Economic Issues Fuel Steve Welch's U.S. Senate Campaign

Editor's note: The article below is based on an interview with Steve Welch, the Malvern businessman running for U.S. Senate, that was conducted in February. The quotes in the Q&A section have been edited for length and clarity. 

Full disclosure: In 1996, Steve Welch was a manager at my first job at . I only worked with him a few days, but I remember he wore a cowboy hat and was ceaselessly upbeat and energetic. The park's owners had moved him from the river—a fun job where he learned the value of a wide-brimmed hat against summer sun—to the workaday "game show" section.

"Whoever was before me had destroyed it," he recalled. "[The owners] gave me a big bonus to try to fix the problems in the game area."

When we met again, 16 years later at Einstein Bagels in Paoli for an interview about his Senate run, it was clear Welch once again sees himself working to fix a broken system. The government and, by extension, the economy have been poorly managed, he said, and he has plans to localize decision-making, reduce regulation and overhaul the tax code.

His background isn't in politics, but business. Welch earned an engineering degree from Penn State, and at age 29 founded a bio-tech firm, Mitos Technologies, which he eventually sold for millions to Parker Hannifin. He has worked since then as an investor, founding DreamIt Ventures to foster young entrepreneurs.

Welch has lived in Charlestown for two years with his wife, Nicole, and their two children, ages 2 and 4. They chose their house in part because of its proximity to Charlestown Elementary School. He's a member of Great Valley Presbyterian Church and the local YMCA.

He's racked up an impressive list of endorsements, including those of Gov. Tom Corbett and the state Republican Party. In short, he's a self-made millionaire who lives in the Malvern area and stands a fair chance of becoming the next senator from Pennsylvania.

Here's what he had to say in our interview:

Malvern Patch: If elected, which committees would you like to serve on?
Welch: One would be energy. Because of my engineering background, I think we need more people who can look at these things from an engineering standpoint. If you look at every business in this country—I don't care if it's an accounting firm or a manufacturer—energy is an enormous input cost.

Also, I have a great passion for entrepreneurship and innovation, so I'd be on the small business and entrepreneurship committee.

MP: What is one regulation you feel is hurting businesses?
Welch: My biggest concern, long term—it gets no attention—is Dodd-Frank. It took the regulatory burden of Bank of America and put it on your small community bank.

The first company that would lend us [Mitos] money wasn't Bank of America. It was at a small community bank, WSFS, that we opened up a $50,000 line of credit. That was the difference between us being successful and not being successful. If you talk to most small business owners, they'll tell you it was a small community bank that gave them their first loan or ability to thrive. Dodd-Frank will ultimately drive all of those [community banks], within the next two to five years, out of business entirely, or they'll be acquired by the big banks.

MP: You've criticized the Democrats in Congress for not passing a budget and for voting for the debt ceiling increase. Would you vote against raising the debt limit or make it conditional?
Welch: I think the big problem we have is there's no plan. We have a government that's roughly 30 percent of the economy operating with no plan. That's lunacy. […] Somehow the government and the Obama administration and the Democrats in the Senate have decided they can go a thousand days without a budget. That kind of arrogance that you see coming out of Washington is what has the business community so scared. They look at a Washington that's running out of control on spending. I think what we need is leadership that passes a balanced budget amendment, that's capped as a percentage of GDP, with a time period to phase that in.

MP: How long of a grace period would you allow until the budget is brought into balance?
Welch: Most economists will tell you right now we're borrowing roughly 40 cents on the dollar. It is very reasonable if we lay out a path to getting that to basically balance within five years. The issue is, if we don't, at some point the market's going to force us to live within our means. Once you get to a debt-to-GDP ratio of a certain percent, you just can't escape it. The debt becomes like a black hole and pulls everything else in. And we're somewhere within two to five years of getting to that point right now.

MP: Many of the debates so far have been hosted by Tea Party-affiliated groups. Do you consider yourself a member of the Tea Party?
Welch: I certainly believe in a limited government. I believe the government has gotten out of control and that we need serious changes. If that is what you classify as Tea Party, then I certainly fall under that view.

MP: You’ve been up front about leaving the Republican Party in 2008, along with hundreds of thousands of other people. Can you give an example of why you left?
Welch: What has gotten me involved in politics has always been Democrats, and Republicans that act like Democrats, that believe in big government.

When I was 18 years old, I worked on [U.S. Rep.] Joe Pitts' campaign, stuffing envelopes. In 2005, the Republican Party had the House, they had the Senate, they had the presidency, and I think they failed. They blew up the size of government more than any other administration had to date. I was frustrated with the Republican Party and, candidly, my way of protesting was to change my registration.

