The 14th century English logician William of Occam theorized that all things being equal, the simplest or most obvious of two explanations is typically the correct one (today known as "Occam's Razor"). Rarely cited in a political or economic debate, nowhere is this theory more relevant than the conversation over how to reduce America's deficit.
Some background first: America has been struggling with deficits for centuries. We know, however, that it is possible to tackle deficits while significantly growing the economy. For much of the 1970s, 1980s and early 1990s, the deficit fluctuated between tens and hundreds of billions of dollars. However, in the mid and late 1990s, we realized a surplus while simultaneously creating 22 millions jobs. The recent plans introduced by President Obama and House Budget Chairman Paul Ryan are important conversation starters but do not go far enough in identifying pragmatic solutions that can be enacted into law. As a result, in 2020 it's extremely likely that America will still be again struggle with an unsustainable deficit.
Recent economic indicators paint a grim picture: Standard and Poor's (S&P), the widely-respected credit agency, announced in April that it planned to revise the credit outlook for the United States to "negative," based on its conclusion that political disagreement over the debt and deficit will likely persist. Earlier this month, the Bureau of Economic Analysis released Q1 growth estimates showing a far more moderate pace of growth compared to the previous quarter. Ironically, the fact that the S&P announcement and the latest GDP numbers have captivated the attention of world markets and U.S. policymakers suggest that we may have reached an important tipping point.
Unfortunately, we have yet to embrace the simplest or most obvious solutions for reducing the nation's deficit while also ensuring a continued level of growth necessary to remain competitive globally and head off future recessions.
So let's take a different approach. Accepting S&P's presumption, what if we implemented a simple test to key policy debates that considers three factors critical to our long-term recovery: deficit reduction, likelihood of private-sector investment and job creation, and the impact on global competitiveness. Rather than gloss over the United States losing its platinum-plated AAA credit rating, being ranked 6th in innovation, and experiencing continued slow growth, what if we measured these policies against a new model in lieu of the current search for silver bullet solutions that really don't exist?
Consider the following: the United States is sitting on valuable communications spectrum (electromagnetic radio waves necessary for mobile technologies to operate) that, if used properly, could provide tens of billions of dollars to the U.S. Treasury while also helping to fuel private investment critical to the development of the next iPhone or Android device. Recently, a group of 112 economists cited the benefits of an incentive-based, market-driven path, convened by the FCC, saying "incentive auctions can facilitate the repurposing of spectrum from inefficient uses to more valuable ones while minimizing the transaction costs incurred." Low-hanging and sensible fruit.
Another key (and interrelated) proposal is the creation of a corporate tax structure that includes a competitive territorial system, rate reductions and the elimination of tax expenditures that do not align with America's national interest. Following the last major tax overhaul in the 1980s, the U.S. created 6 million non-farm jobs and helped spur a PC and Internet revolution that created millions more. Clearly an inflow of capital investment will do the same.
Long before 2020, America will undoubtedly lose its place as the financial capital of the free world if it continues to revel in an antiquated tax and overly burdensome regulatory structure that penalizes growth and punishes paying dividends to shareholders while other nations -- like Singapore and China - set up special enterprise tax zones to attract U.S. businesses. This needs to change.
Finally, it's time to set aside preconceived notions that free trade isn't in America's best interest. In a globalized economy, it's just the opposite. The International Monetary Fund forecasts that nearly 83 percent of world growth over the next five years will take place outside of the United States. Prioritizing passage of the Colombia, Panama and South Korea Free Trade Agreements will create tens of thousands of new jobs and open new markets to U.S. products and services that generate further growth that is key to reducing the debt.
Twenty years from now, Americans will look back and assess Washington's performance in addressing the deficit issue. The imperative -- moral and economic -- to act is high. But the question remains - will we embrace the wisdom of Occam or pursue ill-defined approaches based on political expedience? If we pursue the latter, the likelihood of losing our competitive advantage won't be a matter of if or how, but when.
Dean Garfield is the president and CEO of the Information Technology Industry Council, a high-tech sector advocacy organization in Washington D.C., and in various foreign capitals around the world.
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