Tag Archives: Enterprise Zones

Rand Paul: Channeling Jack Kemp

Andy McDonald has written an interesting post for a central Kentucky outlet:

Rand Paul: Channeling Jack Kemp

Jack Kemp, for example, doggedly peddled enterprise zones, not government entitlements, as a remedy for urban poverty. By keeping tax dollars in the community, Kemp argued, poor neighborhoods could grow new businesses, build a new future, and break the cycle of dependence on the government.

Moreover, Jack Kemp went searching for votes in places where no other Republicans would go. He went to distressed urban neighborhoods and he enthusiastically courted African American votes, figuring Republicans would never get their support if they didn’t at least ask.

In 2015, it is Kentucky Senator Rand Paul who seems to be picking up the legacy of Jack Kemp – the first true proponent of what has been coined compassionate conservativism.

A few weeks back, the senator from the reddest of red states went to Chicago to address a predominantly African American audience. In his speech, he decried the impact of violent crime, not just in Chicago, but all over America. Some grandstanding politicians can take as long as 10 seconds to tweet that black lives matter, but you can bet they wouldn’t get within 20 miles of a distressed neighborhood.

In contrast, Rand Paul’s appearance sent a message: He was there to tell voters, face to face, that black lives matter. It was a page right out of Jack Kemp’s playbook. And what did Paul offer as one remedy for poverty? An idea resembling Kemp’s pioneering urban enterprise zones.

Read the entire post here.

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Arthur Laffer Discusses A Jack Kemp Idea: Enterprise Zones

How to Fight Black Unemployment

The tragedy of the failed stimulus is felt hard in minority communities. There’s a better way.

September 12, 2011

Some people actually believe government can create jobs by taxing and borrowing from people with jobs and then giving that money to people without jobs. They call this demand stimulus. To make matters worse, other people think these demand-stimulus ideas warrant a serious response.

Government taxes cigarettes to stop people from smoking, not to get them to smoke. Government fines speeders so they won’t speed, not to encourage them to drive faster. And yet contrary to common sense, it seems perfectly natural to some people that government would tax people who work or companies that are successful only to give that money to people who don’t work and to bail out losing companies. The thought never crosses their minds that these policies are the very reason why our economy is in such bad shape.

I’m beginning to think that Irving Kristol was correct when he wrote, “It takes a Ph.D. in economics not to be able to understand the obvious.” It shouldn’t surprise anyone why the economy isn’t getting better.

If the U.S. wants prosperity, government doesn’t need to do something, it needs to undo much of what it already has done. Here is one area where, in the spirit of the late Congressman Jack Kemp, President Obama and I could agree.

African-Americans are suffering inordinately in the Obama aftermath of the Bush Great Recession. While overall U.S. unemployment stands at 9.1%, black unemployment has jumped to 16.7%. Black teenage unemployment is bordering on 50%, and that figure doesn’t even take into account “discouraged” workers, “involuntary” part-time workers and “underemployed” workers. But even these numbers don’t tell the real story. They represent real people who are suffering deeply and have been suffering for a long, long time.

Behind these numbers are millions of lives discouraged and despondent. People who’ve lost their self-esteem and pride. The young who have given up on America and some of whom have even turned to crime. Scars are being made across a whole ethnic subset of America. Unemployment, underemployment and involuntary part-time employment represent the loss of a precious natural resource that can never be recouped. No one can feel good about himself if he’s living on handouts from Uncle Sam. We as a nation can’t wait until 2013 to address this issue.

Whether President Obama’s base finds supply-side economics appealing or not, he should immediately join with all members of Congress from both parties to develop a full program for enterprise zones. And while enterprise zones are desperately needed in our inner cities, there are lots of areas in the hollows of Kentucky and West Virginia that need enterprise zones as well, not to mention barrios in California and New Mexico.

Enterprise zones should be areas that are geographically defined with exceptionally high concentrations of poverty, underachievement and unemployment. The policies applicable to enterprise zones should include:

A) For all employment within the enterprise zone of people whose principal residence is also the enterprise zone, there should be no payroll tax whatsoever, neither employer nor employee portions. The employer need not be headquartered in the enterprise zone to take advantage of the elimination of the employer’s portion of the payroll tax. The locus of employment does have to be in the enterprise zone.

Don’t for a moment think that this will be a budget buster. Right now there aren’t many jobs in our inner cities anyway and the few dollars of tax revenues lost will be more than offset by reductions in welfare spending because people will have jobs and won’t need welfare. The best form of welfare is still a good job.

