Issue No.

3, Fall 2012

Enterprise Report

Restoring Liberty, Opportunity, and Enterprise in America

The Fight for Free Enterprise Must Continue
by AEI President Arthur Brooks
The fight goes on. We have our work cut out for us at AEI. Our entitlement programs are going broke. Our tax code undermines innovation, job creation, and economic growth. Our military is constrained by antiquated resources, even as more threats appear on the horizon. And if Congress cannot find a solution in the weeks ahead, the fiscal cliff will trigger significant economic contraction and exacerbate the recession’s toll on millions of families. Many in our nation’s capital will look for short-term stopgaps to avoid making hard decisions. But this exemplifies the critical difference that AEI brings to Washington: our scholars recognize that we cannot kick the can down the road indefinitely. Government largess is not just financially

reckless—it is immoral to burden our children and grandchildren with the consequences of our own inaction and profligacy. My predecessor, Chris DeMuth, used to say that AEI takes a long-run view in a short-run city. This simple wisdom gets to the heart of everything that we do.

“Our resolve is stronger today than ever before. How can this be? The answer is simple. Your belief in our core principles and confidence in our work is indispensable.”
In that vein, Andrew Biggs, Tom Miller, Kevin Hassett, and others are developing reforms to structurally overhaul our most troubled programs and rein in our unsustainable spending. We
Rep. Paul Ryan (R–Wis.), Arthur Brooks, and House Majority Leader Eric Cantor (R–Va.)

are also looking ahead to the next regulatory battlegrounds. We have hired a new scholar focusing on technology policy and plan to expand our research on that increasingly contentious policy area. And we continue to enhance the delivery of our ideas to wider and more influential audiences. Our redesigned blog, AEIdeas, is helping transform AEI into a more relevant and dynamic institution that sets the terms of the debates and injects the right ideas into the national conversation at the right time. It will take years of hard work—persuasive arguments, compelling data, and principled reforms—to restore the system that has allowed each of us to earn our success and lifted billions out of poverty around the world. AEI’s mission is not a political objective—it is a moral imperative. That is why we’re in the fight for free enterprise for the long haul. Our resolve is stronger today than ever before. How can this be? The answer is simple. Your belief in our core principles and confidence in our work is indispensable. It has buoyed our spirits through periods of challenge and reinvigorated our determination to win the fight for freedom, opportunity, and enterprise. Throughout our history, AEI has thrived during periods of adversity. We will continue to make our case—louder than ever—knowing that you are in our corner.

Four simple truths that undergird AEI’s mission:
• Rewarding hard work and merit—not redistribution— is the foundation of an economic framework that creates opportunity for every citizen • A culture of competition, not cronyism, guarantees the fairest and most productive economy • Shifting the burden of our profligacy onto future generations is unfair, immoral, and fiscally unsustainable • Domestic prosperity is predicated on a robust national defense and a foreign policy that affirms America’s indispensable role in the world

This Thanksgiving, my colleagues and I want to thank you for making AEI’s mission possible. Your moral, financial, and intellectual support is helping AEI build a stronger nation—not just in the short-run but for generations to come. Thank you again, and best wishes for a joyous holiday season.


Policy Focus

Avoiding the Fiscal Cliff
Time is up. Barring congressional action, the “fiscal cliff” will usher in some $500 billion in tax hikes and $110 billion in spending cuts at the start of 2013. As the lame duck Congress pieces together short-term stopgap measures, AEI scholars will look beyond the horizon and propose long-term structural reforms that can win broad, bipartisan support. Following is a sample of their recommendations to restore America’s fiscal solvency.

For good reason, Rep. Paul Ryan called Andrew Biggs “one of the two experts on Social Security I listen to.” Andrew is outlining steps to preserve Social Security, a program that—barring substantive reform—will burden taxpayers with $8.6 trillion in unfunded liabilities over the next 75 years. Keeping Americans in the workforce for as long as possible is essential to Social Security’s solvency. Andrew recommends increasing the retirement age from 62 to 65 (the average male life expectancy when Social Security was implemented was 58 years). This increase should be matched with incentives to work. Andrew suggests eliminating the Social Security payroll tax for workers past the retirement age to increase worker take-home pay. Finally, he has proposed a flat benefit payment system—one that would pay every beneficiary the same dollar-value benefit each month. This system would ensure that the most vulnerable elderly remain above the poverty line while also reducing the benefits paid to high earners.


