According to most polls, the White House and a number of Congressional and Senate seats are under extreme pressure and may well go to Democrats. Should this happen there will likely be a lot of introspection within the Republican party. How did they go from the dream of "a permanent Republican majority" to be cast out amid a wave failures and bad news? There will be some that claim the Republican Party was a victim of circumstance: a economic tsunami that was unpredictable and uncontrollable. Others, however, may see it as application of Reagan-era Conservative ideas that no longer resonate with the voters.

In the first camp, the argument is that an unforeseen and ill-timed economic tsunami hit - putting the economy on the forefront of the election. Although, this camp will like concede that other factors such as a lack of moral character of a few Republican Congressmen, a failure to execute fiscal discipline, and a resurgent Taliban may have also contributed, it was largely the economic difficulties that doomed the party regardless of platform. With the economy at the forefront, McCain digging into the usual bag of Reagan era Conservative tricks - tax cuts - was appropriate. "Joe the Plumber" was the personification of the Republican's best economic trick. The theory goes that the Republican party dogma is fundamentally sound, and no real changes need to be made for 2012. If anything, the Republican Party needs to retrench and work harder to ensure they don't stray from conservative principles. The American people are fundamentally right-of-center, and thus the Republican party will once again assume dominance. Without the pressure of a few mistakes and the worst economic crisis since The Great Depression, the Republican party platform still carries weight with the voters.

However, another camp will likely emerge. In this camp, it will be suggested that a new ideas and new direction needs to be taken to bring the Republican party into the 21st century. Accordingly, in light of the economic crisis, putting tax cuts front and center no longer resonates with voters. At The Party of Common Sense, we subscribe to this second camp. There was a time when tax cuts and deregulation were the right prescription to what ailed America - but under the reasoning that if some Republican stalwarts like tax cuts and deregulation is good, more must be better seems to be false. Let’s explore looking primarily at economic policy, since it is the dominate issue for this election.

Former White House spokesman, Scott McClellan, wrote that the Bush administration never moved from campaign mode into execution mode. Campaigning is winning a debate. Sports fans all around world debate the merits of Team A over Team B, and although an individual fan may be able to make a persuasive argument to his fellow fans, when the Team A plays Team B, the actions on the field outweigh any discussion in the bars. Likewise, this last administration seemed to have a concept - that if you spoke repeated and loudly about something often enough, it would become true. This may be true on the campaign trail, but once in office the facts on the ground often belie the rhetoric. Take the Iraq war. Even the most diehard Bush supporter, listing to nothing but right-wing propaganda, after six years of hearing how we are winning the wars in Iraq and Afghanistan has to begin to question: If we are doing so well, why are we still there? Although the Administration may be able to provide a persuasive argument at any particular point in time, the facts on the ground begin to undermine the rhetoric.

Using tax cuts as an example, could it be that the American people beginning to understand intuitively that under a system of tax cuts and increased spending, mainstream America is not better off? Reagan supply-side economic advisors hypothesized that lower taxes would grow the economy, and thereby create greater overall tax revenue (the smaller piece of a bigger pie would be bigger than a larger piece of a smaller pie). The support for this was the so called Laffer curve, which postulated that the arithmetic effect of lower taxes would reduce tax revenues, but that doesn't take into account the economic effect. For example, a 100% tax rate would provide zero incentive to work and a 0% tax rate would result in no taxes - but there is a balance that will provide the optimal tax revenues. Lower taxes provides added incentives to earn more, thereby creating a bigger pie, and in a complex series of interactions a growing economy means less unemployment, social welfare, etc...; which should result in less need for government programs. Keep in mind, at the time the top tax bracket was 70% - a pretty powerful disincentive to earn more. The theory went: if you owned a business and had an opportunity to expand, but if the expansion is ill-timed you could lose your business, and if it was successful, you'd only get 30% of the profits (assuming you fell into the top tax bracket). Therefore, you might opt not to expand because the reward doesn't outweigh the risk. Interesting theory, however, by looking at the chart below, we see that during Republican administrations and the application of tax cuts, the federal deficit continued to grow.

