Our country is in deep financial difficulty at this time when revenues are low, expenses are very high, and the level of debt is unsustainable. Yet our leaders seem to be unable to find solutions to the deficit issue that are acceptable across party lines. Some of our legislators would rather see the "other side" fail than see America be successful. We need to treat our country as if it was a business; all the while we make sure to maintain our humanity towards our fellow Americans during this time of crisis. It would be simple to gut programs that provide necessary services to the poor since this group has limited support from lobbyists and a very weak voice with the media. The savings though, would have little long term gain and most likely be filled with expensive unanticipated consequences. Winston Churchill once suggested that "the true measure of any society is the manner in which it cares for its old and for its poor". We must find a way to transcend the ideological differences between the parties and find meaningful, long term solutions to the problems our country faces. This paper is not intended to replace all of the other efforts to reduce the deficit but rather to add new ideas to the planning process that to date have been overlooked.
If one wishes to be successful in a bid to win the presidency of the United States, or any other federal public office of leadership he must find a plan that the American public will embrace and encourage congress to act to implement so strongly that congress will be unable to ignore such a plan. The American public is disappointed in the fact that the federal government exhibits such a disconnect with the needs of the people, that it appears to be more of an aristocracy than a democracy, run by a group of very wealthy, career politicians who exempt themselves from any laws with which all other Americans must comply. Below are several ideas that could be championed by a candidate for a leadership position that will endear him to the American public and make it almost impossible for those who oppose him to ignore. These ideas are so much in concert with the needs of Americans that the public will allow sufficient time for their implementation. It will provide the needed "light at the end of the tunnel" Americans are seeking.
As long as the United States Dollar remains the world's reserve currency, The United States will be able to continue to print as much money as it wishes. As soon as the dollar is not the world's reserve currency, we will not be able to continue to print money without backing and we will be unable to produce enough money to pay the interest on our debt. I agree that the world's nations most likely understand they cannot allow the United States to default on its debt, so they probably won't call for a change to a different reserve currency. Our leaders must not become complacent in this thought and instead must actively seek to reduce the country's debt to acceptable levels quickly, while there is still time to do so.
The odds on this happening and happening quickly are low because of the disparate ideology of the two political parties. In an overly simplified summary: the conservatives believe we can cut our way to solvency by dramatically reducing expenditures; while the liberals believe we can tax our way to solvency. They are both wrong and yet they are both right. Let's look at these problems through the perceptual filters of the businessman. When a business finds itself suffering losses, it immediately reduces expenses to minimize the flow of red ink and rebuilds revenues to prosper. Business knows that you cannot cost cut to profitability, you must grow revenues as well. In the case of the government being the business in this example, revenues are identified as increased tax revenues, and cost cutting includes both the reduction and/or elimination of certain costs and the reduction of waste and duplication.
When business sees that there is not enough income to support its expenses, wages are either frozen or reduced depending on the severity of the shortfall and these wage reductions are applied to all levels of the organization. In the case of the United States government where the shortfall is at a critical level and the time available to reach solvency is limited, the action needs be significant, timely, must start at the very top and must include all levels of government. In order to gain the necessary "buy-in" from the American people, the cuts have to begin at the top. The American public at this time is really angry at its government. They see government as a ruling class with no sense of the needs and plight of the average American. Now, when drastic reductions in government spending are on the immediate horizon, the American taxpayers hear how it will affect them and their neighbor, yet they see that that government has once again exempted themselves from the sacrifice. The "buy-in" I speak of is one that unites us all to a common cause. To facilitate this "buy in", I would propose that effective immediately, all government employees and contractors being paid $100,000.00 per year or more shall have their wages reduced by 20%. This would include the President and the members of Congress, but would except non-contractor members of the military,. All government employees and contractors being paid less than $100,000.00 per year shall have their wages reduced by 10% immediately. These pay levels shall be frozen at that rate until the deficit has been resolved and debt repayment has been initiated. In the future, pay rates in government shall be computed relative to some percentage of wages paid for similar work in the private sector and the ability of the government to pay those wages. Available data suggests that there are 2,047,128 civilian employees of the Federal Government who make an average annual salary of $81,092. If we apply an average reduction of 12% the cost reductions of this initiative would be $198,980,841,600 over the next ten years. This, by itself, does not eliminate the deficit, but together with many other efforts would balance the budget and begin debt repayment. It is no longer acceptable to see the wages actually go down in the tax-paying private sector while government employees and our top government officials continue to receive additional compensation all the while the problems continue to go unsolved.