By 2020, the number of Medicare beneficiaries will nearly double to 80 million. Over that same period, the ratio of workers to beneficiaries will decline by 35 percent. Something has to give. AEI visiting scholar Jim Capretta suggests converting Medicare into a premium-support program, through which beneficiaries could use a fixed-dollar voucher to purchase private insurance. This model would enhance competition and place downward pressure on health care costs—all while providing the same package of benefits as Medicare. Jim and AEI’s health policy scholars are briefing policymakers on the framework for a premium support system, which is drawing bipartisan support in Congress and represented a key component of the FY2013 House Republican budget.


Alan Viard has proposed a bold solution: throw out the entire tax code. His recent book, Progressive Consumption Taxation, explains why the tax on dividends and capital gains thwarts savings and investment. Under the current code, a worker who saves to consume in the future is taxed more heavily than a worker who consumes today. Shifting to a consumption tax—one that taxes only household wages and business cash flow—would incentivize investment and boost long-run economic output by several percentage points, according to Alan. This code, dubbed the “X-tax,” would remain revenue neutral, all while eliminating the complexity of the current code and retaining progressivity. Writing for Tax Policy, the nation’s most influential tax journal, economist Marty Sullivan described Alan’s book as the “holy grail of tax reform.” A go-to source of sound, trustworthy, nonpartisan research, Alan has been briefing members of Congress and senior staff on his new book and tax policy.


The logic is simple: more workers, more tax revenue. But America’s anticompetitive corporate tax rate impedes job creation. That rate—the highest among developed nations—is the third highest in the world, trailing only Guyana and the Democratic Republic of the Congo. Kevin Hassett and other AEI economic policy scholars are making the case for lower corporate tax rates in a new volume, Rethinking Competitiveness, set for release next month. As Kevin explains, “blue collar workers should be rioting right now in favor of lower corporate tax rates.” Lowering that rate would incentivize mobile firms to relocate to the United States, culminating in an increase in employment and tax revenue.



Our Voice in the Blogosphere
Quickly disseminating policy analysis can be a challenge for a think tank. Policy debates shift in a matter of days, leaving little time for a scholar to respond with an op-ed, let alone a book or research paper. AEIdeas, our rebranded blog, offers a solution. Under the leadership of Jim Pethokoukis, we have transformed this platform into a key destination for policy analysis, offering our scholars a platform to weigh in on the latest headlines and drive the terms of debate. This summer, we unveiled a redesigned layout with new features to ease navigation. But more importantly, we matched style enhancements with greater substance. More scholars are now posting to AEIdeas, especially when news touches on their research interests. We also folded AEI fellow Mark Perry’s popular finance and economics blog, Carpe Diem, into AEIdeas. The response to these changes is paying off. In September, we counted more than 220,000 unique visitors to AEIdeas, up some 250 percent from the

A look at what our scholars are reading
Charles Murray • Failure is Not an Option: Mission Control from Mercury to Apollo 13 and Beyond, by Gene Kranz

• Born Fighting: How the Scots-Irish Shaped America, by Jim Webb

Danielle Pletka • Arguably, by Christopher Hitchens

“[Jim Pethokoukis] is becoming the best minute-by-minute conservative commentator on economic and fiscal policy. Pethokoukis really gets a kick out of exploding common economic mythologies.” —Business Insider
previous year. Forbes, CNN, the Washington Post, and Politico are just a few of the media outlets that regularly refer to our content. And in July, the Wall Street Journal re-printed a full post from Charles Murray on its editorial page.

• No Easy Day: The Firsthand Account of the Mission that Killed Osama bin Laden, by Mark Owen

Mark Perry • Freedom’s Forge: How American Business Produced Victory in World War II, by Arthur Herman • Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon, by Gretchen Morgenson and Joshua Rosner

Alex Pollock • Lombard Street: A Description of the Money Market, by Walter Bagehot

• Mr. Market Miscalculates: The Bubble Years and Beyond, by James Grant

AEI Ideas Blog is Reaching an Expanded Audience
September 2011–September 2012

Leon Aron • Reading Lolita in Tehran, by Azar Nafisi • Boswell’s Presumptuous Task: The Making of the Life of Dr. Johnson, by Adam Sisman

increase in unique visits


SEPT. 2011 SEPT. 2012
50000 100000 150000 *A unique visit is the standard measure of popularity for websites.

