Congressman Paul Ryan For Economic Growth In Black America

"We have to lower the cost of capital in distressed inner-cities and rural areas. That is key to economic growth and the rise of entrepreneurs". Those were the words of Rep. Paul Ryan, Republican from Wisconsin, expressed in a recent conversation with BlackElectorate.com. The statement is nothing new for the midwest lawmaker and because of that fact, for a couple of years, we have held in high regard the economic views and ideas of the Congressman.

While he sat on the House Banking Committee in 2000, Rep. Ryan was a leading voice on the subject of promoting economic growth in the economically-developing world. The Congressman was part of a valuable minority on Capitol Hill, in his dual recognition of the value of stable currencies, and the destructive role of the IMF, in the Americas, and Africa.

Since he has been a member of the House Ways and Means Committee we have been further impressed by Rep. Ryan's sensitivity to the dilemma faced by American entrepreneurs, particularly in the aftermath of the September 11th attacks. Congressman Ryan, last November, on the floor of Congress, highlighted the rapid imbalance in the risk to reward ratio that developed last fall and the consequent drying up of financial capital for those seeking investment for nascent and fledgling enterprises. On November 14, 2001 Rep. Ryan connected all of the dots:

"But the one thing that we can get right in fiscal policy here in Congress is that we can look at who creates jobs in this country, how jobs are created, and what can we do to make it easier to create jobs. When we look at that, we see that there are a lot of taxes that are levied on capital, a lot of taxes that are levied on investment.

When we look at this recession, like other recessions it started with a big drop in investment, a 72 percent decline in venture capital. Venture capital a year ago was about $35 billion. Today it is $8 billion. That is the seed corn that starts every small business.

When we see the small businesses dying on the vine all over the place, small businesses closing their doors, huge layoffs at our largest employers across the country, we see a huge decline in investment in those companies, in those businesses.

The one thing that we can control is we can make investment cheaper, we can make risk-taking less risky, by reducing the price on those investments, the price on risk. That means reducing the tax on those things by making it easier through the Tax Code, by lowering the bias against saving, the bias against investment, by making it easier for businesses to reinvest in their corporations, by making it easier for the market to take risks, to take capital risks, to invest in new ideas.

That way we can create jobs. Every time we have cut the capital gains tax, every time we have accelerated depreciation, every time we have cut marginal income tax rates across-the-board in this last century, every time we have done that we have created more jobs. We have improved the growth of the economy".

We have, from time to time made the case to stubborn and even narrow-minded Republicans and supply-siders that the application of this type of economic thinking would have its best application in the Black community where the greatest risks and rewards for investment abound. Many Republicans persist in making convoluted arguments that suppose that taxes on capital, or any general tax cut for the country's business establishment automatically lifts all boats or "trickles down to the poor". Such arguments never resonate in the Black community because they quite often follow fallacious reasoning, are too general to be embraced by supposed "minority" groups, and rarely explain how poor communities benefit when the entrepreneurs and small businesses among them receive a comparative advantage when taxes on investment in their economies are reduced and eliminated. Rep. Ryan is not in that obstinate group within the GOP.

This became even more clear when we spoke to the Wisconsin lawmaker and he informed us that he agreed with the editorial position of BlackElectorate.com regarding the need for the reduction in the holding period required to qualify for the capital gains tax exemption for investments made in businesses that operate in distressed rural and urban areas. By making the holding period 5-years, as it currently stands, an investment in a business in the majority of Black America - in distressed rural areas in the south or innercities in the northeast - looks more like a debt instrument than an equity position to an investor, defeating the purpose of economic growth.

"I certainly agree with your thinking and while I think that J.C. (Rep. J.C. Watts R- Oklahoma) hit a home run with the Community Renewal and New Markets Initiative Act, the Clinton adminstration screwed it up a bit. I never wanted a five-year holding period attached to the capital gains tax provision. In fact, in the very first economic stimulus package presented after September 11th, I got an amendment in that would have reduced the holding period to 18 months".