In order to save additional money and provide the leadership with an incentive to "do the right thing" when contemplating expense reductions, effective immediately all federal government employees shall receive their health benefits insured through the Medicare program and all state employees shall receive their health benefits insured by that state's Medicaid program with each employee paying a level of premium co-pay for such coverage that is typical in the private sector.
When the auto companies faced bankruptcy, it was reported to the public that one of the prime reasons for the potential bankruptcy was the auto companies' exposure to excessive legacy costs associated with employee health insurance and pension benefits. The government at all levels faces the same problems as health costs and pension benefits are far in excess of those provided in the public sector and are no longer sustainable. If we are to deal with the inordinate cost of our government, we will need to deal with these excessive legacy costs. To that end I propose that, effective immediately, no government employee who has not yet retired will be able to draw his retirement pay until he has reached the full retirement age indicated for social security recipients. It is my understanding that members of the House of Representatives enjoy two year terms which carry the potential of a significant number of limited term representatives not re-elected and therefore eligible for lifetime pension payments regardless of their age. This current pension plan must be replaced by 401-K or 403-B as described later in this document.
I have heard many times that the entitlement programs, (Medicare, Medicaid and Social Security) are the reason for the deficit and members of congress have suggested solutions including having the wealthy receive reduced or no social security or Medicare benefits based upon means testing. This would be wrong since these people have paid in amounts larger that many taxpayers. It would be more appropriate to tax everyone the same for Social Security and for Medicare. The worker who earns $75,000.00 per year pays 6.20% of his total earnings to the Social Security and Medicare programs and his employer matches that contribution. The same is true for the worker who earns 35,000.00, or $50,000.00 or even $105,000.00 per year. However, the worker who earns $2,000,000.00 per year only contributes 0.3% of his salary as does his employer. I propose we remove all earning caps to Social Security and Medicare contributions. I further propose that the early retirement currently at age 62 be eliminated completely and benefits will begin on one's normal retirement date based upon the year of birth. The Social Security program would then be adequately funded to take us beyond the "boomer" bubble. Once again the number of employed will exceed the number retired to the extent that the social security tax rate could be reduced all the while we continue to provide a safety net to protect retirees from falling below the poverty level.
Growing revenues call for increasing tax revenues, not simply increasing tax rates. Since the Bush tax cuts, we now receive the lowest income tax revenue as a percentage of GDP since the Eisenhower days, and this is in the face of our staggering deficit. I would propose that we eliminate all of the Bush income tax cuts for everyone, not only the wealthy, but the middle class and poor as well. We all need to step up to meet this crisis and avoid leaving this staggering debt for our children and grandchildren. Increasing the tax rate and eliminating the tax loopholes are ways to increase tax revenues. Once the debt has been repaid, tax rates could be reduced to levels indicated by a balanced budget.
On MSNBC's "Morning Joe" TV show aired on Monday 7/25/2011, we reviewed revenue vs. spending over the last ten years. These charts illustrated the progression from a surplus in 2000 to the current deficit. It is clear now that we not only need to cut spending, which is almost at 24% of GDP now (in contrast to 18% in 2000), but also increase revenue, which has decreased to 15% of GDP from close to 21% in 2000 in order to reduce the deficit in any meaningful way. As you can see we have both a spending problem and a revenue problem and we must address both issues.
