If there's one lesson business can teach government at this critical juncture in our federal budget and tax negotiations, it's the art of the deal. As a result of globally embarrassing negotiations from 2011, we are now facing a fiscal cliff of great significance.
A nearly simultaneous expiration of income tax cuts, mandated cuts in government spending and exhaustion of permitted levels of government debt has put us in a place where inaction by the government would lead to a world of hurt. For those who think inaction will set us on the road to a more balanced fiscal situation, think again.
The impact of slower economic growth and a default by the U.S. on its debt will exacerbate the fiscal problem, not rectify it.
Meeting at the White with a dozen CEOs this week has given me hope of progress, but also the some heartburn, as the president focused on the politics of getting to a deal. The White House is concerned about two things: first, that they not get their pockets picked by the Republicans on spending cuts. In other words, they want Republican political leaders to agree that tax rates will need to be higher on the wealthy before the president commits to the kinds of spending cuts he will agree to. The president stresses that this is not unreasonable because the Republicans know what he will do based on the details that were developed in mid-2011 in the aborted debt ceiling negotiations, when the Republican leadership was not able to deliver their rank and file. Second, the White House wants to make sure that both parties' fingerprints are on the entitlement reform steps that need to be taken, because of the political risks of any reform to these revered programs.
Politics aside, the resolution of this crisis should not be difficult. There is broad agreement among thinking people that our fiscal issues need to be addressed through spending cuts and revenue increases. Look at the Simpson-Bowles plan or, more recently, the plan put forth by Senator Bob Corker of Tennessee. Any of us can find aspects of either of these plans that we do not like, but both recognize that spending and revenue need to be included in the package. This BALANCE is the first thing we need in a deal and from our political leaders. We should all cry foul when a politician on the left says tax increases on the wealthy are enough or, equally, when a politician on the right says we need no revenue increases to put our fiscal house in order. These politicians are not representing our national interests. They are representing ideologies untethered to reality.
The second thing we need from our political leaders is SPEED. Instead of accepting a modest "downpayment" today and leaving for later resolution the hard stuff of entitlement reform, we need action now that resolves the bulk of the issues. There are many that say it simply cannot be done. There is too little time. Those comments focus on the few weeks left before the end of the year. They conveniently overlook the fact that we have all known of this deadline for roughly 18 months. If we once again leave completion of the hard stuff until the end of a new deadline, whether it is six or 12 months, can we really expect that resolution will significantly precede the end of that deadline?
But, can it be done? Of course. This is one of the great advantages of the Simpson-Bowles plan and of the negotiations of 2011. Most of the tools for entitlement reform (extending the age for eligibility for Social Security and some means testing for Social Security and Medicare) and for increasing revenues (a 2 percent point impact of higher income tax rates and a cap on all deductions other than charitable contributions for those making over $250,000) have been identified and scored. I dare say that legislative language for virtually every tool in the tool box has already been drafted and is sitting in one bill or another. Pick the tools you want to use, but act. Act now and act definitively.
From my perspective, it is more important that bold and decisive action is taken before year-end than it is that we get it exactly right, for all time. Perfection can be the enemy of good in many areas, none more so than one bedeviled by overly partisan politics. In many respects, our economy has been laboring under government induced uncertainty since no later than those ill-fated debt ceiling negotiations last summer. If these uncertainties can be firmly put behind us, this is one voice that thinks we will see a meaningfully stronger recovery than most are anticipating.
Finally, we need to reach a deal that is COMPREHENSIVE. In brief, this means the deal in December needs to include an increase in the federal debt ceiling. Even with a balanced, fast deal on the fiscal issues, we will run up against the debt ceiling sometime early in 2013.
But comprehensive does not mean we need to solve all issues of importance today. Corporate tax reform, immigration reform, a territorial tax system and energy policies are all of massive importance to our economy. They can and should be addressed early in the president's second term, but we cannot hold resolution of the fiscal cliff hostage to resolution of these issues and expect that we will get anything of significance done now.
Based on the brief meeting we had with President Obama this week, I am convinced that he will act with balance and speed to reach a comprehensive solution to our fiscal cliff. I urge him to do so and to use the power he has as president to lead the political process to a conclusion. He can't be bashful about leading. Equally, I urge our congressional leaders to play their part in pulling this deal together. Recognize that entitlement programs need to be reformed, tax revenues need to go up and compromises need to be reached. Whatever their party, those who step up have my gratitude and support.