth it is revenue around its today, consider how the historical level of about AMT has changed over 18.3% of the economy, the years from a well- federal taxes would intentioned policy to consume roughly one- close loopholes into a fourth of U.S. economic growing burden on law- resources by mid- abiding taxpayers. century. At the same time, Good Intentions this tax hike masquerading as tax “reform” does Gone Astray not tackle the problem of our tax system’s excessive When the Alternative Minimum Tax was initiated in complexity. As former House Majority Leader Dick 1969 as an add-on to the existing tax code, its purpose Armey noted in a Wall Street Journal opinion article was to prevent fewer than 200 wealthy taxpayers from last fall, “Compliance with the 60,000-page tax code using loopholes to avoid paying their legitimate tax costs Americans seven billion man-hours and over $140 obligations. billion in fees to accountants and consultants, all before In contrast, the number of taxpayers subject to a single check is cut to the government. While the AMT the AMT stood at approximately 3.5 million in 2006. may be repealed by [Rangel’s] bill, the inefficiencies Moreover, largely because the tax was never indexed for and burdens that keep Washington lobbyists employed inflation, the AMT threatened to ensnare approximately full time remain.” 23 million taxpayers this income tax season if Congress Although Congress did not vote on the “mother had not passed corrective legislation. of all tax reform” bills, the House did pass a narrower

10 RIPON FORUM February/March 2008 measure in early November that borrowed elements personal exemption is $3,500. For example, a family of from it. This legislation, which did not become law, four (in which the parents file taxes jointly) would have resorted to permanent tax increases on businesses a standard deduction and personal exemptions that add and individuals in order to delay for one year the full up to $39,000 altogether. imposition of the AMT. This approach, like Chairman On the other hand, if a taxpayer believes he will Rangel’s more sweeping proposal, is grounded in the fare better under the current complicated tax code, then faulty premise that the government is entitled to the he or she can continue paying taxes through the existing growing tax revenues that are forecast to pour into the system. Treasury’s coffers as a result of the flawed way in which Under our legislation, taxpayers would need to make the AMT was written. a choice within 10 years from the time that the simplified Raising taxes to stop an AMT tax increase merely tax is established as to which tax structure they will use. creates problems in other areas, and this circular logic To prevent people from gaming the system, year-by-year does nothing to strengthen America’s economy. Our tax code switches are not permitted. After their initial taxpayers need a simpler tax code imbued with greater selection, taxpayers would be allowed one changeover certainty that encourages investment and job creation, between the two tax systems over their lifespan. Beyond discourages constant congressional meddling, and keeps that, people could generally only switch tax systems if federal tax revenue as a share of the overall economy a major life event such as a marriage, divorce or death from expanding well past its historical level. altered their filing status. Given the option of a fair, simple, and transparent Letting Taxpayers Decide alternative to the current tax code, I Together with Congressman believe that over time the majority Jeb Hensarling (R-TX), John Given the option of taxpayers would opt for the Campbell (R-CA), and Michele of a fair, simple, and simpler system. Bachmann (R-MN), I introduced The Taxpayer Choice Act is legislation last fall to help us reach transparent alternative only one piece of what needs to be these goals and start us on the path to the current tax code, a larger solution to strengthening toward a more user-friendly tax America’s economy and boosting system that’s easy to comply with I believe that over time our ability to compete globally. It and doesn’t contain stealth tax the majority of taxpayers applies solely to federal individual hikes. This bill – H.R. 3818, the would opt for the income taxes and, by itself, does Taxpayer Choice Act – repeals the not address needed reforms in alternative minimum tax altogether simpler system. the corporate tax, payroll tax and and offers taxpayers the choice of excise tax arenas. Nevertheless, a highly simplified alternative to it is a solid starting point for an the current individual income tax. overdue national debate on tax reform. First, our proposal prohibits the imposition of the Without lasting reform, we face the prospect of AMT on individual taxpayers in any taxable year after continuing congressional squabbling over temporary, 2006 – heading off an $841 billion tax increase over stop-gap measures to shield middle-income taxpayers the next 10 years that would otherwise spring from from the looming AMT tax burden – injecting more the automatic expansion of the AMT. Then our plan uncertainty into an economy already shaken by other provides comprehensive reform, giving taxpayers the variables such as energy prices and the sub-prime chance to select between two income tax systems: the mortgage crisis. current tax code with its various deductions and credits, On the other hand, with the proposed reforms, we or a new “simplified tax” that has just two income tax have the opportunity to repeal the AMT once and for all; rates (10 percent and 25 percent). give taxpayers the choice of a simpler, more efficient Specifically, taxpayers who choose the simplified tax system; and enable us to keep federal tax revenue as tax would pay 10 percent on taxable income up to a share of gross domestic product close to its historical $100,000 for joint filers ($50,000 for single filers) and level instead of watching it rise steadily to nearly 24 25 percent on taxable income above these amounts. percent of GDP by mid-century under the present path A cost-of-living adjustment to these tax brackets is of tax law. RF factored in each year. Under this simplified system, taxpayers would have no special tax preferences but Paul Ryan represents the 1st District of Wisconsin in would benefit from a generous standard deduction and the U.S. House of Representatives. He is the Ranking personal exemption. The standard deduction is $25,000 Republican on the Budget Committee, and is a member for joint tax filers and $12,500 for single filers. The of the Ways and Means Committee.

RIPON FORUM February/March 2008 11 Reforming the Tax Code: A Step-by-Step Guide to Getting it Done

Scott Hodge

For the first time since 1986, the stars may be aligning ATM dispensing “refundable” credits, such as the Earned for a grand bipartisan compromise on fundamental tax Income Tax Credit, it will be very difficult to convince reform. Regardless of who wins in November, the next them to support fundamental tax reform. president and Congress will have to deal with the collision With the nation’s tax burden now so concentrated of two cataclysmic tax events: the 2011 expiration of the at the top – the top 20% of taxpayers pay about 86% of Bush tax cuts and the growing irritation of the Alternative all the income taxes – any tax reform plan is caught in Minimum Tax (AMT). a rhetorical catch-22; tax reform equals “tax cuts for the The seeds for compromise rich.” lay in the fact that both sides Enter landmine number have something to gain by two: AMT and the interests of addressing these problems at Democrats. Although the vast once. Naturally, Republicans majority of households affected want to avert the largest tax by the AMT earn between hike in history by maintaining $100,000 and $500,000, the lower tax rates on income, Democrats have masterfully capital gains, dividends, and positioned it as a middle-class married families with children. issue. Of course, who is “middle- Meanwhile, Democrats will class” among New York Times be brought to the table by the readers is far different than who fact that the AMT is largely is middle-class at a NASCAR a Blue State problem, mostly race. Be that as it may, wrapping affecting those living in high- fundamental tax reform around tax and high-income states AMT reform could inoculate such as New York, New Jersey, the debate from the predictable Massachusetts, and California. class warfare diversions. But the path between here Considering all of these and a simpler tax system has landmines, how do we craft a as many landmines as an IRS politically realistic tax reform audit. plan? The first landmine is the Step 1: Eliminate distribution of the tax burden Exemptions and Deductions itself. Despite the rhetoric from As the table on the top of the left about the “Bush tax cuts the next page shows, more than for the rich,” the reality is that 80% of the benefits of these the 2001 and 2003 tax cuts knocked millions of lower- tax deductions flow to households earning more than income people from the tax rolls. When Bill Clinton left $80,000 and more than half of the benefits flow to those office, some 29 million tax filers had no income tax liability making over $118,000, the “New York Times middle- after they took advantage of their credits and deductions. class.” Eliminating these deductions would solve several Today, the number of “non-payers” has grown to more problems. It would free up dollars for marginal rate cuts than 43 million, or one out of every three Americans who to keep effective rates down, and it would add greater files a tax return. simplicity and equity to the tax code. And since so many lawmakers see the IRS as a giant While affluent taxpayers may be the initial beneficiaries