Visit the AEIdeas blog at
200000 250000 Unique visits*


Defining the Debate: The Future of Defense Policy
Pentagon sequestration, the murder of Ambassador Chris Stevens, and Iran’s unabated nuclear ambition make this much clear: America’s foreign policy challenges will play a defining role in the next presidential administration. This spring, AEI’s Marilyn Ware Center for Security Studies launched “Defining the Debate: National Security 2012,” a joint initiative with the Center for a New American Security and the New America Foundation, to ensure that foreign and defense policy issues received close attention from candidates and voters alike. Throughout the campaign season, AEI co-hosted public panels on topics such as defense spending cuts and the fallout from the Arab Spring. Surrogates from the Obama and Romney campaigns also participated in a series of debates on the candidates’ national security and defense policy platforms. Each of our events drew hundreds of in-person attendees— in fact, AEI moved several to external locations to accommodate large crowds. also live-streamed each debate on its Opinion site, reaching thousands of viewers nationwide.

New Hire

Jeff Eisenach has joined AEI as a visiting scholar. Having written extensively on online regulation, Jeff will focus on technology policy with a special emphasis on innovation and entrepreneurship. Jeff has served in senior policy positions at the Federal Trade Commission and the White House Office of Management and Budget, and he began his career in Washington as an AEI research associate in 1979.

Events and Conferences in 2012
Recent speakers at AEI include: Gov. Nikki Haley (R–S.C.); Supreme Court Justice Antonin Scalia; Gov. Scott Walker (R–Wis.); Rep. Paul Ryan (R–Wis.); Sen. Ron Wyden (D–Ore.) and Sen. Marco Rubio (R–Fla.) (clockwise from top left).


Geoff Rehnert, Member of AEI’s National Council; Co-Chief Executive Officer, Audax Group
when Kevin was at Bain and Company and I was at Bain Capital.
Is there a particular scholar or research area that you follow closely?

compliance costs totaling at least half a million dollars and many thousands of hours that have little or no benefit to our investors.
Why should someone support AEI?

I follow Danielle Pletka and Fred Kagan on defense policy, and I have read the books recently written by Arthur Brooks (The Road to Freedom), Charles Murray (Coming Apart), and Jonah Goldberg (The Tyranny of Clichés).

AEI plays a critical role in shaping public policy, particularly now when there is a great divide in our nation about the benefits and morality of free enterprise and capitalism. It is critical to have articulate and thoughtful scholars helping to inform the public understanding and the debates in Washington. Also, in my experience, the team at AEI is open and engaging with its donors, so it is fun to meet and interact with brilliant minds on a range of important and fascinating topics.

“The most profound lesson is that the free enterprise system is on high moral ground and benefits society . . . ”

What lessons do you think business leaders should take from AEI’s work?

The most profound lesson is that the free enterprise system is on high moral ground and benefits society, as Arthur articulates so clearly in The Road to Freedom. The more clearly business

How did you become interested in public policy?

leaders can describe those principles to their own constituencies and to the government leaders they interact with, the more apt we are to have a country and an electorate that understands why those principles are vital to the health of our society.
How has public policy and regulation affected your business?

I have been fascinated by history and political science since I was very young. I want to know how and why the world works—or doesn’t. Understanding public policy is a logical and practical extension of that curiosity.
How did you become involved with AEI?

New to the Board of Trustees
Peter Coors was elected to AEI’s Board of Trustees in September. He is vice chairman of the Molson Coors Brewing Company and serves on numerous community and civic boards, including the University of Colorado Hospital, the National Western Stock Show, the Denver Area Council of the Boy Scouts of America, and the Adolph Coors Foundation, of which he is the chairman.