B) Federal and state minimum wages must be suspended in the enterprise zone. If not for all employees, then at least for employees under 30. These young people need on-the-job training, and at the present minimum wage many of them aren’t worth hiring. That is why they are unemployed.

A job seeker fills out an application with Coca-Cola at a jobs fair hosted by the Congressional Black Caucus in Miami. Associated Press

Even for teenagers who are in school, a summer job is an enormous benefit for a future productive career. This summer and last summer only 30% of all teens worked—all-time lows. We need to break this vicious cycle right now by getting rid of the youth minimum wage in our enterprise zones.

C) In the enterprise zones the government should do an expedited review of all building codes, regulations, restrictions and requirements to make sure that they don’t unjustifiably impede economic growth. For example, mandated union membership rules should be voided in enterprise zones as should all prevailing wage provisions and the like.

When I lived in Chicago I reviewed a number of rules and regulations and restrictions whose primary impact was to impede our inner cities from ever achieving prosperity. I’ll bet they’re even worse now.

D) Profits generated by companies operating and employing people within the enterprise zone should only be taxed at one-third the regular tax rate. No matter how many fewer regulations a company faces, those companies still quite rightly respond to profits for their shareholders.

Businesses don’t move their plant facilities as a matter of social conscience. They do it to make profits for their shareholders. If you want more jobs in our most depressed areas, make those areas more profitable for companies to relocate there. It’s as simple as that.

I guarantee Mr. Obama that he will receive the support necessary to carry the day in Congress. And once he sees how this plan works for our most depressed areas of America, he can then extend enterprise zones to cover the whole country.

Mr. Laffer, chairman of Laffer Associates, is co-author, with Stephen Moore, of “Return to Prosperity: How America Can Regain Its Economic Superpower Status” (Threshold, 2010).

This editorial appeared in the Wall Street Journal.

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Kemp: Tax cuts are right for the 21st century

By Jack Kemp

August 8, 2006 for Townhall.com

Twenty-five years ago, on Aug. 13, 1981, President Reagan signed what was called the largest tax cut in U.S. history. In actual point of fact, it was no larger then the Kennedy tax cuts of 1961-62. Both were designed to get America moving again, and both worked well as they lowered marginal tax rates about 25 percent across the board over three years.

In 1978, I had, along with my Senate colleague Bill Roth of Delaware, co-sponsored the Kemp-Roth Bill that advocated a 30 percent across-the-board tax rate cut. The top rate in the ’70s was 70 percent, and the capital gains rate was 49 percent. I argued that lower tax rates on labor and capital would grow the economy and put an end to the Keynesian dilemma of simultaneous inflation coupled to recession.

What escaped the attention of both the conventional “left” and “right” was that tax rates at 70 percent on income and 49 percent on capital gains led to a slow growth or, even worse, a recession. Tax revenues were falling; thus a reduction in tax rates would lead to more revenues, not less. I quoted President Kennedy to candidate Reagan over lunch in 1979, and he took up the “cause” of supply-side economics and made it his signature issue in the primaries of 1980.

I went a step further and quoted Sen. Robert Kennedy to argue for enterprise zones in urban and rural pockets of poverty to unleash the power of private enterprise to wage a new war on poverty: “To ignore the potential contribution of private enterprise is to fight the war on poverty with a single platoon while great armies are left to stand aside.”

Thanks to President Clinton and a GOP Congress in 1995, we finally got a mild version of the Enterprise Zones (Empowerment Zones). I had hoped, though, that they could be bolder and eliminate capital gains taxes on those people who would put their surplus capital at risk in the “green-lined” areas of America from the Gulf Coast of Louisiana and Mississippi to the still “de-facto” red-lined zones of the urban Northeast and south central Los Angeles. Any community would qualify that had a high level of unemployment, welfare and poverty.

Today tax rates are still too high on labor and capital and prohibitively higher still on those low-income men and women who want to leave welfare to take entry-level jobs. When a person leaves welfare, which is tax-free, to take an entry-level job, they lose welfare payment and face income and payroll taxes that push them, in some cases, over 100 percent tax at the margin. According to a study done by Christopher Jencks and Kathryn Edin in American Prospect magazine, a mother with two children who is employed at about $5 an hour would take home about 45 cents an hour less than if she were on welfare. She loses $4 a day after taking into account the loss of government benefits, taxes and such work-related expenses as transportation and child care.

President Bush has been stalwart in defending his efforts to make permanent the lower tax rates on capital gains dividends plus his attempts to put an end to the insidious tax on death. The trouble with the White House is that they keep calling this a policy of tax relief. That term implies tax revenue losses, when, in reality, we’ve seen three years of tax revenue growth. On average, tax revenues are up 15 percent a year for the last three years, with unemployment dropping from 5.5 percent to 4.7 percent.