12 RIPON FORUM February/March 2008 of these tax preferences, the real economic subsidies flow would fund significant marginal rate cuts. to well-heeled interest groups such as the housing industry, However, the task of mobilizing the other half of state and local governments, and public employee unions. Americans who said they were not sure or who rejected In particular, the state and local tax deduction allows local the idea will require the sweetener of a lower tax bill as politicians and school well as the promise of districts to shift as much a simpler 1040 form. as one-third of the cost Step 3: Continue of any tax hike along to Share of Tax Savings from Popular Tax Preferences to Shield Low-Income Uncle Sam – and thus Earners other taxpayers. Municipal Interest State- We must accept Step 2: Make it Taxpayer Group by Bond Paid Local Tax that politicians are not a Tax Cut and Tax Income (a) Exemption Deduction Deduction likely to put the non- Simplification $0 to $80,000 18.00% 23.10% 25.60% payers back on the tax Next, one must Ninth Decile, $80,000 to rolls by shrinking the recognize that tax cuts $118,000 11.50% 24.50% 20.00% value of the personal will always generate exemption, standard more support than a Top 10%, $118,00 + 70.50% 52.40% 54.40% deduction, or the revenue neutral tax (a) Adjusted gross income child credit. With the shift. A 2007 Tax Note: All numbers for Tax Year 2007. Baseline is current law. political consensus F o u n d a t i o n / H a r r i s Source: Tax Foundation Microsimulation model and IRS Public that some low- Interactive Poll found Use File income people should that about half of all be protected from American adults said that they would give up their credits income taxes, then the practical solution is to collapse the and deductions for an across-the-board cut in their income various credits and deductions into a super-deduction that 2008tax WLF rates. RiponAD:Layout The repeal of1 deductions,1/3/08 2:42 as outlinedPM Page above, 1 accomplishes what current policies already do inefficiently:

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RIPON FORUM February/March 2008 13 eliminate the income tax bill for a family of four earning stripe will take to the airwaves bemoaning the plight of up to about $42,000. Continuing to protect low-income their specific interest. They will scream that this new tax taxpayers in this way will help to earn goodwill from the bill will evict people from their homes, leave children left without actually creating any new programs. hungry on the street, and force seniors into destitution. Step 4: Make Everyone a Stakeholder Of course, like most cries from special interests, An ideal plan would take this process a step further (as none of this would be true. What would be true is that did the 1986 act) by slashing all tax rates equally, giving the United States would enjoy one of the best and most every taxpayer a stake in the reform. Better yet, the plan effective tax systems the world over. The new tax code could condense the number of brackets to no more than would still show compassion for the poor and still take a two, as existed in 1988. hefty chunk from the rich, while becoming considerably Such a tax code would be simpler, fairer, and closer to more fair and equitable. the kind of efficiency economists have long called for. It would reduce the compliance costs for families and small Time is on Our Side businesses alike. It would almost certainly strengthen the With the Bush tax cuts and AMT time bombs American economy and help move the tax code back to continuing to tick, time is truly on the side of real and its proper purpose of revenue raising and away from its significant tax reform. current distorted position of social policymaking. The only question that remains is whether the Step 5: Fend Off the Special Interests politicians will find the motivation and will to get the job None of this is to say that fundamental tax reform done right, or simply punt the ball down the field yet again, would come easily or cheaply. With absolute certainty, hoping someone else will pick up the pieces when things every interest group and lobby will line the halls of once-and-for-all explode. RF Congress demanding that their interest have protections carved into the new legislation. Advocacy groups of every Scott Hodge is President of the Tax Foundation.

14 RIPON FORUM February/March 2008 Beyond Simplification Reducing tax paperwork is important, but minimizing government’s impact on the economy is key

Ernest S. Christian and Gary A. Robbins

Talk of taxes and tax reform abounds, and it has ever “There is real human suffering all across been thus -- especially when election time rolls around. America. Severe environmental degradation is The story of the tax code -- insofar as yet written -- is also occurring. Smoke fills the air as mountains of the story of government and politics. In the beginning, discarded tax forms burn out of control. Noise taxes begat government; government begat spending; and levels are becoming unbearable, as the clatter spending begat more taxes, more government and more of commerce replaces the soothing sibilance of spending. shuffled paper. Tax reform is about good economics. Politics, on the “The toll of disaster victims is mounting. other hand, has been about bad Unable to endure, some economics since the 1930s, have broken under the when FDR created the modern- weight of despair. Bands day version of the Jacksonian of stricken bureaucrats spoils system. In 1938, Harry wander the streets of Hopkins said: “We will spend the nation’s capital, and spend, tax and tax, and befuddled and bereft. elect and elect.” How could this happen? Nevertheless, as the Where will it all end? damage done by taxes that are Then, the unthinkable too high and badly structured happened: becomes ever greater and more “Minimalism began to obvious -- even to Washington spread.” -- there are glimmers of Emotionally (*note -- hope. Circumstances may emotion is a force not to be be combining to make good discounted in any political economics good politics -- in upheaval), tax reform is which case tax reform in its about the “mountains of broadest and truest sense may discarded tax forms”. Some be upon us. of the most enthusiastic Consider the following warriors see the battle solely apocryphal news report from as one against paperwork sometime in the future -- and a prying IRS. In reality, perhaps next year or possibly never. however, like most things governmental, taxes are about “Flash! The minimalist school of tax policy money -- and the first purpose of reforming taxes is to has prevailed. Gone is the extravagantly baroque enable the noisy “clatter of commerce” to provide more tax structure of the past. In its place there jobs and higher incomes for everyone. is a new one of stark, utilitarian efficiency. Because of the dynamic relationship between taxes “The large and once powerful “tax industry” and spending, and their destructive effects when applied is recoiling in shock. Thousands of lawyers in excess, tax reform writ large is also about reforming and accountants are having to make the painful government itself, the way it decides to tax and spend, transition to productive employment. Lobbyists why and how much -- and ultimately, it is an attempt to are seeking disaster relief for themselves. change the practices of politics in America.