There has been a dramatic decrease in tax rates for the wealthiest 400 Americans over the past 15 years as a result of first the Clinton tax cuts and then the Bush tax cuts. Effective tax rates have decreased from approximately 30% in 1993 to 18% in 2008.
These tax rate changes have created an economic climate where the richest 400 Americans-making an average of $270 million in 2008-paid taxes at a lower rate than those Americans making an average of $75,000 and only slightly more than a hospital maintenance worker earning $29,000 per year. See below for the charts. If these 400 people were taxed at the 1993 rate the increase in revenues would amount to $2,970,000,000 over the next ten years.
Creating an economic recovery that includes significant job creation is an even better way to grow tax revenues. Putting people to work takes two bites out of the apple as it not only creates one more person paying taxes and buying goods and services, but, also eliminates one person on the welfare and unemployment role using tax money to exist. It is said that government cannot actually create jobs, but merely create an environment in which jobs may be created. Here are some things worth considering.
The conservatives tell us to "reduce taxes and business will invest in the future. Take care of the wealthy and they will trickle down the fruits of their investments to the rest of the country." Liberals tell us to "spend our way out of the recession through a series of government sponsored spending programs such as community construction programs, road repairs and other infrastructure maintenance as well as direct money giveaways to taxpayers designed to stimulate spending." Each of these approaches has been utilized often in the past with limited success and none address the root cause of this recession. This time, in the interest of global market development and corporate cost savings, we have sent our jobs out of the country. Such a practice has left an inordinate number of American consumers without jobs.
When Americans don't have jobs, they are unable spend. Spending at all levels is dramatically reduced and the economy suffers. In fact, the world's economy suffers since the American is the primary consumer of the world. Before the burst of the housing bubble, the unemployed and under-employed American was able to continue spending at a level commensurate with a more prosperous environment through the use of credit. When credit levels became excessive, people were able to refinance their homes at attractive rates and turn the equity generated by a rapidly rising housing market into renewed credit lines and continue their preferred spending patterns. The burst of the housing bubble ended this practice and a flood of financial failures followed immediately.
This reduction in employment with its corresponding reduction in consumer spending and reduced revenues from payroll and sales taxes has extended the pain of the recession to governmental units at all levels through profound reductions in tax revenues coupled with the added expense of assistance to those who have lost their jobs. Reduced revenues with increased costs have threatened the very viability of many governmental units who are only able to solve shortfalls by reduced spending and increased taxes and fees. California, for example is in such dire straits that the government is considering the legalization of recreational use of marijuana in order to generate huge tax revenues from sale of this drug. The question of whether or not to legalize marijuana is a moral question that needs be debated on its merits and not as a tax revenue producer. Tactics such as these are negative to any attempts to revitalize the economy.
Simply put then, it would appear that the singular most effective tactic to end the recession is to put a large number of Americans back to work. Increased employment would translate to increased spending, increased payroll and sales taxes, reduced costs for assistance to the unemployed and hence renewed prosperity. The question is how might we put Americans back to work? It is true that the government cannot actually generate jobs, but rather only create an environment in which job growth may occur. Recent attempts at economic stimulus only affected policemen, teachers, and those in the construction industry who were charged to make needed infrastructure improvements. This practice created no new jobs as employers only used the stimulus funds to keep existing workers busy. We need find a mechanism that will have a meaningful impact on all business sectors. Government must be creative and sensitive to the needs of American business and the American worker, and provide leadership in this job creation initiative. Let's think of a few tactics in which the government could play a leadership role in development that would improve our economy in dramatic fashion.