No economic policy lasts forever, but with lower rates on all sources of income, economic growth has averaged more than 4.5 percent. Despite terrible conditions of war and instability with spiking oil prices, our economy is growing with inflation relatively low.

As one of the few legislators who was around in the ’70s and ’80s when controversy surrounded the Kemp-Roth Tax Rate Reduction Act signed into law 25 years ago by President Reagan, I leave you with the single greatest quote of President Kennedy 1961 that convinced me and President Reagan of the efficacy of lower tax rates:

“Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records. It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise revenues in the long run is to cut rates now.”

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Kemp: Enterprise Zones of choice

By Jack Kemp

February 25, 2003 for Townhall.com

In 1981, Congress enacted the Kemp-Roth 25-percent-across-the-board tax rate reductions (aka the Reagan tax cuts), which made a significant improvement to the tax code and helped free the economy from “stagflation” (simultaneously rising inflation and unemployment). The top tax rate was then 70 percent, and the lowest rate was 20 percent.

These tax rate reductions, however, addressed only half of the problem with the tax code because they left the ill-defined tax base – the ill-conceived definition of what constitutes taxable income – largely untouched. Thus, the federal income tax code continued to favor consumption and debt by double- and triple-taxing saving and investment, and it still contained a bewildering array of ad hoc exceptions, deductions, exemptions and preferences – so-called “tax loopholes.”

Despite the derogatory label, the major loopholes had been put in the tax code over the years in an attempt to mitigate some of the perverse incentives and economic damage created by the erroneous definition of taxable income. As well-intentioned as this haphazard weave of special tax provisions may have been, it failed to ameliorate the economic damage of a mis-specified tax base, and it frequently increased economic distortion, making matters worse – on top of which it made the tax code incomprehensibly complicated and manifestly unfair and corrupted the decision-making and behavior of businesses and entrepreneurs.

In 1986, Congress attempted to finish the job of tax reform, but it made a fatal mistake. It lowered the tax rates again, bringing the top rate down to 28 percent, but attempted to close the so-called tax loopholes without correcting the fundamental problem with the tax code: the misguided definition of taxable income that gave rise to the tax loopholes in the first place. Ironically, the 1986 tax “reform” actually worsened the tax impediments that discourage work, saving, investing and entrepreneurial risk-taking by taxing capital gains as so-called “ordinary income,” which they certainly are not.

Twice subsequently (1990 and 1993) Congress ratcheted the rates back up again, and by 1993 we had the worst of both worlds: Most of the 1986 tax rate reductions were repealed, but nothing was done to improve the definition of taxable income and to remove the impediments to economic growth.

In 1996, the National Commission on Economic Growth and Tax Reform, which I was privileged to chair and on which Treasury Secretary John Snow served, concluded that “the current tax system is indefensible and beyond repair. It is overly complex, burdensome and severely limits economic opportunity for all Americans.”

Despite the consensus that the current tax code is fatally flawed and should be ripped out by the roots and replaced with a low-rate tax system that taxes income only once, the American political system seems by design to be incapable of producing the kind of “big-bang” reform this transformation would entail. The sheer uncertainty of how so drastic a change would affect people makes them hesitant to trade the devil they know, no matter how wicked, for the promise of something better they don’t know, no matter how attractive that promise may be.

The result is that economic growth in all 50 states and in all of the U.S. territories is significantly less than it could be, and government revenues are lower. Struggling areas and territories with high rates of poverty suffer disproportionately from a tax system that discourages saving, investment and risk-taking because these areas are unable to attract the critical capital required to get them to the point of economic takeoff. Moreover, gimmicks such as tax subsidies, tax credits and rebates, corporate welfare, government-backed grants and loans only distort capital markets more and create greater dependency in these struggling economies.

Over the years, individuals and businesses have developed strategies, shelters and havens to cope with the irrationally burdensome federal tax system. In addition, there are myriad special interest groups and organizations who have successfully lobbied Congress for preferential tax provisions, which benefit them at the expense of the rest of American taxpayers, who would resist fundamental tax reform to the very death.

To break through this gridlock, we at Empower America have proposed a nationwide system of federal enterprise zones we call Zones of Choice, in which individuals and businesses would be allowed to choose whether to be taxed under the current tax system or under an alternative, reformed tax system. The reformed code would be a simplified, single-rate system that taxes income only once and allows the poor to get access to capital. Establishing such zones of choice in all 50 states and the U.S. territories will demonstrate at the state and local levels the benefits and feasibility of fundamental tax reform in a practical manner that minimizes political obstacles and uncertainty and maximizes the economic benefits of systemic change in our system of taxation.

