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Press Release

    Win, Lose, or Draw? The Elections and Consumers

    11/06/2002

    The 2002 mid-term elections were critical for consumers on a number of issues. While Republicans were of course unchallenged in the executive branch, the battle for control of the legislature has been fierce and the Republican victory has wide ranging implications for a number of policies. With the help of activists across the nation, CSE saw the elections as an opportunity to educate voters and politicians on important questions that affect consumers. With both houses of Congress now controlled by Republicans, the policy agenda may shift in the next two years. Changes may not be dramatic, however, because Democrats have such procedural tactics as the filibuster to temper policies in the Senate.

    Tax Reform. CSE has long been a proponent of fundamental tax reform. The 17,000-page tax code has become one of the most complicated tax codes in the world. Americans spend 6.2 billion hours complying with the tax code at an annual cost of $194 billion. Complexity is driving business out of the United States and individual tax payers are facing an aggressive IRS that is ramping up to enforce tax laws so complicated that practically every taxpayer may be vulnerable to audits and increased compliance costs. President Bush ran on a platform of fundamental tax reform, and Treasury Secretary O’Neill has made reform a priority as well. Reform is desperately necessary; the current code must be replaced with a simple, fair, and transparent flat tax. With the Congress under Republican control, the administration’s tax reform efforts may move forward. Congress can make the Bush tax cuts permanent and work to pass more comprehensive tax proposals from the administration. However, fundamental reform will require a significant effort given the power of vested interests in the present tax code.

    Spending. In the wake of September 11th, Washington has been on a spending spree. Between homeland security and a sagging economy, spending has increased across the board. Record surpluses have been replaced with deficits, with a swing in spending of $284 billion. Current estimates suggest that the deficit for 2002 will be $157 billion. Sadly, much of the spending has little to do with homeland security, and everything to do with old-fashioned pork-barrel politics (especially in an election year). With spending currently running at more than 19 percent of GDP, outlays will continue to exceed revenues at least through 2005. Congress and the administration need to pare down spending to a manageable level, eliminating waste and demanding results from government programs. This is one area where the election results may have little impact. Congress has a propensity to spend, and the previous Republican controlled Senate pushed spending to record levels. The new Republican majorities, however, may provide President Bush the opportunity to more effectively use the veto to cut unnecessary spending. With GOP Congressional support, Bush can try to eliminate wasteful programs entirely.

    Social Security. With the baby boom ready to retire and seniors facing a sour economy, social security became a political hot-button issue during the election. Ripe for demagoguery, social security was viewed by Democrats as an issue that could scare seniors into the voting booths. Republicans, on the other hand, were reluctant to pursue the issue, which is unfortunate, because when they did talk about the need for reform and the need to give workers the option to invest in personal retirement accounts, the message was received favorably. This is an issue that will not disappear with the election. Demographics are pushing the issue to the boiling point. The program is expected to run huge cash shortfalls within 15 years, and by 2038 the program will be bankrupt. Reform is inevitable, and must happen soon. Congress has two choices. It can enact real reforms that allow individuals to plan for their retirement years, or it can rely on “reform” measures of the past with some mix of increased taxes and decreased benefits. The Republican Congress is more apt to pursue real reforms, following President Bush’s lead on this issue. The fact that Democrats failed to gain much traction during the election with scare tactics on the issue, coupled with the demographics driving the need for real reform suggest that the new Congress may be able to work with the president for substantial reforms of this ailing program.

    Regulation. Currently, Americans face a regulatory burden of more than $800 billion annually—more than $8,000 per household. The regulatory burden not only raises costs for consumers, it makes it more difficult for businesses and entrepreneurs to generate economic growth. To address these concerns, the last 30 years has witnessed the development of a centralized review process that allows the administration to manage the regulatory agenda. Agencies must submit rules for review to demonstrate that the rule provides benefits that exceed its costs. Under President Bush, regulation czar John Graham has also been working to incorporate risk assessment more effectively into the regulatory process. Risk assessment and risk management begins by identifying potential hazards, determining their threat to health and safety and categorizing risk according to these factors. This science-based approach to regulatory policy ensures that scarce dollars are allocated to those risks that pose the greatest threat.

    In the wake of the Republican takeover of Congress, the key environmental issues to consider may be the Kyoto treaty on global warming and the expansion of energy exploration in ANWR, the Arctic National Wildlife Refuge. It is likely that there will be less pressure to pass the Kyoto treaty, which must be ratified by the Senate. In the past, the Senate expressed its concern about the treaty, and the scientific uncertainty and substantial economic costs of the treaty will continue to keep the Senate from ratifying the flawed treaty.

    Exploration and drilling in ANWR may not eliminate our need for foreign oil, but the area does represent the largest untapped reserves in the United States, and would provide up to 16 billion barrels of domestically produced oil. By comparison, total proved U.S. reserves in 1999 were only 21.8 billion barrels, according to the Energy Information Administration. Oil exploration and drilling does not have to be incompatible with environmental protection. New technologies in seismic imaging and drilling leave a much smaller footprint, which means wildlife and oil exploration can co-exist. However, excessive regulations and restrictions on energy exploration have artificially increased the costs of energy production and refining within the United States relative to the world market. Allowing exploration in ANWR would be an opportunity to alter this balance and improve our ability to provide energy from domestic sources, but such a measure is sure to face stiff opposition from Democrats.

    Tort Reform. While lawsuits may hold the allure of a million-dollar judgment, it is important to realize that the abuses of the legal system impose costs on all consumers while crowding out cases with legitimate legal grievances. A well functioning legal system is an important component of a free society. It offers an opportunity to resolve disputes, enforce contracts, and compensate victims for legitimate losses. Unfortunately, special interests have found ways to subvert our legal institutions for selfish gains. Today, consumers pay a “tort tax” as lawsuits drive up the costs of consumer goods and, in some cases, eliminate goods from the marketplace altogether. Without reforms that restore the legal system to it original purpose, the legal system will become a liability rather than strength of our free society.

    In the past, the House of Representatives has passed the Class Action Fairness Act in an attempt to halt some of the abuses to the legal system. The Democrat-controlled Senate never passed the bill, given the prominent role of trial lawyers in the Democrat party. A Republican Senate may push forward on the legislation, but expect the Democrats to pull out the all the procedural tactics, including the filibuster, to defeat such a bill.