RIPON FORUM February/March 2008 15 The Cost of an Unreformed Tax make people worse off, each dollar of spending must by A few definitions may be helpful, starting with the some measure be said to produce a benefit to society that meaning of tax reform. is greater than a dollar. Taxes have large and powerful effects on behavior Some dollars do, but most do not. And the more and, therefore, on economic performance. An unreformed government grows, searching for more things to do and tax is one that has the most adverse effect on economic spending ever more dollars on more projects, the more performance and, therefore, costs the most, per dollar of likely it is that an ever-larger portion of government revenue yield to the government. A reformed tax is just spending will be worth less than its cost. Many of the opposite. It has the least adverse effect per dollar government’s hot new spending programs may be of revenue yield. A large amount of any tax -- even highly worthwhile -- times change and everything a reformed tax -- is bad for the economy, and a large government does is not bad. But instead of paying for amount of an unreformed tax is disastrous. the new expenditures by cutting back funding for one The current federal income tax, individual and of yesterday’s supposedly hot new programs (that didn’t corporate, is quite clearly on the bad side of the line, work and is now nearly useless), the government almost unredeemed by the fact that in the past it has been invariably keeps that old program and imposes more even worse. Had not the extraordinarily high marginal high-cost taxes to pay for the new one. The absurdity of tax rates that prevailed in the 1950s and 1960s been this practice is obvious. reduced to the more tolerable but still too high levels If every time the Congress sought to raise taxes, of today, and had not the nearly the 100 most inefficient pre- prohibitory double and triple existing government spending taxes on saving and investment Because of the dynamic programs were put at the margin been ameliorated somewhat, relationship between taxes and -- out in public -- matched it is probable that the U.S. up with the high cost of a tax economy would today be no and spending, and their increase, it would be clear that more than 60 percent or so of destructive effects when the combination of government its present size. taxing and spending is making Even with current rates applied in excess, tax reform Americans worse off. A and less destructive multiple writ large is also about recent study by the Office of levies on capital, taxes cost the reforming government itself... Management and Budget shows private economy two to three that over 400 federal spending times more than the revenue programs with a total annual yield to the government. On average, $1 of revenue budget of $650 billion received grades of “D” or “F” for ends up costing $2 -- and at the margin, a $1 increase in lack of performance. revenue from additional taxes on capital costs the private Strictly mathematical measures that weigh the amount economy $3 to $4. (See Martin Feldstein, “The Effect spent against discernible results produced obviously do of Taxes on Efficiency and Growth” (Cambridge, Mass.: not capture all the benefits of all government programs. National Bureau of Economic Research, 2006) and N. In some cases they do and in some they don’t. Who Gregory Mankiw and Matthew Weinzierl, “Dynamic can fully measure the value of educating a child or of Scoring: A Back of-the-Envelope Guide” (Cambridge, national defense? But it is also the case that the true Mass.: National Bureau of Economic Research, 2006)). cost of taxes exceeds the $2 to $4 per $1 of revenue that There are two components of “cost”. First, there most economists compute. Who can measure the real is the $1 of tax. People no longer have this money; cost of jobs lost, raises not received, mortgages not paid, the government does. Second, there is the lost income education foregone and healthcare not obtained because -- perhaps as much as $3 -- that the economy would of the economic damage done by taxes? have produced had not the government intervened. When one looks at the dynamic interactive People do not have it to save or spend, but neither relationship between taxes, spending and economic does the government. It’s gone, never produced and growth, the second critical reality of governance in a free irretrievable. market economy is as arresting as the first: many of the Economists may argue around the edge about the problems that modern liberal governments in the United exact size of the “deadweight” loss, but it is an iron law States and elsewhere seek to cure by increasing public that taxes do cost the economy more than the revenue spending are the result of taxes imposed by government yield to the government. This powerful fact alone - to pay for existing levels of spending. The lesson to be - although conveniently ignored by politicians -- is the learned from this self-perpetuating (and self-magnifying) central reality of governance in our free market economy circularity is not that government should stop taxing and today. It means that unless government is continually to spending; but it is, rather, that the government should

16 RIPON FORUM February/March 2008 stop falsifying its books of account in an ongoing process enable the government to do more of the things for of misleading both itself and the voters. which it is uniquely suitable -- and a growing economy would greatly reduce the number of people in need of Keeping Spending to a Minimum assistance from government. Presently, the federal budget first assumes that a dollar The case for a growing economy, a minimalist of taxes costs only a dollar, and then most politicians government concentrated on achieving the best with the pretend that each dollar of spending produces more than least, and presided over by a President and Congress a dollar of benefit. (If it did not, what excuse could content to do their limited constitutional duties quietly there possibly be for them having spent it?) The better and efficiently, is impeccable. It has been made politicians -- of which there are many -- know about the elsewhere far more expertly than here. But the ruling high cost of taxes and the measurably low value of most combine in Washington, made up mostly of entrenched government spending, but they are swept along by the incumbents, lawyers, lobbyists, and others to whom force of tradition and the inability of any one member of the government is a vital source of profit, has for many Congress (or in most cases, even a President) to alter the decades been moving in the opposite direction. It will onward and upward sweep of a federal government now not and probably cannot voluntarily give up its power or more powerful than they. change its character. Tax reform in the broad sense is unlikely to Change will occur when the voters rise up in righteous occur until the government fundamentally changes its anger, smite the offenders and replace them with public financial accounting by adopting a Cost-Benefit Budget servants who have but one standard by which to measure that, out in the open and with full public participation, everything: “Is it good for America?” RF systematically weighs the benefits of all government spending programs -- both existing and proposed -- Mr. Christian, an attorney, was a deputy assistant against the true cost of taxes necessary to pay for them. secretary of the treasury in the Ford administration. Cost-benefit budgeting would not mean that the public Mr. Robbins, an economist, served at the Treasury would receive less services from government that are Department in the Reagan administration. Both are truly important. Indeed, cost-benefit budgeting would adjunct fellows at the Heritage Foundation. 4–2007.