I really got involved for the first time after Obama passed the stimulus package, when it was clear that we were going to take bad policies and exaggerate them even worse.

MP: Can you cite one specific issue where you differed from Republicans?
Welch: No Child Left Behind. My great passion is education, so my wife and I spend all of our resources and time on education, prior to running for Senate. The root cause of all the good in the world, I could argue, comes from good education, and the root cause of all bad comes from bad education. [No Child Left Behind] took basically all the decision making away from local communities and put it in Washington for our educational system. […] All of these agencies that we've moved to Washington, I think it's time to take them back to local communities.

MP: What will your general election campaign look like, if you secure the nomination?
Welch: It'll be focused on making America competitive. I've been in manufacturing plants on almost every continent. And I can say with certainty that I think we're the most productive, the most innovative society the world has ever seen. And if you believe that, you have to ask yourself why we shed jobs at such a drastic rate, and the rest of the world has added jobs.

We have a government, in so many different ways, that has taken our resources and applied them to things that are not productive. They're not for making products or services that people need. So you now literally have entire departments of companies dedicated to nothing other than complying with regulations, and it acts as a hidden tax on all Americans. And right now you're seeing it driving American companies out of this country.

You have to start with the tax code. It needs to be thrown away. It, in so many ways, is distorting the marketplace. You literally now have entire departments of tax lawyers and tax accountants that are figuring out what companies owe. There is no value creation from that.

At the same time, you have the tax code picking winners and losers. When you see GE paying zero-percent taxes, for example, and your local small business owner paying way more than zero percent in taxes, it's frustrating to Americans across the political spectrum who look at a system in which those connected to big Washington bureaucracies benefit at the expense of those that don't have political connections.

I think, as a society, we have to get back to a meritocracy, to a point at which the guy who has the best products, the best services, wins the marketplace. Once you do that, ultimately, it's beneficial to all Americans. So the tax code has to get thrown away. You take the trillion dollars in loopholes that we have, take all rates, reduce them accordingly, and that's a game-changer by making every American company more competitive.

Two, it's time to return to commonsense regulations. As you travel the state, the funniest thing is every company tends to say their industry is the most regulated in the country. And they feel like they've been singled out by Washington now. In reality, it is just Washington has gotten out of control and these agencies are just imposing their will on markets in every industry.

And it's time for an energy policy. I'm the geeky engineer in this. Every physics formula comes back to two things: time and energy. And if we are less competitive, we have higher energy costs than the rest of the world—that means every American company is less competitive. So when we force our companies to invest in these things like solar and wind that have no return on investment, we're driving up the actual energy cost of every American family and company. […] And ethanol, if you take away the government subsidies, it doesn't even come close. There's actually a fairly valid argument it consumes more energy to make ethanol than it creates.

And then last is a balanced budget amendment that's capped as a percentage of GDP. And the reason that's so important is it enables businesses to have comfort that we're going to have a tax rate that's historically where it's been. Historically, the United States has had a government that's lived within about 18 to 20 percent of GDP. It's been that way since the end of World War II. That number now is about 27 percent. And if things don't change in the next decade, it'll be 37 percent. That is a rate which an average business owner knows is unsustainable, and because of that, they're scared to invest. And you can't blame them; there's so much uncertainty in the marketplace.

This is a good example of how [Sen. Bob] Casey is disconnected from reality. His big claim to fame is this two-month payroll deduction. There's not a single business owner in this country that makes any decision based on a two-month tax policy, especially when the two-month tax policy isn't enacted until basically the day it goes into effect. So it does nothing to spur growth, and all it does is dig the hole even deeper. And in the end, business owners know we have to pay that back, so we basically have just pushed the higher tax rates to the future.

MP: Do you not believe that the current turnaround is sustainable?
Welch: It's inadequate. You have roughly 15 percent of Americans unemployed or underemployed. We need to add 200,000 jobs a month just to keep up with population growth.

The bigger issue you have to ask yourself is, "Why are we at such a low capacity utilization? Why are we at such low employment for such a long period of time?" We've never been at these levels since the end of the Great Depression. So we're clearly doing something wrong right now, and I think it goes back to the fact that there's no leadership in Washington on these issues. If anything, Washington is doing damage to the business community. This goes into more of a cultural thing; you can't demonize job creators and then ask them to create jobs.

MP: Let’s end the interview on a lighter note. If we were to turn on your car stereo right now, what would we hear?
Welch: [Holds up phone] CNBC on XM. I run everything through the iPhone. I listen to everything.