The most obvious development has been the need for Audax, a private equity firm, to register as an investment adviser as a consequence of the Dodd-Frank Act. The needless inclusion of private equity under that law creates

Kevin Rollins, chairman of AEI’s Board of Trustees, is a former colleague and friend from the mid-1980s who introduced me to AEI. Kevin and I got to know each other through Mitt Romney,


A Nation of Takers: America’s Entitlement Epidemic
Nicholas Eberstadt, AEI’s Henry Wendt Chair in Political Economy, believes that America has reached a tipping point: nearly 50 percent of all households receive transfer benefits from the government. In his new book, A Nation of Takers, Nick examines the rise of the entitlement state and the impact on our culture. His compelling overview is complemented with responses from William Gallston (Brookings Institution) and Yuval Levin (National Affairs), who offer their own take on entitlements. According to Nick, this expansion presents two grave problems. First and most obvious, the growth in entitlement spending is fiscally ruinous. Medicare and Social Security are both woefully underfunded, with a combined liability of more than $35 trillion over the next 75 years. But while these numbers are daunting, America’s day of fiscal It should come as no surprise that the size and scope of government has grown since America’s founding. But as Nick Eberstadt explains in his new book, A Nation of Takers, Washington today “would be scarcely recognizable to Franklin D. Roosevelt.” This transformation is largely attributable to one driver alone: entitlements. Simply put, the federal government has become an entitlements machine. In 1960, the federal government spent $24 billion on transfer payments, allocating the overwhelming majority of the budget to infrastructure and defense spending. Fifty years later, that budget has been inverted. $2.2 trillion—nearly two-thirds of the federal budget—was spent on entitlements in 2010.

Myth v. Fact
Myth: Few non seniors receive government benefits Fact: Over a third of families without any seniors were on at least one government benefit program—even before the recession

judgment may be decades away. Paradoxically, the short-term sustainability of America’s spending binge contributes to the second and more damaging threat: our growing dependency is a moral failure. We are shifting the debt burden onto generations of unborn Americans— all without reservation. This, Nick insists, is corroding our civic culture and undermining America’s tradition of self-reliance. Our national character may be more difficult to restore than our finances. Myth: The number of families receiving benefits has been stable over time Fact: In 1983, fewer than 30 percent of households received government benefits, but by 2011, that number had climbed to 49 percent Fact: In 2010, 34 percent of American households received means-tested benefits, yet the poverty rate was only 15 percent Myth: Means testing ensures that only the truly needy receive welfare

To learn more about A Nation of Takers visit

“For those who care about the direction of the country, the National Council is a terrific way to stay engaged with an institution that is driving America’s political and policy debates. Regular conference calls with Arthur Brooks and AEI scholars, in addition to regional events with scholars, policymakers, and other leaders, give me an inside look at the policy landscape in Washington—without setting foot inside the Beltway. I’m proud to be a member of the Council and to be a part of the solution for a stronger future.”
Rob and Anne Raymond

—Anne Raymond, AEI National Council member

AEI National Council
AEI is supported by a small number of donors—fewer than 1,000 in total. Within this community, the National Council is a special group of business and community leaders who not only share AEI’s values but take a special interest in helping the Institute expand its reach and build its constituencies. Council members are invited to exclusive AEI events, including our annual World Forum in Sea Island, Georgia and our Chairman’s Dinner, a private event in Washington, DC, with leading national policymakers. Members also participate in regular conference calls with AEI president Arthur Brooks and our scholars for in-depth discussions on the latest headlines. Recent conference calls have included AEI scholars Michael Barone, Jonah Goldberg, and Charles Murray, as well as House Majority Leader Eric Cantor. Launched two years ago, AEI’s National Council recently added its 87th public member. National Council members hail from all over the country and support AEI at the $25,000 level and above. For more information about joining AEI’s National Council, please contact Toby Stock, managing director of development (202.862.5834;

The American Enterprise Institute is a community of scholars and supporters committed to expanding liberty, increasing individual opportunity, and strengthening free enterprise. AEI’s work is made possible only by the financial backing of those who share our values and support our aims. To learn more about AEI’s scholars and their work, visit 1150 Seventeenth Street, NW Washington DC 20036 202.862.5800 | To find out how you can invest in our scholars’ work, visit | |


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