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RIPON FORUM February/March 2008 17 B13292_4c_HPg_A.indd A13292x2E_HP_300UCR.tif 05/16/07 21:00 A13292x4A.psd 133 Linescreen 300UCR VISA Logo in Box.ai HW tt 445 Bush Street San Francisco California 94108 Tel 415 707.1111 Fax 415 707.1100 prepared by Eleven Inc. www.eleveninc.com. All rights reserved. 2007

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Date Initials OK Date Initials OK Date Initials OK Mechanical Version: Traffi c: Nancy Gutierez Designer: . Project Mgr: Proofreader: John Mikulenka Creative Dir: Ted Bluey Product Mgr: Studio: Cindy Peterson Account Mgr: Jill Levinsohn Editor: Client Eleven Production: Joni Wittrup Account: Legal: 1 Copy Writer: . Round #: Why Tax Cuts Still Matter

William Beach

Once again, presidential politics has turned to tax policy. high-income taxpayers out of all income taxes. Anyone can The candidates are debating not only whether the sluggish obtain this information. Many who do will be surprised to learn economy justifies another round of tax cuts, but whether the that the top 1% of income earners paid 39.4% of all income tax cuts enacted by President Bush in 2001 and 2003 should be taxes in 2005, the latest year for which such data is available. allowed to expire or made permanent once and for all. That is the highest percentage of all income taxes that this group Our country’s economic future may well turn on how has paid since 1986, when their share stood at 25.7%. voters resolve these questions. Right now, a lot of voters may The top five percent of income earners paid 59.7% of all be somewhat confused. After all, much of what is being said income taxes in 2005, which was the highest percentage in about the state of tax policy in the United States seems to make the past 20 years. Tax share records were also set by the top a lot of sense. Take the issue of extending the Bush tax cuts. 10, top 25 and top 50% of income earners. In other words, Most Democrats every category of high- argue that these income taxpayer as cuts have primarily defined by the IRS paid benefited upper a higher share of taxes income taxpayers, who in 2005 than they have now enjoy a smaller since 1986, the earliest tax burden than before date for which the IRS the reductions were put provides data. into place. They also Of course, a argue that the Bush tax taxpayer’s share of all cuts have starved the income taxes could go federal government up, but the percentage of of needed revenue. their own income paid Letting the cuts expire, in taxes could go down. they claim, would help Has that happened? If fund other national the Bush tax cuts did priorities, such as for all taxpayers what building new schools they were intended to and repairing roads and bridges. do, then the answer would be yes, and it is. The Congressional These are all compelling claims. But as with everything Budget Office (CBO) analyzed the effects of the Bush tax cuts else in politics, the question must be asked -- are these claims by estimating the percentage of household income that typical true? households all across the income distribution paid in all federal taxes, including income taxes. By this measure, the percentage The Truth about Tax Cuts paid in income taxes (the so-called effective tax rate) was lower Let’s look at the first claim. Central to the argument for in 2005 for every group than it was in 2000. For example, the letting the Bush tax cuts expire is the claim that high-income middle fifth of the population had an effective tax rate in 2000 taxpayers do not pay as great a share of all income taxes today of 5% and a rate in 2005 of 3 %. The top 20% had an effective as they did prior to 2001. If that is true, then proponents of tax rate of 17.5% and 14.1% in 2005. equity have a powerful tool to use in defeating supporters of That’s a lot of numbers. Suffice it to say that most President Bush’s tax policies. However, this claim is plainly taxpayers paid lower taxes in 2005 than in 2000. So, high false. income taxpayers are shouldering a greater share of income The Internal Revenue Service provides data on their web taxes paid, but they -- like all other taxpayers -- are paying at a site (www.irs.gov) on the percentage of income taxes paid by lower rate on their own income.

18 RIPON FORUM February/March 2008 If that’s the case, then don’t the advocates of letting the of its doldrums following the collapse of the dot com bubble. If Bush tax cuts expire prevail on their second claim – mainly, there was anything that starved Washington of revenues, it was that the tax cuts starve the government for revenue and more tax a sluggish economy, not the tax cuts. cuts would just make the revenue picture worse? What of the claim that more tax cuts are not needed now to Actually, that claim also is false. boost the economy out of its doldrums? The CBO provides data on revenues as a percentage of What strikes economists who study U.S. economic growth GDP from 1962 through 2007 and forecasts of the revenue is the trend of this economy, not the occasional slowdown. This percentage for 2008 (see www.cbo.gov). Since 1962, the long- is an economy that appears always able to absorb increases in term percentage has been at or near 18% of GDP. In 2000, this labor and capital by growing steadily and more strongly. Indeed, percentage stood at a whopping 21.4%, its record since 1962. tax policy makers should always set their sites on encouraging Then the recession set in and revenues dropped steadily more work, entrepreneurship, and investment, since ours is an through 2002. By 2003 the slow economy and the tax cuts of economy that seems to have an insatiable appetite for all three. 2001 had reduced the percentage to 16.1%. Congress cut taxes What this means is that tax cuts on labor, capital, and again that year. Interestingly, revenues began to respond to the enterprise still matter, and probably will always matter. That stronger economy that the 2003 tax changes encouraged. is a particularly telling truth when the overall revenue take of By 2005, the percentage had climbed to 17.4%. By 2007, Washington rises significantly above its long-term trend of they had risen again -- to 18.6%. For 2008, the CBO expects 18%. the revenues as a percent of GDP to stand at 19%, significantly Given that the claims against the Bush tax cuts are false, above the long-term trend of about 18% of GDP. that revenue growth is strong at the lower levels of tax rates If the Bush tax cuts starved Washington of revenues, why instituted in 2001 and 2003, and that federal revenues have did revenues start growing again after the second large tax cut in risen significantly above their long-term trend; now is the time 2003? The reason is clear: the tax cuts had their intended effect to consider more tax reductions, not tax increases. RF of lowering the burden of Washington on working families and entrepreneurs. These folks responded by working harder and William Beach is the Director of the Center for Data Analysis making more investments, all of which lifted the economy out at the Heritage Foundation.

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RIPON FORUM February/March 2008 19 Articles Incentive and Inventive: Smart Tax Policy Needed to Promote U.S. Manufacturing

John Engler

It’s a comment many of us heard We simply cannot afford to lose the edge through their tax codes. With decisions in our early years on the job, delivered in research and development.” about jobs, facilities and investments by a demanding boss or exasperated co- Despite the Senator’s admonition, increasingly made on a global scale, the worker: “Work smarter, not harder!” the R&D tax credit lapsed on December United States simply cannot afford to Manufacturers in the United States 31, 2007 – the 13th time that Congress come in last in any competitive area. take those words to heart. They have to. has permitted the credit to expire since This incentive is especially critical Although no strangers to hard work, its creation in 1981. to manufacturers, the primary innovators America’s manufacturers know that This kind of on-again, off-again of the U.S. economy who claim nearly their competitive advantage in the hard- inconsistency is the enemy of investment, 70 percent of all R&D tax credits. fought global marketplace lies in the especially in the case of R&D conducted Manufacturers have proved that R&D ability to work smarter. Other countries by manufacturers, projects which is a powerful force driving new product will boast lower development and costs of labor or raw increased productivity materials, so it’s skilled – again, competitive and creative people advantages we must not who ensure America’s let slip away. competitive edge – the Between 1994 and edge that builds on 2004, manufacturing research, development, productivity increased investment and by 60 percent, primarily innovation. due to innovation and For many years, technological advances. a bipartisan consensus These advances spurred in Congress has helped the nation’s economic maintain that American growth, resulting in edge. Republicans and spillover benefits to Democrats both have American workers in supported smart policies terms of higher wages that encouraged the and an improved R&D and innovation that lead to new typically span five to 10 years. standard of living. products, technologies and manufacturing But the credit’s expiration also Other countries have learned from processes. Yet year after year, Congress amounted to an immediate $9 billion our example, improving their credits still does a dumb thing: It allows the tax hike for the nearly 11,000 companies and other incentives to attract R&D jobs, federal research and development tax of all sizes that use the credit – at the projects and facilities. Canada, China, credit to expire, throwing U.S.-based very same time that Congress and the India, France and Ireland are just some of business into a world of uncertainty and President were embracing tax relief to the countries that court U.S. companies by frustration. stimulate the economy. advertising more advantageous R&D tax “The U.S. is in real danger of losing Allowing the credit to expire also incentives. Not surprisingly, one survey our lead in research to other countries,” creates a huge competitive disadvantage. by Deloitte Consulting found that R&D Senator Orrin Hatch (R-UT) warned at Once providing the most attractive investments by U.S. majority-owned a December 2007 news conference on incentive in the industrialized world, the companies increased more than twice as Capitol Hill. “Many of these nations offer United States now ranks last among the fast in foreign countries as they did here more generous tax incentives than we do. 20 OECD countries that stimulate R&D at home between 1998 and 2003.

