Obama should win again, but he should listen to some tax ideas coming from the Republicans

Nik Darlington 9.38am

Allister Heath’s City A.M. editor’s letter is required morning reading, whether you agree with it or not. It is relevant, informed and clear. It often teaches me something about finance or economics that I didn’t know before.

Mr Heath’s letter yesterday didn’t teach me any economics, but it did tell me something interesting about the US presidential contest.

The radical tax proposals of two Republican candidates: that GOP’s surprise frontrunner Herman Cain and the Governor of Texas, Rick Perry, have, says Heath, “kick-started a major debate on tax reform and economic growth”.

It all started with Cain’s fascinating 9-9-9 plan: he wants to slash the federal income and corporate taxes to 9 per cent (while eliminating all loopholes) and introduce a 9 per cent federal sales tax. The poorest people (on or below the poverty line) would pay no income tax, a very sensible move… Cain also backs “opportunity zones” that would liberalise the poorest parts of America in a bid to boost growth and jobs. He also supports zero capital gains tax, the immediate expensing of business equipment and no payroll taxes.

Perry’s plan would give taxpayers the choice of either a 20 per cent flat tax on income above $12,500 (the new personal allowance) or of retaining their current tax rates and rules. Lower-income taxpayers in the 10 and 15 per cent brackets would keep the current system - while those on higher incomes would switch to the flat tax… Hong Kong already operates a similar system. Perry’s…other policies include cutting company tax from 35 per cent to 20 per cent.

Neither plan is perfect… But even Mitt Romney, a lacklustre candidate, wants to cut corporate tax from 35 per cent to 25 per cent.

In my Total Politics column recently, I wrote that a radically lower tax base could be the making of Scotland, if ony the SNP has the bravery to deliver it. While the economics are clear about the benefits of lower taxes to all members of society, the politics are a harder sell. A mixture of envy, stubbornness and ineffectual pretence of ‘fairness’ (for some people, high taxes will never be ‘fair’ enough) stand in the way of efficient tax policy.

Politicians need to make a better case for lower taxes. One that combines social justice with an incentive to work hard. One that, you might say, combines compassion with efficiency.

I still believe that President Obama will be (and should be) re-elected next year. As former diplomat Sir Christopher Meyer told the TRG recently in Manchester, the split in the Republicans caused by the hard right populism of the Tea Party “may win tactical victories on Capitol Hill but may lose them the country”. He also said that the Republicans have “no credible candidate” other than the “incredibly boring” Mitt Romney.

The incumbent is still the most credible and likely next President from 2012. He has the funds, he has the platform and he still - choose to believe it or not - inspires some hope in people.

But there are encouraging signs that some thoughtful Republicans have the better ideas for economic recovery. For the time being, they are just wrong on too many other policies to win.

TRG foreign policy brunch: Sir Christopher Meyer & Alistair Burt talk freely and widely

Nik Darlington 1.30pm

Former British Ambassador to Washington, Sir Christopher Meyer, and the foreign office minister and TRG vice-president, Alistair Burt MP, were the star draws at the TRG’s foreign affairs brunch in Manchester.

The discussion ranged widely over the Arab Spring, the Israeli-Palestinian peace process, geopolitics and the US presidential race.

Sir Christopher said it was “absolutely right” that Britain and France led the UN intervention in Libya but in an implicit swipe at policy in Afghanistan and Iraq he emphasised that we must not “get enmeshed in the civil affairs of another country”.

Alistair Burt agreed that across the Arab world, developments will be guided by local tradition and we should respect that - even if it means the rise of Islamist governments.

On the US presidential election race, Sir Christopher Meyer said that President Obama “ought to be dead meat” but the Republicans have two significant strategic weaknesses. First, the position in Congress of the “hard right” Tea Party element “may win tactical victories on Capitol Hill but may lose them the country”. Second, the Republican party does not have a “credible candidate” to face Obama, apart from the “incredibly boring Mitt Romney”.

A member of the audience questioned the rise of China, but Sir Christopher said we had to realise “China is here to stay” and that “for a lot of countries, China presents a more attractive model of development than Western democracy”.

Sir Robert Atkin MEP asked about the US Congress’ movement to withdraw funding assistance to the Palestinian Authority. Alistair Burt said that this was “not a done deal” but the “view of Congress is not helping”. The UK Government supports the transition towards an independent Palestinian state, as does the US President.

Sir Christopher Meyer added that “the Israeli Government is barking mad not to see that a Palestinian state is in their national interest”.

The TRG is hosting a debate on the Human Rights Act later this evening. In light of the Home Secretary, Theresa May’s further incendiary comments today, this promises to be quite a heated event.