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5 Things I Don't Understand About the Deficit

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I know I'm not the brightest bulb in the bunch. And even at the age of forty-six there is just so much about the world around me that I still don't understand. Why can't the Jewish and Arab people figure out a way to resolve their differences? Why, with all our technology, can't we achieve energy independence? Why do we continue to harm the environment despite all the data telling us that we're doing so? Why didn't Frodo just fly one of those eagles into Mordor to destroy the ring instead of taking that long journey by foot? Why, Frodo, why?

And why don't we take some obvious steps to lower the deficit? As a business owner, I don't understand this.

For example, I don't understand the tax debate. I sympathize with those, like the president, who believe that taxes should go up. Look, as a manager I admit I'm a greedy SOB. I'm always trying to increase the fees I charge my clients so I can maximize the revenues I'm getting. Unfortunately, this hasn't gone so well of late. I haven't been able to raise my fees in a couple of years. We've been in a recession, inflation has been next to nothing and all my customers seem to want to talk about is how to lower my fees, not raise them. Asking my clients for more money is as unpopular now as asking citizens to pay more taxes. I might as well ask Barbara Streisand for a contribution to the GOP. It ain't gonna happen.

And yet in my world, lowering taxes seems such an obvious way to increase Federal revenues. Why has Walmart grown to be the world's largest retailer? Because they sell stuff at the lowest prices. Why do people buy more fast food when times are tough? Because the meals are cheapest. Why will my son likely go to Penn State instead of Princeton? Well, that has nothing to do with price -- he's just not smart enough to get into Princeton (and we're keeping our fingers crossed on Penn State too). But most business people I know are smart enough to realize that lowering prices (without going so far as to significantly diminish value) is the key to staying competitive and driving revenues.

Which is why I don't understand the debate about lowering taxes. Particularly corporate taxes. I realize I'm being simplistic here, but if 30-40% of a corporation's earnings are going to the government, doesn't that take away much needed capital that could be invested in more equipment and people (who would then pay taxes on their earnings while at the same time reducing unemployment expenses)? And if that capital were used by companies to grow then wouldn't they in turn be showing more profits which, even at a reduced tax rate, would generate more taxes for the government over the long run? And speaking of competitiveness, if our corporate tax rates were among the lowest of western countries, wouldn't that attract more foreign companies to open up operations here, creating more jobs, more capital investments and (again ) more tax receipts for the government?

Another thing I don't understand: Social security benefits. Every time I turn on the TV I see some shriveled up old person Dancing With The Stars, hosting Saturday Night Live or directing a new movie about... some shriveled up old person. Clearly we're living longer and are healthier. So why is the social security retirement age still so low? What is this... Greece? I don't think that many people would kick up a fuss if the retirement age were notched up a few years. Let's face it: men usually whither away and die once they retire (Regis... watch out). Our government would be doing a good thing if we were asked to keep working. Besides saving a bundle on benefit payments, it would make guys like me feel more important. Like we're still needed. And I don't know any guy running his own company who really plans on retiring anyway. Like they're going to trust their kids to manage the place? Forget it. There are only so many Michael Corleones out there.

And while I'm on the topic of social security benefits (as well as Medicare and all the other entitlements that make up more than 40% of our Federal 2012 budget) don't you think too much is being paid out to people that really don't need it? I was on a flight a few weeks ago to make a presentation in Palm Springs, California. The married couple behind me, a couple of sweet old codgers, were yapping on and on about how they worked for 30 years at General Motors and were getting a pension PLUS social security and how all they do is fly around the country visiting their kids. I love America! Do these people really need a social security check? I'm not rich by any means, but my plan is to never need a social security check. Or Medicare. I'm a business owner. I'll take care of myself. There are plenty like me.

Entitlements should go to the people who truly need them. People out of work, down on their luck or afflicted with health problems. Not to a leathery-skinned-tanned-couple looking to play a few holes in Palm Springs before jetting off to see their next set of kids in Boca. By coming up with specific financial tests (based on tax return data) I'm betting we could significantly reduce the amounts of entitlements that need to be paid out. Would I be annoyed to lose all that "social security" money I "paid in" over the years? C'mon... I know a tax when I see it. And so does everyone else. I'll move on.

Deficit Question #4: Should government workers be getting better benefits than the employees at my company? Or General Electric? Believe it or not, I'm OK with Tom Cruise getting $20 million a picture (it gives hope to us short guys) or that Manny Ramirez is collecting $20 million from the Dodgers this year while he's home probably getting baked and playing Xbox (yeah, the Dodgers went bankrupt. But Manny's got Scott Boras on his side. He'll be fine). However, I'm not OK that some guy who works in the file room at the National Institutes of Health gets 8 weeks vacation and a guaranteed million dollars in pension benefits just because he's put in thirty years on the job. My employees aren't going to ever get that kind of benefits. Hell, I'm not going get that kind of benefits.

Do you think an elected official is going to be voted out of office because he proposes to cut healthcare and pension and other benefits to Federal workers all the way down to the same levels that the rest of us get in corporate America in order to make significant savings in our budget? I don't think so. I think he'd be appointed King. So why isn't this happening? Because this is what a business owner would do. It's called bringing costs into line. Our politicians don't seem to have this mindset. I don't understand it.

Which brings me to the last thing I don't understand about the deficit. It's the costs. Costs that are higher than revenues. Business owners like me across the country scratch their heads when they hear about the U.S. budget. We don't understand things like "raising the debt limit." Our banks don't do this for us. They "foreclose." Guys I know who have run profitable companies for decades do so because they follow this very, very complex concept: costs should be less than revenues. Ha ha. I'm just kidding. It's not very complex at all.

So when we hear that our politicians are "reducing the rate of increase" we don't get it. When we hear proposals to freeze spending at certain levels, even though those levels are still higher than receipts, we don't get it. Here's what we get: if receipts are $100 we can't spend more than $100. So therefore we... don't spend. If that means we have to wait longer for our passports, don't get mail on a Saturday, have to drive around a few potholes or (gasp!) can't operate a few schools then that's just a fact. Of course we would like to be doing all this. I would like to have the latest computer technology, the best people, the top of the line benefits and a Park Avenue office. But I... can't... afford... it.

I know I'm probably irritating some who read this. I apologize for that... it's just me. And maybe I'm just ignorant. I admit it. I've never managed anything as big as the U.S. budget. But I do a run a ten person company. And I know the hard decisions I have to make so I can keep employing people and still have a few bucks away to pay for... well... Penn State. Even so... I still don't understand the deficit problem. Do you?

Gene Marks writes weekly online blogs for both The New York Times and Forbes and bi-weekly for American City Business Journals. He runs a ten person consulting firm outside of Philadelphia and can be followed on Twitter.

Around the Web

U.S. National Debt Clock

US Federal Deficit as percent of GDP - Charts Tables History

The Real vs. Imagined Deficit - Economic Scene - NYTimes.com