20 RIPON FORUM February/March 2008 Congress is certainly aware of in Congress. a few more votes. When the credit lapses, these competitive challenges. In passing Given that support and the R&D tax the business community hears assurances an extension of the credit in 2006, credit’s proven effectiveness, how is it like, “We’ll get it done…eventually. lawmakers created a new, simplified that Congress allows it to expire – now Don’t worry.” version of the incentive – one especially for the unlucky 13th time? It’s not as if the But manufacturers and businesses in beneficial to small- and medium-sized legislators do not hear from their business the United States do worry. They worry manufacturers. constituents and trade associations, when they open the paper to a full-page “To keep our nation leading the including the Information Technology advertisement meant to lure companies world in technology and innovation, abroad; when they start to plan a we’re extending and modernizing the product’s development, not knowing research and development tax credit,” ...the United States now whether a credit will be in place; when President Bush said upon signing the they learn of a foreign competitor’s bill into law. “By allowing businesses ranks last among the 20 breakthrough and great new product, to deduct part of their R&D investments OECD countries that developed through government- from their taxes, this bill will continue encouraged R&D. to encourage American companies to stimulate R&D through In today’s global economy, pursue innovative products, medicines, their tax codes. competition is a given and complacency and technologies.” the enemy. The time has come to Last spring U.S. Representatives recognize the R&D tax credit as a critical Sandy Levin (D-MI) and Dave Camp Association of America, the Business element of American competitiveness, (R-MI) introduced legislation to further Software Alliance and, of course, the one that should be a permanent feature of strengthen the credit, and make the R&D National Association of Manufacturers. the U.S. tax code. It’s the smart thing to tax credit permanent. In 2007, there were Unfortunately, the research and do. RF a record-breaking number of original development tax credit is so popular, so cosponsors on the bill, all of whom effective, that it has become a favored bit John Engler, a former three-term are members of the House tax-writing of legislative sweetener. It gets added to Republican governor of Michigan, is committee in Congress, reinforcing the this measure or that, often in the waning president and CEO of the National broad bipartisan support for innovation days of a Congressional session, to attract Association of Manufacturers.

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RIPON FORUM February/March 2008 21 A Sacred Trust Health care reform begins with keeping the doctor-patient relationship strong

TOM PRICE, M.D.

“The doctor will be with you patients with the highest quality We have seen substantial shortly. He’s consulting with your care. The current system unevenly consolidation in the health insurance insurance company for a diagnosis leverages what insurance companies industry. In the past dozen years, the that’s allowed.” are – and are not – willing to pay for U.S. health insurance and managed While you may never hear those against what the patient needs. care industry has seen more than 400 words in your physician’s office, it The Quality Health Care acquisitions. With this increased is sadly not a far-fetched scenario in Coalition Act, reintroduced this concentration of power, individual today’s broken health care system. Congress, allows physicians to physicians are left facing large firms America is facing with little, if any, a mounting health leverage in contract care crisis, and negotiations. Private federal restrictions health care insurers are increasingly are important, and putting third parties increased coverage in between patients the private market is and their doctors. desirable. By sheer As a physician, I market size, however, have seen first-hand doctors are on an how our anti-trust uneven playing field. laws and increasing Too often patient g o v e r n m e n t needs are on the back intervention are burner as doctors face squeezing already “take-it-or-leave-it” tight access to contracts. health care. Federal In developing anti-trust laws exist health plan contracts to ensure that a few with insurance powerful businesses Dr. Tom Price discusses health care at a Medicare seminar he hosted in industry companies, are not able to his Georgia district. guidelines for use the muscle virtually every aspect of a monopoly to restrain supply negotiate together for health of patient care are established. The and artificially raise prices in the plan contracts. A critical part of inflexible terms of these contracts marketplace. These very laws, fundamental health care reform, often include limits on procedures however, are exacerbating our health this legislation will allow increased which doctors may offer – or even care crisis by denying physicians the choice for patients and doctors, discuss – because insurers deem ability to negotiate with insurance greater access to care, and much them unnecessary. This system companies on behalf of patients’ needed relief from spiraling medical allows insurance administrators to medical needs. costs. A bipartisan effort behind this overrule the best judgment of highly In recent years, the rapid growth and broader, comprehensive health trained medical professionals and of consolidation in the insurance care reform is essential if we are suppress patient choice in care. I industry has put patients at risk by going to restore a patient-centered can attest from my years as an denying doctors the ability to treat health care system. orthopaedic surgeon that allowing

22 RIPON FORUM February/March 2008 government or an outside party to Providing anti-trust relief for Committee, John Conyers (D-MI), dictate medical decisions is not in physicians is not a partisan issue, nor and Ways and Means Committee, the best interest of patients. a new one. Support for this common Charles Rangel (D-NY). The Quality Health Care sense plan spans the ideological Enactment of this legislation Coalition Act would provide a spectrum in Congress and has would be an important first step positive solution to these in restoring a patient-centered impediments to high quality health care system. Yet we can health care. Allowing I can attest from my years no longer afford to fix our system physicians to increase their one piece at a time. Years of bargaining power will ensure as an orthopaedic surgeon incremental changes to federal that business interests do not that allowing government health policy have caused the supersede the best interests of or an outside party to dictate muddled system we see now. patients. Patients should have Instead, a complete overhaul of the ability to make independent, medical decisions is not in American health care is needed personal health care decisions the best interest of patients. to create a structure that is free with their doctors, rather than from third party interference. have a third party make these Many believe with validity that decisions for them. Negotiating been discussed for years. In fact, government and employers play on a level playing field will also the original version of the Quality as large a role as insurers in how ensure that doctors receive just Health Care Coalition Act passed the doctors deliver care and how patients compensation for their service and House of Representatives in 2000. receive that care. Most believe this encourage a strong supply of medical Sponsored by retired Rep. Tom structure impedes access to quality professionals to meet tomorrow’s Campbell (R-CA), this legislation physicians and care. health care challenges and our harnessed broad support by the Since coming to Congress, nation’s changing demographics. current Chairmen of the Judiciary I have used my experience as