Put People Back to Work
In an effort to continue to support the concept of the global market we will encourage other countries to bring their goods and services to our marketplace without excessive taxes or tariffs, but, at the same time we will protect American labor and compete for this business. One way to capture our share of our own marketplace is to identify that at the same time we encourage other countries to bring their wares to our market place, we alert them that the American taxpayer, who funds every governmental unit at every level through taxes, has insisted that any and all purchases of any goods or services by any of these governmental units MUST be purchased from companies producing such items in America without the use of foreign outsourced labor. If no one in this country makes what we need, we just can't have it. Business will be encouraged to enter or reenter these businesses and to stop the outsourcing of labor in order to be able to access this market. With the size of the American governmental units at the Federal, State and local levels as large as they are, you can imagine how many businessmen will respond to this demand and immediately develop businesses in this country to accommodate this market demand and in turn how many millions of Americans will be put back to work in meaningful jobs, some of which are created and many of which are recreated by putting a stop to the outsourcing of American jobs.
In 1993 the Federal Government enacted the Buy American Act which was intended to protect American labor. It wasn't until 1988 that the Act was amended and since that time several amendments have watered down the effect of the Act. The most notable amendment facilitated the NAFTA trade agreement eliminating the American labor preference altogether when dealing within that trade agreement. Sounds like it's time amend the law again and enforce the provisions of the law. I read last year that the federal government had purchased a large number of Toyota Prius autos. How did they do that in the presence of this Act?
With millions of Americans put back at work, payroll and other taxes will soar so that governments will not be forced to pursue questionable tactics such legalizing narcotics to fund excess expenses. Americans will be able to once again buy the things they need from American companies and companies from other countries as well so that the world's economy would recover and prosper. The additional costs, if any, to the governmental units as a result of paying an appropriate rate for labor would be more than offset by dramatic increases in tax revenues and the reduction in costs associated with assisting those who have lost their jobs.
Many of the companies needed to produce the goods and services necessary to the U.S. governmental units will need to manufacture such goods and will create a demand for manufacturing facilities and labor. Such facilities and labor are available for immediate use in some of worst hit areas of our country including the rust belt where factories lay idol, labor struggles to find ways to support their families, and neighborhoods are in decay from foreclosures due to loss of jobs. This plan could make good use of these resources and help these troubled areas thrive once again.
Reduce the Cost of Fuel
Let's take a page from the T. Boone Pickens playbook for energy management and find a mechanism that will allow us to attain much of the savings in a very short time while we reduce emissions at the same time and reduce our dependence on Middle East oil. Mr. Pickens noted that one part of his plan would be to take advantage of huge existing natural gas reserves and offset the use of oil with the use of the cleaner burning natural gas in automobiles. This is a good plan, but it will take considerable time to retrofit automobiles to carry and burn this fuel and even more time to produce safe ways to provide a network of refilling stations across the country.
Perhaps a way to "jump-start" this idea and make an immediate impact on the use of foreign oil and oil prices is for the government, again at all levels, to convert all gas burning vehicles to natural gas. This would include police cars, fire engines, garbage trucks, buses, government cars, etc. in the conversion to natural gas use. I can only imagine the percent of the total use of oil in this country by the government. Since studies equate the cost of using natural gas in automobiles is equal to using approximately $2.00 per gallon gasoline, the cost per use savings could easily offset the retrofit costs as they are limited to minor engine changes and the cost of carrying tanks for the fuel. Refilling stations could be created at governmental facilities to refill the units from a variety of governmental units, and to do so safely and efficiently.
Huge savings for the various governmental units through reduced fuel costs would certainly help reduce the deficit; provide business with increased profits via reduced fuel costs; and promote a cleaner environment. This sure sounds like an effective move by government. At the same time the government is experiencing savings in fuel costs, they have dramatically reduced the demand for oil. This demand reduction will translate into reduced gas prices through reduced demand for product. As oil prices ease the economy will receive another "shot in the arm" as a result of lower fuel costs and hence reduced cost of goods to business and to consumers as well. Sounds like prosperity.
Success at this jump start will set the stage for country wide implementation the conversion to natural gas as a fuel for automobiles. When you couple the use of natural gas with the sale of hybrids, you can imagine what will happen to the demand and price for gasoline. I realize that this reduced need for gasoline will cause a huge reduction in the tax revenues from the sale of gasoline, but the other savings far exceeds this reduction.
