Time for Emergency Economic Reform

A look around the American economy suggests that it’s time to break out the brandy. By any measure, growth is anemic—alarmingly so for this time in what is supposed to be a recovery period. The administration’s wild foray into trickle-down government spending has clearly failed. Funneling borrowed billions to government workers hasn’t stimulated anything where it counts, in the private sector.

Moreover, the administration’s big-government policies—most notably health-care reform—are holding back job creation. Drowning in new or pending regulations and taxes, businesses, banks and investors are understandably sitting on dollars that could be putting Americans to work.

Especially ominous are the implications of slow growth for the nation’s burgeoning debt. The government’s projections, which already point to national bankruptcy, rely on growth assumptions we aren’t even close to achieving. They say the economy must grow at an average rate of 3.4% for 10 years—better than any previous decade in a half century. And that is just to achieve disaster, with debt rising to as much as 90% of GDP. To stave off catastrophe, nothing short of a truly vibrant, extended boom will do.

Most Americans don’t know these figures in detail, but they have a strong sense that we are in a dangerous place. As I was leaving a small-town Indiana diner a couple weeks ago, a local said to me, “When the boys in there are discussing Greece, and it doesn’t refer to the cheeseburgers, something is different.” Odds seem strong that a degree of balance is about to be restored to the currently lopsided Congress.

What might such a project comprise? Here are a few suggestions:

• Payroll tax holiday. Suspend or reduce for the emergency period, say one year, the Social Security payroll tax on workers. Offset the revenue loss twice over through a combination of the following four policies.

• Impoundment power. Presidents once had the authority to spend less than Congress made available through appropriation. On reflection, nothing else makes sense. Plowing ahead with spending when revenues plummet is something only government would do. In Indiana, we are still solvent, with no new taxes, money in reserve, and a AAA credit rating only because our legislature gave me the power to adjust spending to new realities. I promise you that a president who wanted to could put the kibosh on enormous amounts of spending that a Congress might never vote to eliminate, but the average citizen would never miss.

• Recall federal funds. Rescind unspent Troubled Asset Relief Program (TARP) funds and any unspent funds from last year’s $862 billion “stimulus” package, as well as large amounts of the hundreds of billions of “unobligated funds” unspent from previous appropriations bills.

• Federal hiring and pay freeze. Better yet cut federal pay, which now vastly outstrips private-sector wages, by 10% during the emergency term, and freeze it after that.

• A “freedom window.” Might we try some sort of regulatory forbearance period in which the job-killing practice of agonizingly slow environmental permitting is suspended, perhaps in favor of a self-certification safe harbor process? Businesses could proceed with new job creation immediately based on plans that meet current pollution or safety standards, or use best current technology, subject only to fines and remediation if a subsequent look-back shows that the promised standards were not met.

• Accelerated or full expensing of business investment. Economists differ about its success on past occasions, and certainly it involves a degree of pulling forward investment that would have happened eventually. But it seems well matched to the current situation where so much money is cowering on the sidelines, and a burst of new investment might jump-start growth that enables more investment in the future. (Reports indicate that the administration is about to propose this very idea. If so, good.)

Surely there are better ideas or variations on these suggestions that a jobs-minded Congress could fashion. And clearly permanent tax and regulatory moderation is vastly superior to temporary. But to have a prayer of avoiding fiscal ruin, we need to go to economic general quarters immediately.

It may be fanciful to imagine that the Obama administration, chastened by economic reality and an election setback, might join or even champion such a plan. But no one has a bigger stake in the kind of private-sector growth it would attempt to generate. Any hopes of paying for their health-care and other spending schemes depend on it.

With or without Democratic help, Republicans should step forward with these or superior ideas. A stagnant, impoverished America will not be a greener or safer or fairer place. Grown-ups make trade-offs. Pass the brandy, then let’s get busy.

Mr. Daniels, a Republican, is the governor of Indiana.