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BNI0715 Premier_Ripon.indd 1 1/22/08 11:49:44 AM RIPON FORUM February/March 2008 23 a physician to craft legislation care structure grants the power of in growing medical costs. that would make fundamental choice to those most intimately The Quality Health Care changes to our nation’s health affected by health care decisions. Coalition Act and the Comprehensive care system. The Comprehensive When patients have the power to HealthCARE Act are just two of the HealthCARE (Coverage and Reform create individual health plans, the many patient centered legislative Enhancement) Act is extensive market is forced to be responsive options that could bring our health legislation, including anti-trust care delivery system in to the 21st relief, which would transition century. our health care system to one Truly placing medical that is patient-centered through ...a complete overhaul decisions in the hands of doctors the formation of a defined of American health and patients is the only way to contribution system. Under this care is needed to create restore a system that is innovative, structure, patients would truly responsive, affordable, accessible, own their coverage and choose a structure that is accountable, and of the highest a plan that fits their individual free from third party quality. RF and family needs. Americans are currently beholden to employers interference. or the government, if not insurers, to make health care decisions for to their specific needs, eliminating Tom Price, M.D. represents the them. This third party structure is unwanted benefits and reducing 6th District of Georgia in the U.S. fundamentally flawed. We need costs. This legislation reforms our House of Representatives. Prior principled and far-reaching reform basic structure and makes positive to coming to Congress, he was an to correct this broken system. changes in the lives of the uninsured, orthopaedic surgeon for more than A defined contribution health underinsured, and those drowning 20 years.

We Don't Think Being the Best is Good Enough

We are fortunate, in the United States, to have the world's best, most innovative health care. The best, though, needs to be made better. We need to close the gap between the health care we have today and the extraordinary system we're capable of creating, one defined by accessibility, innovation, shared responsibility and constantly improving quality. Leaders from all sectors of American health care have developed a consensus approach to reform called Closing the Gap: A Proposal to Deliver Affordable, Quality Health Care to All Americans. You can see this proposal on the web at http://www.hlc.org/closingthegap.pdf. It's time to work together to provide the American people with the kind of health care they want, need and deserve.

1001 Pennsylvania Avenue, NW, Suite 550 South, Washington, DC 20004 202-452-8700 ~ www.hlc.org

24 RIPON FORUM February/March 2008 The Handwriting is on the Wall The increasing importance of e-prescribing in health care

Jon Porter

The American health care in hazardous drug interactions, submitted to a pharmacy of the system needs to embrace 21st there are multiple health care and patients choosing, the prescriber century technology. This can begin efficiency benefits to e-prescribing is able to perform an initial drug now by dramatically increasing the for all prescriptions. The obvious interaction review. This would number of prescriptions transmitted advantage is that electronically allow the prescriber to be absolutely electronically. submitted prescriptions reduce the certain that the new drug being Every year, over 3 billion chances of filling errors resulting prescribed is not in conflict with a prescriptions are drug that the patient is filled in the United already taking. States, the majority of F u r t h e r m o r e , which are scribbled the utilization of on a 3” by 5” note electronic prescribing pad and handed to technology not only the patient to be saves time for the brought to their local physicians, but also pharmacy. This is an the patients. Using this antiquated model that system, prescribers can has proven to be fatal transmit prescriptions on many occasions. so that they are already Our health care completed by the time system must utilize the patient arrives at new technologies the pharmacy. that will dramatically Many health reduce costly and care practitioners fatal errors and prove believe that the to be more convenient for both implementation of electronic patients and physicians. Our health care system must prescribing technologies is The stories of harmful utilize new technologies vital to the future of our health- drug interactions and medical care system. A 2006 study errors impact over one million that will dramatically reduce conducted by the Institute Americans annually, of which, costly and fatal errors and of Medicine, a Washington over 7,000 prove fatal. The based research group, found technology to significantly prove to be more convenient that 85% of physicians think reduce these errors is for both patients and that e-prescribing is a good available, but there has not physicians. idea, with 81% and 65%, been widespread application. respectively, stating that it The federal government can play from difficult to read handwritten would reduce errors and save time. a role in expediting a national prescriptions, and transcription Despite the overwhelming support transformation. errors made when taking a expressed for the adoption of The benefits of electronic prescriber’s oral prescription order electronic prescribing technologies, prescribing are easy to understand for via telephone. only 7% of those physicians who patients. In addition to the reduction Before a prescription is even participated in this study utilized

RIPON FORUM February/March 2008 25 such technologies. The adoption of effective way to save lives and financial incentives for doctors these new prescription processing money. to throw away the note pads. The protocols would allow physicians I, and many of my Congressional legislation has broad, bipartisan more time to do what they do best, colleagues, understand the support in the House. Senators provide care to their patients. The immediate need to implement these Kerry and Ensign have introduced 2006 Institute of Medicine study new technologies. That is why, companion legislation in the further recommended that Senate. there be a nation-wide switch E-prescribing is a from handwritten prescriptions E-prescribing necessary and constructive to electronic prescriptions by step to move our health care 2010. is a necessary and system into the 21st century. The support is not only constructive step to move While I am encouraged coming from the medical that Congress has already community but it has already our health care system recognized the multiple health st become a popular policy goal into the 21 century. care and efficiency benefits with the consumer. In a survey of e-prescribing, we must completed in January 2008, continue to work tirelessly nearly 70% of consumers approved to try to save lives and eliminate to see that this technology is requiring doctors to move towards adverse medical reactions due to implemented nationally. RF electronic prescribing technology. preventable prescription errors, I It is clear that both doctors and introduced this past December the Jon Porter represents the 3rd patients understand that reducing E-MEDS Act of 2007, which would District of Nevada in the U.S. paper and handwriting is an create a gradual mandate with House of Representatives.