President (party affiliation)	Term	New Debt ($T)	Debt/GDP
Jimmy Carter (D)	1977-1981	$0.18	-3.2%
Ronald Reagan (R)	1981-1985	$0.65	+11.3%
Ronald Reagan (R)	1985-1989	$1.04	+9.2%
George H. W. Bush (R)	1989-1993	$1.40	+13.1%
Bill Clinton (D)	1993-1997	$1.12	-0.6%
Bill Clinton (D)	1997-2001	$0.42	-8.2%
George W. Bush (R)	2001-2005	$1.15	+6.9%
George W. Bush (R)	2005-2009	$3.22 (est)	+???

Even more telling is the final column, which shows the debt as a portion of the GDP. We see that during Democratic administrations the debt/GDP shrinks (presumably due to Democratic tax policies), while during Republican administrations with lower taxes policies we see increases the deficits as a portion of GDP. If the Laffer curve was correct, although the deficit may have grown, increasing GDP would offset and reduce Debt/GDP figures. The evidence seems to be overwhelming that tax cuts do not work - they simply reduce governments' income and increases deficits. In addition, no one is seriously suggesting going back to 70% tax rates, rather McCain and Obama argue over a few percentage points. For a few percentage points, a hedge fund manager or CEO earning hundreds of millions of dollars isn’t going to stop paying themselves those astronomic salaries, rather they will just end-up paying slightly more in taxes - revenue desperately needed with a $10 trillion deficit.

There is a term in Hollywood "jumping the shark". It refers to an episode of Happy Days when Fonzy is water skiing and jumped over a shark. That absurdity of the plot line in that episode suddenly made people realize the show's decline. There are at times a single event or occurrence that causes people to suddenly see the forest from the trees again. It our believe that McCain's campaign is in the process of "jumping the shark" in these final days of his campaign when he latched onto "Joe the Plumber". Joe first came to prominence when he was caught on Fox News cameras talking to Obama at a campaign rally about buying a business that would make him $260,000 to $280,000 a year, but was concerned about the additional taxes he would have to pay. That clip was posted on YouTube and quickly made the rounds within conservative community. McCain brought up Joe during the last Presidential candidate debate, and has since made "Joe the Plumber" a center piece to his campaign. There are several problems with the story, though. Joe's real name is Samuel, Joe doesn't have a plumbing license, it seems Joe isn't a fan of paying any taxes since he owes back taxes, and the "business" he was thinking of buying consisted of himself and the guy he works for. If we temporarily set aside the substantial factual errors about Joe, let's take a look at the concept of lower taxes.

Let's say Joe does buys a business that does $2.7 million in business and employees around 20 to 30 people. He would deduct all business expenses including payroll, trucks, equipment, supplies, advertising, etc… At the end of the year, let's say his business results in 10% profit, or $270,000. Since Joe has worked hard all year and it's well within his right to decide to take home that $270,000. Under Obama's plan, the top tax rate would return to pre-Bush levels of 39.6% for money made above $250,000. Currently, the top tax rate is of 35% but doesn’t kick in until income rises above $357,700. So in Joe's case by making $270,000, under the current plan of Bush tax cuts - the one that McCain wants to make permanent - the top tax bracket for Joe is 33%. Keep in mind that our tax system is graduated. So everyone pays only 10% on the first $8,025 they earn, for income from $8,025 and $32,550 everyone pays 15%, and so on. For example, if someone made $20,000 in 2008, they'd pay 10% on the first $8,025 and 15% on the remaining $11,975. In Joe's case, his effective tax rate would only rise on the $20,000 over $250,000 that he made, going from 33% to 39.6% - a 6.6% increase. 6.6% on the $20,000 means he would only have to pay an additional $1,320. So Joe has an opportunity to buy a business, make over a quarter of million dollars a year, and he's worried about paying an extra $1,320 in taxes. Joe might want to reconsider.