In doing that, Rep. Ryan not only distinguished himself from the members of his own party that promote lowering the cost of capital (but not with the urban and rural areas in Black America in mind), he also distinguished himself from such business-minded leaders in the Black political establishment like Rep. Charles Rangel of New York and Rep. William Jefferson of Louisiana, who both wanted the 5-year holding period to be part of the final legislation. Rep. Jefferson told us that he wanted the five-year holding period in order to guarantee "patient capital" for struggling for small businesses.

For Rep. Ryan, the challenge has been two-fold in nature: making his arguments on behalf of a Republican Party that holds little popularity in the Black community, and selling to the Black community how tax cuts are a more effective way of promoting economic growth than the anti-poverty spending programs promoted by the Democratic Party, to whom voting Blacks lend as much as 90% of their support. Congressman Ryan has devoted his attention to this challenge for over a decade, he told us.

"When I worked as a speechwriter for Jack Kemp, I spent literally everyday on that subject. And what we came up with is that you have to develop relationships and sit down with people and listen and talk with them. You have got to go directly to the people and Black leaders. I won 66% of the vote in my last election and I won most of the districts with significant Black populations. I am not a big "Party" guy and I think that my Black constituents understand my concern for them as well as my ideas."

Rep. Ryan believes that social security privatization is a viable issue but not necessarily as a stand alone. The Congressman thinks that social security reform must be connected with health insurance tax credits. "If you look at most of the people withouth health insurance, they are above the medicaid line and are individuals who are not provided with health care through their jobs. We could give these individuals choice and the economic power to purchase health care, through pools. I think we could do social security reform correctly and pair that with open-ended IRAs with healthcare accounts. It would be a great combination."

Rep. Ryan did not readily embrace our idea that a cut in the payroll tax did not have to be linked with social security privatization. We explained that it appears to be a bit of a contradiction that Republicans who promote less government seem unwilling to cut the payroll tax unless the government plays an intermediary role in transfering that taxcut into a social security privatization plan. Our position, based upon dynamic scoring, is that social security faces a revenue shortfall not because it is a government program but because an insufficient amount of economic growth is expected to meet the spending needs of the program. The way to solve the social security problem is to solve the economic growth problem. Social Security can be saved by tax cuts that lead to economic growth and increased tax revenue pouring into social security.

Rep. Ryan expressed doubt in the appropriateness of our suggestion that the payroll tax be cut stating, "Well, I don't know. If you cut the tax rate you bring about the insolvency of Social Security sooner than would normally occur. But if you give people 2 to 4% of FICA in their own names, in personal accounts, you don't have to worry about insovency and you are promoting individual empowerment."

Rep. Ryan does support the movement among his political party to promote school choice and thinks that the issue is a significant one that could lead to greater support of his party among Black voters. "I do think that our Party has done more than any body else in terms of education reform in the innercity and should get credit for the positive changes that are happening in that area."

Rep. Ryan tells us that he intends to continue to reach out to the Black community and maintain and nurture his current relationships with Black grassroots and spiritual leaders in Wisconsin. "In Wisconsin I speak and work with alot of Black pastors and although they are not directly in my district, I interact with Black community and business leaders in Milwaukee. And there are the natural relationships that overlap in my service on behalf of my constituents and the people of Wisconsin. I also am a big fan of faith-based initiatives. In my office I have a faith-based initiative ambassador. I am committed to being a provider of information regarding opportunities to assist the work of the faith community."

Rep. Ryan's committment to economic growth issues should pay future dividends in his relationship with Black business and community leaders. With the general Black unemployment rate about to touch 11% nationally and the rate for Black teenage males at 36.9%, it will be hard for Black leaders to continue to dismiss economic ideas simply because they do not originate from within Democratic Party intellectual circles. And if the Republican Party were wise it would begin to defer to a young congressman from a state that some say is better known for socialism that entrepreneur development. The relevance of the GOP to significant segments of the Black electorate may one day depend on it.

Tuesday, April 16, 2002