Address the Root Causes
Any initiative that fails to address the root causes of the problems merely becomes a band-aid and will quickly lose its effectiveness. Root causes that keep us from addressing and solving these difficult issues are led by the problems associated with the very structure of our government. Let's restrict our problem solving discussion at this point to the President, Vice-President and members of Congress. At this point the president is elected to a four year term and may run again for one more four year term. This means he begins, immediately following election, to campaign for re-election and needs be careful to avoid any issues that will hamper his drive towards re-election. Many of the issues of dire importance to the American public or the country as a whole are avoided because of their controversial nature and the risk to re-election. This impending re-election gives rise to the effectiveness of lobbyists and PACs since the politician requires enormous amounts of money to fund his re-election quest. The lobbyist or the PAC is more than willing to provide substantial gifts to the re-election war chest in hopes of actions sympathetic to its cause. The members of congress are in the same position although they are not restricted to two terms and the present length of those terms differs from the President. The effort to fund the next campaign through donations from all sources including lobbyists, PACs and even the politician's own party cause questions to the integrity of the incumbent's voting patterns. An even greater cost yet accompanies the incumbent's need to campaign for re-election on a continuous basis using time that could be spent doing the business of the nation.
I propose that we increase the term of the President, Vice-President and members of Congress to eight years without access to a repeat term. If we stagger the cycle so that we have elections every other year we would avoid the brain drain associated with massive turnover of members of Congress. With terms limited to eight years, we would avoid the lifelong career member of the Congress; members of Congress would have a much better understanding of the needs of their constituents; no one would spend time or money getting re-elected and could devote all of their efforts to doing the work of the people; and since there is no reason to raise money for re-election, lobbyists and PACS would no longer have the ability to sway votes with cash donations. If there was no need to raise cash and support for re-election from their party, lawmakers would have the ability to vote their conscience on controversial issues without fear of the party's retaliation. This may ease some of the tensions between lawmakers of different parties and encourage them work together to create bi-partisan legislation that is in the best interest of all Americans instead of the party in power. With terms as short as eight years it would be unnecessary to provide lifetime health insurance benefits to this group, and pensions could be limited to funding a percentage of earnings typical of the private sector into a portable 401-K or 403-B plan that each legislator may use as a part of his/her retirement planning. The framers of the Constitution envisioned a democratic congress made up of short term members designed to do the work of the people and did not mean to create a "ruling class" within our country that are compensated well beyond the average American for whom they work. These proposed changes would help to eliminate things such as the passage of a massive health reform bill from which they (legislators) exempted themselves.
These structural changes to the Executive and Legislative branches of the government give us a chance to make the difficult decisions for meaningful changes that address the needs of the country. I am sure that we all can think of many examples where work on some issues is avoided because of the potential impact on re-election outcomes as well as examples of "band-aid" approaches to solving issues that are difficult and controversial and only serve to say "we worked on that". Can you imagine any legislator willing to support the issues discussed in this paper. Of course you can't, he could never get re-elected.
Where Do We Go From Here
I think you will agree that these plans are in concert with the needs of America and Americans and will be embraced by the general public. There are several ways that this set of plans could be implemented. The President or any presidential candidates could use the "bully pulpit" to articulate and propose the adoption of these plans. I believe that the courage to do this would be rewarded by an overwhelmingly positive response from the voting public of both parties. Americans are really angry with government at this time and are afraid of the future and its impact on their lives. These ideas are so much in concert with the wishes of the American public, the President would be applauded and the congress would have little choice but to implement the plan.
If neither the President, nor any other candidate for the presidency, used this plan as a platform from which to seek the presidency, we would have to mobilize the American public to seek to put this plan on the ballot as a referendum for change. In order to do this a plan would need be developed and implemented to utilize the internet and other vehicles to make this plan go viral throughout the country.