s Working for Millions of Workers

26 RIPON FORUM February/March 2008 A Capital Idea: A Budget that Plans for the Future

Andrew A. Samwick

As signs of economic weakness the House and White House in January been very low by historical standards, appeared in January 2008, the White addressed two problems that the United and the Federal Reserve intervened House and House Leaders agreed to a States does not have. immediately to lower them even $150 billion stimulus package based on First, the nation does not have further. With or without additional rebates to taxpayers and tax incentives an underconsumption problem. The tax-based incentives, corporations for businesses. personal saving rate hovers around have plenty of access to cheap credit While the Senate has yet to zero. The government’s budget has to expand their capital stocks. sign-off on this package, one thing been in surplus in only four of the last Where our country does have an is certain – using fiscal policy in the 35 years. The nation has run current underinvestment problem is in our manner being proposed public infrastructure. is both imprudent and The failed levees of counterproductive. It New Orleans. The adds to the current collapsed bridge deficit without putting in Minneapolis. in place any plan for Those are but two repayment, and it places recent examples of too much emphasis on an area where the private consumption federal government and investment to boost is falling down on economic activity. the job. Regrettably, No doubt some sort they are not the only of stimulus plan is going examples. In 2005, to be approved. There is the American Society also little doubt that, at of Civil Engineers some point in the future, released a report card there will be another in which it estimated economic slowdown, and that $1.6 trillion the White House and Congress will would be required over a five- likely consider again some sort of Where our year period to restore the nation’s package to spur things along. Some physical infrastructure to good important changes to our budget country does have condition. policy should be made before then an underinvestment Because infrastructure – changes that will help produce a problem is in our public projects are in many cases public better stimulus package the next time goods or natural monopolies that one is needed. infrastructure. can be provided more efficiently These changes must begin with with government regulation or an honest assessment. Indeed, in order account deficits with the rest of the implementation, the government should to use fiscal policy constructively to world for the last 15 years. If we bear responsibility for them. Looking smooth out business cycle fluctuations, are looking for additional economic ahead, the country faces potential we need to honestly assess our current activity, consumption is a poor choice. bottlenecks in network infrastructures economic and policy challenges and Second, we do not have an in broadband and alternative energy tailor our fiscal policy interventions to underinvestment problem in the that could be added to the ASCE meet them. The agreement reached by private sector. Interest rates have report’s recommendations.

RIPON FORUM February/March 2008 27 To be sure, there was some present year and avoid the downturn. capital expenditures to stimulate the discussion of issuing debt to finance All additions to this year’s deficit economy abides by this target. Projects more public works projects during are “paid for” in some way. The moved forward by a year would January. But under the urgency to consumption and private investment increase the deficit in 2008 but reduce generate a stimulus package that was spurred by the debt issued as part of it in 2009, when an economy that was “timely, temporary, and targeted,” capital the January 2008 stimulus package will thought to need temporary stimulus projects were discouraged. Despite the be repaid at some point in the future will have regained its footing. Overall availability of the ASCE report card or serviced through higher interest expenditures should also fall through and the high profile failures in New payments in all years in the future. this counter-cyclical policy, since prices Orleans and Minneapolis, the federal Current taxpayers get all the benefits, are lower in periods of economic slack. government has not recognized its need while future taxpayers bear all of the With these minor modifications to include capital projects in its budget. costs. Since only current taxpayers vote, — a prioritized and budgeted agenda The idea of a formal capital budget it is easy to understand the bias toward of public infrastructure projects and a is a recurring theme in Washington, deficits in our democracy. budget target that achieves balance over and was the focus of a Presidential We could increase the fairness of a complete business cycle — we can use Commission in 1997. A detailed capital our budget policy by adopting a target fiscal policy effectively to both combat budget is an interesting academic of balancing the budget over a complete short-term economic fluctuations and exercise, but it is not necessary here. business cycle. This commitment rebuild critical infrastructure that has All that is required is to recognize the would not preclude the January 2008 itself become a drag on our long-term backlog of critical public infrastructure agreement, but it would require that economic well-being. RF needs, to convene a group of experts and the debt be repaid fairly quickly, when policy makers to prioritize them, and to the economy has recovered, thereby Andrew A. Samwick is the Director of schedule them for implementation over aligning the costs and benefits of the the Nelson A. Rockefeller Center at a multi-year horizon. When economic policy across cohorts of taxpayers. Dartmouth College. He previously growth falters, the federal government As long as the costs of infrastructure served as the chief economist on the would be in a position to move some projects are included in the multi-year staff of the President’s Council of of the projects from later years into the projections of the federal budget, using Economic Advisers.

28 RIPON FORUM February/March 2008 The Boldness of Th e o d o r e Ro o s e v e l t and the Politics of Today

William N. Tilchin

Theodore Roosevelt was one of control of the Panama Canal Zone behalf of the citizenry when the U.S. America’s most courageous, most and started building the canal, forged Constitution did not expressly forbid creative, most effective presidents. a potent informal alliance between him to do so. He also utilized the He was a progressive Republican the United States and Great Britain, “bully pulpit” of the presidency to who conceived of the president as the functioned as a mediator par excellence educate and persuade the people and, “steward” of the American people, future during the two gravest international where legislative action was necessary, generations included. Roosevelt members of Congress. instituted a far-reaching So, for example, TR conservation program, a “Square employed what he viewed as Deal” for common citizens, and his constitutional prerogatives a dramatic reorientation of U.S. as chief executive to create bird foreign policy. sanctuaries and game preserves, On conservation, he to resolve the coal strike, and employed two distinct ideas to mediate the negotiations that — controlled utilization and ended the Russo-Japanese War. preservation — as he expanded He drew on executive power the nation’s forest reserves by previously granted by Congress about 350% to 194 million acres, to designate forest reserves and established a federal irrigation national parks and to take down network in the western United trusts (most notably J. P. Morgan’s States, and created the first 51 Northern Securities Company), federal bird reservations, the first and he sought and gained from four national game preserves, the Congress presidential authority to first 18 national monuments, and create national monuments (the five new national parks. Antiquities Act of 1906) and the Roosevelt’s Square Deal funding needed to carry out his emphasized justice for workers naval building program (secured and consumers and was in part by the brilliant public manifested in his even-handed relations spectacle of sending mediation of the anthracite coal the U.S. battleship fleet on a 14 strike of 1902, his successful month world cruise beginning in attacks on trusts he considered December 1907). Roosevelt’s to be harmful to the public interest, and crises of his presidency, and, in general, skills in obtaining major congressional the enactment of such landmark laws as gained recognition of and respect for legislation were repeatedly displayed the Pure Food and Drug Act, the Meat the United States as a confident and — most impressively, perhaps, when Inspection Act, and the Hepburn Bill influential great power. he maneuvered to gain passage of of 1906, which won for the Interstate These extraordinary the Hepburn Bill, winning enough Commerce Commission meaningful accomplishments resulted from a Democratic support to offset some regulatory authority over the nation’s deftly executed approach combining determined Republican opposition. railroads. persuasion and executive action. Forty years after TR’s presidency, And in foreign policy, Roosevelt Roosevelt was a broad constructionist it appeared, somewhat ironically, that built up the U.S. Navy, secured U.S. who often would act unilaterally on the Democratic Party had become his

