The garden of the economy needs more than pruning

Republicans better sign up for yoga classes between now and the start of the 112th Congress. They have a difficult balancing act ahead of them, and the performance will require incredible dexterity.

On one side is the public’s reasonable expectation that the next Congress will restrain the growth of government and strive to put America’s fiscal house in order. On the other side is the public’s equally reasonable expectation that the next Congress will help improve the economy. No matter how well the Republicans do in 2010, they can expect to be repudiated in 2012 if they fail at either task (or both).

What might trip up the GOP? Republicans must be careful as they trim expenses. Otherwise they will fall into the austerity trap.

Deficit anxiety causes conservative lawmakers to rule out sensible policies like a payroll tax cut. A myopic focus on government spending causes Republican leaders to shortchange the defense budget and renege on America’s global responsibilities. The entitlement nightmare frightens GOP candidates into framing their economic agenda in strictly negative terms.

In the austerity trap, you lose tactical battles over spending while passing up strategic opportunities to promote economic growth. Plunge deep enough into the trap, and you become the tax collector for the welfare state. This isn’t new; the GOP has been caught in the austerity trap before.

The good news is that the trap is easily avoidable. Fiscal responsibility and economic growth aren’t mutually exclusive. They are interdependent.

Tackling the entitlement problem, moreover, will reassure investors that America isn’t hurtling at light speed toward a currency crisis. Tossing Obamacare onto the scrapheap and replacing it with policies that emphasize portability, choice and competition will reduce the health care price inflation that threatens to destroy the federal budget.

Best of all, limited government not only brings economic benefits, it improves character by fostering independence, responsibility, risk-taking and self-respect.

It’s been almost 25 years since President Ronald Reagan and a Democratic Congress closed tax loopholes while lessening the tax burden. Yet in the years following the 1986 tax overhaul, both Republicans and Democrats wasted no time carving out exemptions that favored the wealthy and well-connected.

Another bite at the reform apple is long overdue.

We’re happy to report that the White House seems open to significant changes in the tax code — the president’s commission on tax reform, chaired by Paul Volcker, issued a report in August that recommended lowering the corporate tax rate while eliminating corporate welfare.

A prosperity agenda doesn’t stop at reduced spending and reform of entitlements and the tax code. It encompasses support for free trade, deregulation that promotes competition and a consistent habit of tending the garden of the economy so entrepreneurs can grow and thrive. If you want to defeat the debt without resorting to punishing inflation or punitive tax increases, growth is the only option.

Bring prosperity to America, and the debt problem fades away. Austerity, by itself, is not enough. To the contrary: It’s a trap.

This article appeared in The Weekly Standard.

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