With all these errors, after the election is over, when the Republican party does some navel gazing, we at The Party of Common Sense believe they will be asking the question: What were we thinking? What McCain is thinking is that he's found a tall, bald headed, very recognizable personification of a core Republican principle: tax cuts. They are have become so much of the Republican DNA that every Conservative politician recites the mantra in every stump speech without thought of whether the principle make sense. Will the absurdity of Joe the Plumber be the episode that causes Republicans to re-examine their platform? Americans can intuitively figure it out: the middle class is not better off than we were eight years ago, and Americans who are usually accept outrageous CEO pay packages as a sign of opportunity are starting to question why The Bailout is helping these guys when the average American is struggling to make ends meet and keep their house. Americans are beginning to think: why should I vote Republican when they are primarily concerned about people earning over $250,000? What about the little guy, the majority of Americans make substantially less? Where's their tax cut? Although the average American may not be as analytical in their analysis of economic effects of tax cuts on the deficit, they intuitively know the Republican economic philosophy isn't working, and it's time for a change.

Rove intuitively knew that selling the Republican party is really not any more different than selling any product. You need to adapt your message to the listener. So he created five domestic initiatives that was to capture five key demographics: a prescription drug plan to capture seniors; faith-based initiatives to capture the religious right; no child left behind to capture families; immigration reform to capture the growing Hispanic vote; and social security reform to capture the youth vote. The problem is that some of these conflict with other Republican philosophies. For example, the prescription drug plan was a huge gift to Big Pharma (helps business and that's OK according Republican philosophy), however it was also the largest government run entitlement program enacted since President Johnson (big government run programs is bad according to Republican philosophy). So, we see the first camp - those resisting new ideas in the Republican party - argue that we don't need new ideas, but should be strict adherence to proven Republican philosophy. The second camp - those looking for change - argue that without tailoring the message, you're losing the vote. Without compromising and getting in power, your dooming the Republican party and destining Republican ideals to the wastebasket of history. Just because some tax cuts and deregulation may have been good, more isn't better. Republican principles are like fine wine: some is good, too much is bad. One such thinker recently postulated that the decline of Republican ideals is a result of too much success. No one wants to go back to 70% tax rate, no one is suggesting disbanding the military, and no one is suggesting outlawing all guns. However, continued application of Republican principles puts them more in line with Libertarians, rather than Republicans. Although the success of Ron Paul in the Republican primaries is a testimony that there is a group that adheres to this line of thinking - it is too small to bring mainstream.

We believe the Republicans need a new Karl Rove. A new visionary that can adapt and instill discipline within the party. Our suggested five point plan:

One. Make the government work. Rather than trying to deregulate and hollow out regulatory bodies, make the government do the right things right. In American you can incorporation a business with a few forms a small fee. In most countries it requires putting up bonds and hiring a team of lawyers. Low regulation is generally good, but only to a point. For example, local building codes may have some waste in them and this should be surgically removed. Some antiquated regulations inserted by some councilman to satisfy their own aesthetic tastes, for some petty reasons, or to scare away some unwanted business, should be removed. However, at the core there are key building code principles that should remain. People want to know when they enter a building it isn't in danger of collapsing, that it's made with safe materials, and that if there is a fire there are exits, fire extinguishers and the like. Saying that we should allow the free markets to decide if people want to pay for critical safety features, or allowing builders to pass inspections without these essential items, is going too far. Blind adherence to laize-faire free market economics and deregulation has pushed us into that danger zone.

Two. Make peace with immigrates. The xenophobic paranoia that has taken over the Republican party over illegal immigration needs to end. The problem needs to be addressed by allowing more immigrants, the heart and soul of American's innovation and drive, while also enforcing existing immigration laws. Illegal immigrants are coming to America for opportunity. If Americans are unable or unwilling to take advantage of that opportunity, we should legally allow immigrants to. These are people that are willing to leave their support systems and come to America - not just to make a better life for themselves, but also for their kids, and are the type of people that America was founded on. These people will be the next generation of entrepreneurs that helps make America great. This extends not just to Hispanics, but to those wishing to study and work in America from anywhere in the world. At a minimum they will contribute to America’s economy while they are here, and then contribute again by becoming an ambassador for American when they return back to whichever country of origin. The US has the land and resources, but with a birth rate of just over two children for every set of parents, America is lacking in the manpower to continue to grow, and will soon fall behind the rest of the world.

