Bob MacDonald on Business

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A Sane Approach to Solving the Budget and Debt Crisis

July 11th, 2011 · No Comments · Business Management

The plan the politicians fear because it might show them for what they are — followers

It is surprise to nobody with even the faintest powers of observation that virtually all of our political leaders fail to exhibit even the most fundamental sign of real leadership. These politicians are in reality nothing more than followers pretending to be leaders clothed in the perks of power. There is a fundamental test that separates the faux leader from a real one. The fake leader waits for an event to happen before trying to decide what action to take. The real leader takes actions that produce the event.

When it comes to the budget and looming debt crisis, the current charade of leadership being foisted upon us by our political leaders is an all too painful example of the price we pay for placing our future in the hands of counterfeit leaders.

It has been obvious for years – maybe decades – that the laissez-faire fiscal attitude of the government toward entitlements, taxes and deficits would ultimately trigger an event that would have dire consequences for our future. Our political leaders blithely sailed along waiting for the event to happen. And, to be honest, we all share in the blame for allowing this to happen since we elected these politicians and abide by their legislative lassitude. This situation creates a revolving cycle causing followers to follow followers and nothing productive results. (In earlier times before having to be “politically correct,” this would have been called a “circle-jerk.”)

So here we are mired in a recession, waist-deep in deficit spending and drowning in an ever-increasing debt crisis, with a financial Armageddon less than two weeks away. So now our political leaders are scurrying around Washington like the proverbial flock of chickens with their heads cut off. Panicked meetings are being held at the Capitol and the White House all in an effort to give the appearance of “leaders in action.” And, that is all it is: the appearance of leadership. By simply reacting to events, rather than getting out front to create events, these “leaders” are only giving further evidence that they are followers leading followers. This is no way to lead.

There is no doubt that what we will end up with is another series of short-term “fixes” that are a reaction to, rather than a resolution of the problem. And, this will happen at the very last minute so each of these politicians will be able thump their chests with self-showered praise for their “great leadership” in time of crisis. But this is not leadership; this is following. What is needed is leadership to take actions that will leapfrog the short-term crisis and take control of the events for long-term solutions.

It’s not like long-term solutions are not available. It has not received much publicity (probably because the politicians don’t want it known how simple the solution is) but the non-partisan Solutions for the American National Economy (SANE) produced a report that recommended actions designed to implement long-term solutions to the financial crisis.

The first point that SANE made in their report was that the only concept that should be inviolable is “fiscal responsibility.” The report argued that everything else was a means to an end, not an end in itself. The point was that “just because we’ve always done it that way,” i.e. a progressive income tax system muddied by loopholes is no reason to continue with such a system, especially since it has become inefficient and ineffective. Moreover, SANE offered the opinion (often echoed on these pages) that the reason why political leaders have become so impotent is because they are more concerned with their future than the future of the country. Hence, they tend to do what is easy, not what is right. Amen.

Some of the ideas presented by the members of the SANE task force included:

  • Extending the budget cycle to bi-annual period.
  • A constitutional amendment requiring a balanced budget except “in times of national emergency,” declared by Congress and signed by the President.
  • The national debt would be capped at no more than 65 percent of Gross Domestic Product. (It is presently approaching 100 percent.)
  • The current income tax system would be scrapped and replaced by a single rate system. For example, the first $25,000 of income ($50,000 of combined income for married couples) and the first $250,000 for businesses would not be taxed. For all levels and types of income, i.e. earned, investment and capital gains, above the base, a single tax rate of 14.5 percent would be applied. The only deduction would be for charitable contributions. SANE estimated that such a system would collect hundreds of billions more in revenue than does the current loophole filled system.
  • In order to pay-down the national debt, a temporary 2.5 percent surcharge on individual income and 5 percent on corporate income would be collected until such time as the national debt is reduced to the 65 percent of GDP.
  • A national sales tax of 2.5 percent (those who buy more pay more) would be collected with the proviso that it only be used for education, social services, infrastructure development and health care. (Those below the income tax threshold would receive reimbursement for sales taxes paid.)
  • The Social Security and Medicare System would be put on an actuarially sound financial basis. Unlike the current corrupt system that allows Congress to use surplus Social Security funds to pay for current expenditures (which increases the debt and threatens the soundness of the system), the surplus trust funds would be segregated and remain dedicated to Social Security and Medicare. Once a sound actuarial basis was determined, those who benefit from the systems would pay the cost. (Payments for those with lower income would be supplemented by a portion of the national sales tax revenue.)

These were not the only ideas offered by SANE and they are not perfect, but they are a sane example of how leaders can take control of events by seeking long-term, fundamental solutions, rather than simply reacting to events with short-term fixes. The problem is that no sane person dares to believe that our current political leaders are capable of such leadership.

And the Moral of the Story …

Real leaders do not react to events, they influence them; they make them happen. Leaders do not seek fixes, they seek solutions. Real leaders thrive on the challenge of seeking solutions that anticipate events, while followers react only to what has already happened. When we follow leaders who only follow events we have only ourselves to blame when nothing but insanity follows.

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