WASHINGTON, AUGUST 13, 2009--Senior fellow and former Speaker of the House Newt Gingrich and former Indianapolis mayor Stephen Goldsmith taught a four-hour course that outlined solutions for dramatic reform in America's budget-making process at AEI.

Gingrich suggested that we have reached a crossroads in American governance. Forty-four states face budget gaps in 2009 and unprecedented deficits are projected in Washington--all signs that the scale of change required for an America with successful state and local governments is enormous. Continued American prosperity requires developing radically new strategies for budgeting in city halls, statehouses, and in the nation's capital.

"This change cannot be handled within the current system of budgeting and the current system of government," Gingrich said. He began the course by outlining why the current system is failing and cited the state legislatures in Albany and Sacramento and now-bankrupt General Motors as examples of undisciplined, shortsighted leadership. Gingrich used these cases to pinpoint areas where waste can be eliminated and government can become more responsive.

According to Gingrich, the May 2009 California referendum in which voters overwhelmingly rejected new tax hikes--even in the state's most left-leaning districts  represented by Nancy Pelosi, Henry Waxman, and Maxine Waters--indicates that Americans are demanding more efficient government. He pointed to the Texas state legislature as a pro-business, anti-waste model that state capitals across the country could replicate. Texas's business incentives, wise use of natural resources, and low tax rates have kept the state fiscally sound despite the current crisis.

In the second hour, Gingrich outlined concrete steps for crafting more successful budgets."Budgets are a function of government. Governments should be a function of the society you are trying to create. So successful budgeting starts by defining a successful society," he said. "If you start budget talks by talking about the budget, you are actually making a mistake."

Gingrich stressed the importance of long-term vision--we must imagine America in 2035 and budget backwards--and of using metrics to measure progress.

In the third hour, Goldsmith drew upon his eight years running Indianapolis's city hall--a period that saw radical improvements in city quality of life and government services--to describe specific areas where state and local governments can become "better, faster and cheaper." He explained that the first step to building an efficient government is to reexamine and rearticulate the purpose of every government program. With a clearly defined goal in mind, government leaders can use a variety of tools to promote more efficient budgeting and governance. These tools range from public-private partnerships to more specific metrics of success and clearer incentives for both producers and consumers of government services.

In the final hour of the course, Gingrich identified specific policy areas that demand fundamental rethinking.  If we want economies that encourage business development and freedom in the marketplace, Gingrich noted, then we must reform our tax structure. He proposed a variety of changes that would facilitate his call for "jobs here, jobs now, jobs fast." These included a temporary payroll tax cut, a reduction of corporate taxes to Ireland's 12.5 percent, and a complete elimination of death and capital gains taxes.

He noted ways states have effectively used natural resources to maintain fiscal and budgetary health, then stressed the importance of smarter state and federal approaches to spending on infrastructure. Toward the end of the session, Gingrich commented about the health care debate, stressing the importance of enforcing fraud rules, advancing medical record technology, and reforming the health justice system. He also raised larger concerns about education reform.

As members of Congress returned home for the August recess, Gingrich and Goldsmith called on leaders to stop adding additional layers to a failed, twentieth-century budgeting process. Both concluded that our continued prosperity will rest on our ability to make government what Americans want and deserve.

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