Three. Embrace environmentalism. Republicans have traditionally been the voice of big business, and Democrats the voice for those that can't speak out for themselves. Unfortunately, battle lines were drawn before the wide body of evidence for Global Warming existed. Global Warming is a threat to the American way of life and potentially the entire world. The current strategy of creating fear, uncertainty, and doubt about Global Warming is failing. We have a choice, we're either leaders in the next generation green technology and fighting global warming, or we relegate ourselves to the role of followers. I suggest, if for no other reason than an economic one, that Republicans embrace environmentalism. Some Republicans say this can't be done - that it would be admitting defeat. Social Security is largely accepted and seen as a great achievement for Democrats. Rove understood that by "fixing" social security, you could undermine that achievement - take control of the issue and make it your own. With environmentalism, by grabbing that mantle, you simultaneously deprive the Democrats of a powerful weapon and bring concerned youth and increasingly aware and concerned mainstream America to the Republican Party. How might this be done? For example, Republicans could champion energy independency. This is very different than promoting renewable energy for ecological reasons. Energy independence is about preventing oil producing countries from becoming rich at America's expense. Although the mechanisms of developing wind power, solar power, and the like greatly overlap with the goals of renewable energy, the Republicans can maintain their principles while subverting or at least subduing the Democrats' siren song.

Four. Get serious about spending and controlling the deficit. Reagan famously stated that the cure for the government was to "starve the beast". The idea is by cutting taxes (and therefore funding for the government) you'd force the government to shrink. Unfortunately, that hasn’t happened and the government continues to grow at an unprecedented rate. During the Bush Administration, the Executive and Legislative branches of government had, at best, a tenuous relationship. Although amiable on the surface they didn't get along. A deal was struck: if Congress and the Senate Republicans go along with White House priorities, the White House would support whatever spending each of the Senators or Congressmen wanted. Year after year, election after election, every politician talks about controlling spending, but no one delivers. The Democrats, fairly or not, have been labeled as proponents of Big Government - so there is an expectation that they'll spend. However, Republicans either have to get serious about shrinking government spending or stop saying they'll do it.

Five. Get serious about healthcare. As mentioned on this site, healthcare is rapidly becoming a huge issue. America is not the leader in healthcare in meaningful metric except one: we spend the most per capita than any other nation in the world. We spend more on Medicare and Medicaid than we do on National Defense. Unless we get this spending under control, we cannot balance the budget. In theory we have a private medical system, lauded by Republicans as being much more efficient than any government run system. But in practice, we don't. Emergency rooms are overwhelmed and being used as the primary care facility for the 50 million plus uninsured. Who pays? Tax payer subsidies and individuals via higher insurance rates. So we have the worst of both worlds - socialized medicine paid for in an inefficiently by private-sector run healthcare insurance.

McCain may complain that he is being punished for the sins of Bush and should be considered on his own merits: however, the centerpiece of his campaign is an endorsement of Bush's tax cuts. It's tough to claim the mantle of change, while championing on more of the same. We'll see on November 4^th and the weeks that follow, but it is our belief that the Republican platform has just "jumped the shark" and is in desperate need of a new agenda: (1) Getting the government to work; (2) Fixing immigration; (3) Embrace environmentalism; (4) Control spending; (5) Fix healthcare.

Should the expected occur and the Democrats take the White House and Congress, they will be facing huge problems: an economic crisis; two wars; a healthcare crisis; an immigration problem; an energy crisis; the deficit; the rise of Islamic Fundamentalism; and much, much more. People will have high expectations and over the next four years it will be tough for anyone to deliver. Meanwhile, the Republicans will have four years to decide whether they propose more of the same, or something new. Stay tuned and we'll find out.