Now let me add equally importantly will be prosperity here at home. I accept the fact that in addition to security in the world which we take for granted, the president will be a leader in that respect.
Presidents must lead with regard to actual programs that might make a difference. In my campaign in Indiana last year for re-election to the Senate, I found many people who said "We are ordinary people, our wages have gone nowhere for several years and we don't we're not certain the American system works for us. What are you prepared to do about it?"
I did not have a sufficient answer in that campaign, but I do have one now. I have come to a conclusion. Two things must be done. One, Charlie Bass and Bill Zeliff have addressed and they are on the threshold of tackling a seven year plan to get the deficit to zero, we have to do that, deficits have literally eaten up the savings of this country. And it's just like the old Econ 101 course we took in high school. Savings equal investments, an iron law. You cannot have investment that leads to productivity without having savings in a country. Sometimes you'll get by using Japanse savings, German savings, but somehow they'll want them back. Our problem now as a nation we are saving below the (inaudible) we have to balance the budget. But we must do something more. A very significant change in our system of taxation.
I propose that we move from a system of taxing income and savings to a system of taxing consumption. It is a very large change a presidential campaign should be about large issues. I propose to make that change because I see no way of bringing about the savings investment productivity changes that are required to change wage rates.
Let me be very clear. I would abolish the federal income tax on individuals and on corporations, obviously capital gains taxes would go as derivative of that. I would abolish inheritence taxes and gift taxes; all of the income tax, savings free. And I would have taxation instead on consumption of retail services and professional services. With exemptions of broad groups of purchases or rebates to tax payers so the system is no more repressive than the one we have. The consequences of doing that will first of all be to save Americans five billion hours now spent in complying with the internal revenue code each year, the entire productivity in my home state of Indiana. It will be to take away the intrusiveness of the IRS, because we will in fact dismantle all those forces of the IRS that are dealing with the income tax situation will be no more.
What we will in fact, according to Professor Lawrence Kalnikoff of Boston University, who has done econometric models for the CATO Institute, bring about a situation in which savings increases from 2-1/2% of our national income to 7-1/2% that the investment pool available for investments increases by 30%, productivity goes up by 5% a year, not the 1% we currently have and real wages of people in this country go up by a comparable 5% instead of less than 1% change in real wages during the last 5 years for ordinary Americans.
Now that is a breakout that our economy has to have to make a difference for ordinary people in this country as well as for our competitive ability. We will export more because the income tax component will be taken out of the pricing we will inherit more investment from abroad because we are a great country in which to invest now and we will be greater still without an income tax.
In short the major problems our economy faces and that ordinary Americans face can be met by changing the stream of taxation. Now it is with great complications and those are worthy of discussion. And that is why I will discuss them throughout 1995 and with your help throughout 1996. And with a fair a very favorable chairman of the House Ways and Means Committee interested in these ideas we will attempt to enact legislation in 1997 and have a new system of taxation in the country in 1998. I think this is an important quest and I enlist your consideration.