When Congress takes up the president’s tax proposals, there will be spirited debate and probably considerable compromise. One item that could receive widespread bipartisan support is the idea of enterprise zones of choice that could not only help demonstrate the benefits of tax reform but also bring an immediate boost to areas around the nation and in the territories where the economy is struggling and unemployment is high. It’s a win/win proposal.

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Kemp: Five easy pieces of tax reform

By Jack Kemp

December 7, 2002 for Townhall.com

I wasn’t going to write about taxes for a second week in a row, but then I read Treasury Secretary Paul O’Neill’s interview with the Financial Times, which troubled me in light of several other recent signals indicating that the Treasury may be heading in what I consider to be the wrong direction on tax reform.

It was good to hear O’Neill say that the Treasury is in the process of “cataloging all the ideas that have been advanced over the last 10 or 20 years about how one might restructure the (tax) system.” The bad news is it appears the Treasury may prematurely have whittled down the ideas it will submit to the president from the catalog. The Financial Times quoted the Treasury secretary saying the reforms that were most likely were the ones that were “minimally controversial and not very costly.”

This comment sounds harmless enough, if somewhat timid, but it is worrisome when considered in the context of a Wall Street Journal report several weeks ago by Alan Murray in which there were hints that Treasury bureaucrats may be predisposed to “reform” the tax system with a scheme similar to the one proposed by Yale University law professor Michael Graetz. Graetz’s proposal would add a 15 percent value added tax on top of the current income tax, making it not only “not very costly” in O’Neill’s terms but almost certainly also capable of generating vast new revenues to fuel the growth of government. The incidence of a VAT is so stealthy that few taxpayers would perceive or understand who is actually paying the tax.

Rather than addressing the fundamental flaws that plague our existing tax system, the Graetz plan would simply eliminate the income tax altogether for families earning less than $100,000, almost 90 percent of all current filers. This trick would minimize controversy among voters by the same old political stratagem of shifting an ever larger share of the income tax onto an ever smaller share of taxpayers. Taxpayers earning more than $100,000 a year would be forced to pay the hated alternative minimum tax with a 25 percent rate. Such “simplicity,” however, would come at the expense of imposing even heavier penalties on the chosen few who now would pay both a VAT and an unreformed income tax.

Ernest S. Christian and Gary Robbins, two former Treasury Department officials, offer a very attractive alternative, which they call the “five-easy-pieces” approach to tax reform. None of the components is strange or exotic, and the president doesn’t need to pore through a catalog of past recommendations; he already endorsed the five easy pieces right after the Waco economic summit last summer.

Christian and Robbins suggest a method of maintaining the American tradition of taxing income while lowering the exorbitantly high marginal tax rates that discourage work, penalize personal saving and depress business capital investment, which substantially depress productivity and wage gains. Their approach also would eliminate the perverse aspects of the current tax code that greatly disadvantage American manufacturers and exporters. Consequently, the five-easy-pieces approach would also eliminate tax incentives for U.S. companies to move offshore.

The five incremental amendments to the current tax code that would begin the reformation process and simultaneously give the economy an immediate boost are: (a) lowering marginal rates (including capital gains tax rates); (b) eliminating the double tax on corporate earnings; (c) accelerating depreciation, ultimately to the point of 100 percent first-year expensing for business capital investment; (d) expanding the Roth IRA to all personal saving; and (e) excluding export and other foreign trade income of American companies from tax in much the same way that other countries already do in the world marketplace.

Some of the five easy pieces would probably have to be gradually phased in. However, in order to bring the benefits of fundamental tax reform immediately to economically distressed areas and territories – especially those areas and territories adversely affected by free-trade agreements – I would add a sixth easy piece to the mix: nationwide enterprise zones of choice that would give people at the bottom of the economic ladder and many state and local public officials a stake in tax reforms.

Let’s allow each state and territory to designate, consistent with specific federal guidelines, enterprise zones of choice within their jurisdictions in which individuals and businesses living and located within the zones would have the choice of being taxed under the current tax code or under the tax code as it would eventually exist with the five fundamental reforms fully phased in and fully implemented. It would be relatively inexpensive, and not only would enterprise zones of choice give economically troubled areas a jump start economically, they would also provide nationwide laboratories of controlled experimentation – a proving ground – for fundamental tax reform.

