By Jack Tymann
With unemployment at 9.8 percent, Congress will extend Bush administration tax-rates and unemployment benefits, cut payroll taxes, establish a more moderate estate tax; netting $700 billion in taxpayer rather than government hands. A boost to America’s fragile economic recovery, the deal adds urgency to next consider long-term debt reduction.
The just-released Deficit Commission report highlights the magnitude and urgency of our nation’s debt crisis. Their bold recommendations will frame the national discourse on America’s future. Will our nation become a welfare state, where economic decisions are dictated by huge federal government and central planning? Or will America remain a Republic, with the private sector leading job creation and economic growth?
The commission’s plan reduces 2020 deficits by $4 trillion while stabilizing debt well below today’s 89 percent of gross domestic product. Fiscal conservatives say “not enough;” progressives object to extensive tax and spending reductions. To reach consensus we now need civil, constructive debate, an honest search for common ground.
The plan addresses critically needed Social Security reform, recognizing America’s demographics have changed dramatically since 1935, when there were 16 workers for every one retiree. As 80 million “boomers” leave the workforce, that ratio is headed toward 2:1. Thus SS is not sustainable without reform.
The proposed SS changes gradually increase SS retirement age until it reaches 68 in 2050; reduce cost-of-living increases; reduce benefits for higher income beneficiaries; and raise the threshold on the amount of income subject to SS payroll taxes.
Not so draconian, especially when considering that doing nothing would see SS plus Medicare benefits consume 60 percent of tax revenues by 2040. Adding health-care costs and debt servicing to that mix would mean zero left for anything else.
In parallel, the plan calls for major tax reform. The bipartisan commission suggests a simpler, flatter, pro-business tax code; quite Reaganesque. They recommend reducing the highest rate from 38 percent down to 21 percent, the middle rate to 15 percent, and the lowest rate to 8 percent. Importantly, they significantly reduce rates on corporate profits from 35 percent to 28 percent, more in line with foreign competitors.
Additionally, they eliminate taxes on overseas profits of U.S. multi-national corporations. Currently, $1 trillion in U.S. corporate profits are being held overseas rather than paying U.S. taxes on profits made elsewhere. Together these moves would have a profound impact on investments and job creation in the U.S.
To allow these reductions, they scale back tax credits and deductions, cutting child tax credits, mortgage interest deductions and employee health insurance. They also propose an additional 15 cents per gallon in gasoline taxes; a good idea only if the resultant revenues are committed to fund technologies and programs toward energy independence.
The plan does not address Obamacare directly, leaving related issues to be addressed by the states, in the courts and via piecemeal funding restrictions in the new Congress. The commission instead focused on phasing out the tax-free status of employer-provided health benefits and significantly capping annual cost increases for Medicare and Medicaid. If these ideas are melded with new congressional initiatives on tort reform and insurance portability, we could soon see real progress toward affordable health-care reform.
Thankfully, the plan focuses heavily on spending cuts: 15 percent reduction in congressional and White House budgets; 10 percent reduction of the federal work force; three-year freeze on all federal pay; cuts in defense contracting; one-third reduction in overseas military bases; and elimination of earmarks. These will be declared not enough by deficit hawks; too aggressive by Pentagon proponents and progressive spenders; too “unfair” by labor unions.
But just as families and businesses deal with “belt-tightening,” our elected officials must now do likewise.
The proposals are oriented toward capital formation, while addressing entitlement reform. New tax policy will free private money for new economic activity. If most of these recommendations are adopted, we should see a huge surge in small business growth and job creation, followed by significant new tax revenues.
When the new Congress is seated in January, the plan will guide our politicians to take some critically needed decisions. For success, the debate ahead must be constructive, involving everyone: the House, Senate, President Barack Obama, the media, and the American people.
Most involved know that inaction would be an unconscionable dereliction of duty. Inaction would mean continued high unemployment, more mortgage foreclosures, and further weakening of the U.S. dollar. We cannot survive as a prosperous nation if we continue reckless fiscal policy.
To re-invigorate America’s economy, we need spending disciplines, new tax policies, entitlement reform and less government.
It’s time for our leaders to lead. The American voters demand that, as they stated in last month’s elections.
Tymann retired as Westinghouse president international, where he led business development in 75 nations. He is currently managing director of Florida-based SEP World. A frequent contributor to the Daily News, Jack is a lecturer in Southwest Florida, a passionate voice for a strong private sector and limited government. He was the keynote speaker at the initial tea party gathering in Naples. E-mail him at email@example.com.