I wrote the beginning of this commentary in New York-Presbyterian Hospital where I was admitted on December 4. I had the flu, despite my having received an earlier flu shot. Fortunately, my flu was treated and is now gone. I am under the care of my longtime cardiologist, Dr. Joe Tenenbaum. I appreciate the concern that many of you have expressed and the good wishes you have sent my way. I believe I am OK for someone who celebrates his 88th birthday today.
I didn't want to lose my opportunity of writing my weekly commentary when so many things of importance are happening in Washington, D.C.
It is disheartening that the president and the Congress so far have been unable to agree on a package of measures to prevent us from "going over the fiscal cliff." We are living far beyond our means in terms of government services, borrowing 40 percent of our budget to provide services. Twenty-one percent of our more than trillion-dollar deficit is borrowed from China. As my mother used to say, "Sonny, you don't spend money you don't have."
We Americans should shame our legislators and the president into doing their jobs, which include adopting a budget and 10-year plan that will put our house in order.
When I was elected mayor in 1977, I was told that New York City was on the brink of bankruptcy. We were borrowing from the banks a billion dollars annually for our operating budget and owed the banks six billion for prior borrowings as short-term debt. In 1975, the banks refused to lend any more. Unlike the federal government, the city cannot simply print money, and would not be able to pay its employees.
Hugh Carey was the governor at the time. I had served with him in Congress and supported him when he ran for governor. He was a good friend of mine and the city. I believe he was the greatest governor of the modern era. He and the State Legislature gave me by law four years to balance the city's budget or go into bankruptcy. With the assistance of Governor Carey, members of a Financial Control Board and dedicated high-level people in city government, as well as the extraordinary and key help of the federal government, I did it in three years. I will not list the names of the individuals who helped me accomplish that task for fear of leaving someone out.
Based on my experience, there is only one common sense way to balance a budget: cut expenses and increase revenues in some combination. When cutting expenses, the government becomes subject to the charge of balancing the budget on the backs of the poor and middle-class, because they receive a substantial portion of entitlements. Revenues can be raised in a number of ways. Increasing the taxes on the economically better off is sometimes called class warfare by the opponents.
The Democrats are reluctant to cut programs and expenses, and the Republicans are reluctant to increase taxes on the wealthy. Democrats don't want to hurt the poor and middle-class people. Some simply believe that Medicare, Social Security and Medicaid are so needed by those classes that they would rather go over the fiscal cliff thinking it is all a delusion perpetrated by the conservatives, especially the bankers and brokers of Wall Street.
Democrats and Republicans that are digging in their heels are clearly wrong and when we go over the cliff and they wake up, it will be too late. We will pay the price of having our credit rating lowered, perhaps substantially. We will have to pay future higher interest costs to borrow money. Expenses will have to be reduced, but not in an orderly or consensual way, but more haphazardly and contested. Furthermore, unemployment, now down to 7.7 percent, will once again soar, and even the rich will not be protected in their investments. Surely no one in his right mind believes the Great Recession of the past few years was either easy to bear or good for the country and that we should facilitate a reoccurrence.
Both sides should do what they earlier tried to do and failed -- select six members from each party in each House, a total of 24, and actually move into the Capitol. They should lock the doors and not come out until they have agreed on a budget. They should agree to expense reductions that are three to one over revenue increases, as set forth in the Simpson-Bowles plan. I believe if the parties cannot agree on a budget, they should accept the recommendations of Simpson-Bowles.
Normally, it is the President who submits a budget to the Congress for adoption. That won't work here. What the parties should do is each submit their plans to reduce expenses and raise revenues in order to meet an agreed-upon target that includes balancing the budget and paying down the national debt. The larger the goal, the better for the country, and in no event should the combination of revenue increases and expense reductions be less than the $4 trillion over 10 years as proposed by Simpson-Bowles. Indeed, it should be far higher.
Now some suggestions on revenues:
1. Tax nonprofit corporations. Much of their money, while not given to shareholders by way of dividends, is distributed to the employees who draw huge salaries. In an article that appeared in Bloomberg Markets magazine authored by David Evans, there was a brilliant examination of the non-profits with this statement:
There are 1.63 million tax-exempt organizations in the U.S., according to the Urban Institute. Nonprofit charities reported revenue of $1.51 trillion in 2010 from donations, government grants and contracts. Zerbe says that the U.S. Treasury could collect tens of billions of dollars annually in taxes from nonprofits that make money essentially as for-profit companies.
2. Eliminate the carried interest loophole allowing hedge fund managers to pay 15 percent instead of regular rates on their incomes.
3. Raise the marginal tax rates on millionaires but not on those making less than a million annually. Living in New York City or other major cities is expensive. One is not super rich if making $250,000 a year, having two children in college at a cost that can reach $50,000 a year per child. A so-called millionaires' tax should apply to real millionaires.
4. Create a national stock transfer tax covering everyone, no matter where the stock is purchased or sold, that could raise billions over 10 years. Moving overseas cannot avoid the jurisdiction of the IRS.
5. Require all corporations retaining profits overseas to repatriate those monies within one or two years or be subject to a 15 percent annual surcharge, providing billions of dollars over the next 10 years.
On Social Security, my suggestions on expense reductions are:
1. Age eligibility should be adjusted upward. When it was adopted in 1935, people were expected to die at the age of 63, so most would not be eligible. We now live into our 80s with many of us reaching 100.
2. We should have a needs test on government payment eligibility.
1. Medicare eligibility also should be based on financial need, and higher co-payments should be imposed.
2. Pending a revision of the tax code and an elimination of loopholes, use Mitt Romney's proposal of aggregating all loopholes and imposing a cap. Romney suggested $25,000.
If the Congress and the president do not agree on a balanced budget plan, then we should allow either the Simpson-Bowles plan to be adopted or permit the sequestration plan to take effect.
A sustainably balanced budget will encourage investment and productive activity by our businesses and citizens and produce economic growth, yielding a fiscal dividend of higher tax revenue and lower social costs. When we balanced our budget in my first term, New York City began a renaissance that has continued to this day. We desperately need this outcome for our country.
Kicking the can down the road should not be an option. If the Congress and the president don't agree on a budget and expense reductions and revenue increases for the next 10 years before the new year, they will have violated their fundamental duty to protect us and our country, and they and their parties should be punished at the polls.