Five easy pieces of tax reform, nationwide enterprise zones of choice, a president with a mandate and two whole years before the next election. Sounds like the makings of a powerful bipartisan package that will be good for America.

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Better Than Affirmative Action

By Jack Kemp; J. C. Watts Jr.

July 8, 1997 for the Washington Post

In San Diego, the president spoke to the serious need for racial reconciliation and for embracing our commonalities across racial lines. But when he turned to “affirmative action,” he offered no improvement over the current system of race-based quotas, set-asides and preferences. He issued the following challenge: “I ask you to come up with an alternative. I would embrace it if I could find a better way.”

Well, Mr. President, there is a better way, and we — on behalf of the party of Lincoln — take up your challenge. We do not have to accept the false dilemma between tinkering with the status quo and eliminating it, as some in our party have recommended. Neither option would remedy the undeniable inequity or allay the scarcity of opportunity that persists for far too many people of color today.

Our “better way” replaces discrimination with opportunity, poverty with jobs and despair with education. We offer more than the simplistic and absolutist version of “affirmative action.” And we offer far more than the untenable option of simply closing our eyes to the still-present barriers to African Americans and other minorities and calling America “colorblind.”

A new approach must focus not only on equality and strong enforcement of our existing civil rights laws but also on the expansion of opportunity. Instead of deliberating over fair ways to mete out educational acceptances, job openings, contract agreements and program slots, we should be looking for ways to multiply and extend them.

In America, the primary engine that drives this kind of expansion is access to capital. By capital, we mean more than cash or credit — we mean education, ownership, and employment: assets that men and women of every ethnic background, race and socioeconomic condition can employ to fulfill their God-given potential.

The “better way” that we offer can be summed up in five policy prescriptions to broaden access to capital in every home and neighborhood in America, particularly those that need it most desperately:

(1) Establish renewal communities and enterprise zones to draw business and jobs into distressed urban areas;

(2) Open up the educational system to the influence of parental and community choice;

(3) Reverse federal and state welfare provisions to reward rather than punish recipients for working, saving and investing toward an independent future;

(4) Implement privatization of public housing and other efforts to bring home ownership and property ownership into low-income neighborhoods; and

(5) Embrace strategies that will get our national economy growing at a pace that can accommodate the talent of all Americans.

Noted sociologist William Julius Wilson has said that the lack of employment in our inner cities is the single greatest crisis facing America today. The “better way” of expanding opportunity means opening more entryways into the job market. Excessive government regulation and stifling layers of taxation, among other factors, have driven businesses, and jobs with them, out of most of our inner cities.

No individual subsidy, quota or set-aside is sufficient to reverse the predicament of these whole communities. Nor would such preferential measures be right, since they would necessarily discriminate against someone else. Even traditional types of “affirmative action” — such as recruitment, outreach and training — seem irrelevant when there are no jobs.

The legislation that could help achieve all five of our desired goals is already before Congress in the Community Renewal Project. This bill, which we have been promoting for 18 months, would expand opportunity in our cities by removing tax and regulatory barriers to job creation and entrepreneurship and by expanding access to capital and credit.

The principal way to achieve expansion of educational opportunity is to turn the decision-making process back over to those who are best equipped to evaluate their community’s schools and who possess the highest motivation to see the schools improve: parents of the children who attend them. We must pave the way to a voucher and magnet school system of public and private school choice.

Expansion of opportunity also means establishing the ability and incentive to own property. A perverse logic pervades a number of our federal welfare and assistance programs, which penalize the poor for managing to save and accumulate their own assets.

Expansion of opportunity requires expanding the overall economy so that it has plenty of room for the effort and enterprise of all Americans, including minorities and women. On principle, we should not accept the idea that a job gained by one American equals unemployment for another, or that a contract won by one qualified bidder spells disaster for an equally qualified contractor.

Growth means more people will have a chance to own their own business. As Earl Graves, publisher of Black Enterprise magazine, has said, “If African Americans are ever to secure a full measure of freedom and independence in this country . . . they must not only be employees; they must become employers.”

Finally, we must move to a place of real racial reconciliation — person to person, one heart at a time. We must begin the dialogue that President Clinton and others have called for. As our nation begins the work of reviving our inner cities, improving educational opportunity and reforming our assistance programs, we as American individuals must meet each other face to face, seek forgiveness and raise the public consciousness. As a great African American abolitionist, Frederick Douglass, said, “When we are noted for enterprise, industry and success, we shall no longer have any trouble in the matter of civil and political rights.”

Jack Kemp is a co-director of Empower America. J. C. Watts Jr. is a Republican congressman from Oklahoma.

Find the original article here.

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