RIPON FORUM February/March 2008 29 true heir. More than any other president Would Hillary Clinton or Barack occasions enthusiastically proclaimed from 1909 to the present, Harry Truman Obama be likely to pursue such an Theodore Roosevelt as one of his heroes personified a mixture of domestic agenda? It is conceivable that either of and models. McCain possesses the progressivism and an ambitious, them could, but serious doubts do arise international sophistication and lucidity, coherent, firm, effective foreign policy readily in the transcendently important the courage of his convictions, and the reminiscent of Theodore Roosevelt. area of national security. In addition, maturity and toughness to confront But since the mid-1960s there has been either might have difficulty winning effectively the existential challenge a split: The Republican Party has taken the 60 votes needed in the Senate for posed to the United States and the more consistently than the Democrats transformative domestic legislation. entire civilized world by radical Islamic a Rooseveltian approach to U.S. Most in the Republican field of candidates countries and organizations. He grasps foreign relations, while the Democratic inspire even less optimism. While there the danger to the planet of failing to Party has continued (in the tradition would be a greater awareness of the stem global warming and the danger of both Presidents Roosevelt) to put country’s national security requirements, to America of failing to reduce U.S. forward policies designed to advance questions of competence and of sufficient dependence on foreign oil. He believes social justice and environmental in an ethical society, common protection. So where does that sacrifice, corporate accountability, leave a Rooseveltian voter in and fiscal responsibility. It is even 2008? arguable that McCain would be in It is difficult to project how a a stronger position than Clinton or present-day Theodore Roosevelt Obama to achieve major domestic would come down on such issues policy breakthroughs, because as abortion rights and gun control McCain would be better situated (although, as a one-time police than they to pick up enough commissioner, Roosevelt would Republican support in the Senate probably side with the police in to win passage of pathbreaking favor of sensible restrictions on reform legislation. Most important, access to assault weapons and whatever may turn out to be the handguns). But it can be asserted specific elements of his presidential with reasonable assurance that an policies, McCain embodies the early 21st century Rooseveltian Rooseveltian notion of stewardship agenda would encompass and would treat the presidency the following elements: (1) as a sacred trust to safeguard and a forward defense strategy serve the American people, coming featuring continuing U.S. military generations pointedly included. predominance and, in particular, The hope, to this author, at a vigorous sustained war against least, is that, beginning in January Islamic extremists; (2) a bold 2009, the citizens of the United environmental program highlighted States will have given themselves by serious efforts to address the There is one potential the opportunity to be led by this challenge of global warming Rooseveltian candidate in extremely decent, public-spirited, and to move toward U.S. energy bold, resolute, capable, and independence; and (3) a budgetary the 2008 presidential race, admirable individual. One can policy aiming to bring about a just and that candidate is speculate with some confidence and efficient universal health care that Theodore Roosevelt would system, to fund vital infrastructure a Republican. wholeheartedly approve. RF projects, to restore substantially higher income and inheritance tax rates monetary resources for optimum military William N. Tilchin is a history on people of great wealth (TR was an readiness and performance would professor at Boston University, the outspoken early proponent of such taxes, loom. And the domestic portion of the author of Theodore Roosevelt and the which he advocated on moral as well as Rooseveltian agenda delineated above British Empire: A Study in Presidential economic grounds), and in the process to would face dim prospects. Statecraft (St. Martin’s Press, 1997) reduce sharply the annual federal deficit, There is one potential Rooseveltian and numerous other writings, and which is undermining U.S. security and candidate in the 2008 presidential race, the editor of the quarterly Theodore is inexcusably imposing huge burdens and that candidate is a Republican. Roosevelt Association Journal. The on younger and future generations. Senator John McCain has on many views expressed here are his own.

30 RIPON FORUM February/March 2008 45 Years of Public Policy

Founded 1962

1300 L Street, NW, Suite 900 Washington, DC 20005 (202) 216-1008 www.riponsociety.org Name: Shelley Moore Capito Hometown: Charleston, West Virginia Occupation: Member of Congress, West Virginia’s Second Congressional District Previous Jobs: Member, West Virginia House of Delegates 1997-2001

Individual(s) who inspired me as a child: My parents have always been – and continue to be – my inspiration. My mother taught me to listen and to be true to myself. And as the daughter of a Purple Heart-veteran and three-term governor, I witnessed first hand my father’s commitment to serving the people of West Virginia and am grateful for that opportunity. I only hope that I’ve been able to pass that dedication to service on to my three children.

Historical figure (s) I would most like to meet: Without a doubt, Abraham Lincoln. He served our nation in the hour of its greatest peril, and with his signature, West Virginia became our nation’s 35th state.

Issue facing America that no one is talking about: With a keen eye to the future, we must address the ballooning costs of our nation’s entitlement The impact of healthcare innovation programs with out-of-the-box thinking and a Republican message that empowers individuals to is measured in lives. make choices in their own lives. We must also take real steps toward energy independence by investing A single life saved has an impact on generations of lives that follow. Baxter in promising technology that enables the clean use of employees around the world are connected by their enduring commitment domestic resources like coal. to save and sustain lives. It is this higher purpose that binds us as a company What the GOP must do to reclaim its congressional majority: It’s important that we and as global citizens. adhere to our core principles, demonstrate fiscal responsibility and drop the hyper-partisanship that has created unnecessary deadlock in Washington. West Virginians – and the American people – are looking for Baxter’s 45,000 employees around the world apply their expertise in biotechnology, medical devices pragmatic solutions that transcend needless bickering. and specialty pharmaceuticals to develop innovative treatments and therapies that help patients like Matt Olovich lead healthier and more productive lives. An eight-year-old from Fishers, Indiana, Matt has hemophilia A and uses Baxter’s clotting factor to prevent bleeding episodes that might otherwise keep him from playing baseball.

baxter.com 32 RIPON FORUM February/March 2008 The impact of healthcare innovation is measured in lives. A single life saved has an impact on generations of lives that follow. Baxter employees around the world are connected by their enduring commitment to save and sustain lives. It is this higher purpose that binds us as a company and as global citizens.

Baxter’s 45,000 employees around the world apply their expertise in biotechnology, medical devices and specialty pharmaceuticals to develop innovative treatments and therapies that help patients like Matt Olovich lead healthier and more productive lives. An eight-year-old from Fishers, Indiana, Matt has hemophilia A and uses Baxter’s clotting factor to prevent bleeding episodes that might otherwise keep him from playing baseball. baxter.com M^[h[Wh[m[jWa_d]j^[Ó]^j W]W_dijckbj_Zhk]#h[i_ijWdj jkX[hYkbei_i5 !sÍg—Ê̓œÒzƒÍÊ͜ÊJgÊ:Ê^†Äg:ÄgʜsÊ̓gÊ ¨:ÄÍ[ÊÍÒJgÀSҏœÄ†ÄÊSœ—͆—ÒgÄÊن̓Ê:Ê Øg—zg:—Sgn¨:À͆Sҏ:ÀÛʆ—Ê̓gÊ ^gØgœ¨†—zÊٜÀ^®Ê
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