Now that we have fallen only part way down the fiscal cliff, it may be time to examine whether we are going to hit bottom or climb back up to the top. As pretty much known by most sensible Americans, when you get in a deficit position when outgo exceeds income, whether in a family, in a business or in government, there are only two options. They are to simultaneously increase income (or revenue) and to decrease spending (or expenses). That seems simple enough in concept and generally most families, businesses and local governments have this understanding. The only institution that has missed the concept completely is the federal government. Granted there are times when national emergencies such as wars, conflagrations, natural disasters, etc. make it impossible to follow the axioms for fiscal responsibility.
But our deficit spending over the past four years of over one trillion dollars per year is consensually agreed to be not only out of hand, but wildly out of control. With a total federal deficit over $16 trillion and no end in sight to continual increases, it is generally agreed that something must be done. But just what has created the roadblock for any action. Well, while there are those in Congress who strongly support substantial reductions in spending, there is a majority of both Democrats and Republicans who just love their personal "pork" projects, which they believe secures their continual re-election. Just take the legislation to offer relief to those who suffered losses from hurricane "Sandy." The Congress couldn’t resist stuffing it full of "pork" projects that have nothing to do with "Sandy" relief including a funding a program in Alaska and new autos for the Department of Justice. There should be some method to curb stuffing a bill offered, for one purpose, full of "pork" projects that have absolutely nothing to do with the original purpose of the legislation. Deficit spending will never be controlled while Congress continues their undisciplined approach to adding billions of dollars to legislation to fund their pet programs in order to achieve re-election status.
Actually there are only two ways to balance a budget, whether it be at the family, business or government level – and that is to increase revenue and decrease expenses. The just passed "Cliff Bill" by the Congress addressed the tax side of the revenue equation but certainly not to the extent of creating a yearly balanced budget or a positive cash flow budget to eat away at the national debt. The President and the Congress are now allegedly going to address the spending side of the equation. There’s only one actual way to address spending and that is to consider each spending initiative in relation to an archer’s target. Any spending that falls in the black is deemed absolutely essential and must be accommodated. For example, since our Constitution requires Congress to provide for the national defense, those expenditures fall in the black of the target.
There are many more expenditures that fall into the black by consensus. Many expenditures in our national budget will fall in the first, second, third and fourth white circle and many will miss the target altogether. When completed, expenditures in the black and in each of the white can be summed circles and stopped when the proposed expenditures are equal to the estimated revenues. That method always produces a balanced budget. Few politicians and special interests will be happy with that approach because their favorite expenditure is too far out in a white circle or completely misses the target and will not be funded. What to do?
A business or a family faced with this dilemma would immediately conclude they have to increase revenue. How does a family increase revenue? The obvious way, is to work harder and earn more money; find a new position with a higher income; get better educated for a career; and so on. A business increases revenue in any number of ways; new marketing plan, increase advertising, better sales coverage, improve existing products, development of new products, lower production costs, adoption of new technology, and so on. Does this work? Sure, for families over the years before the entitlement mentality was encouraged; for business when the business leaders knew, not only how to manage, but how to compete. While this may resolve the revenue/expense equation for families and business it doesn’t have much application for increasing revenue on the part of the federal government.
The new tax rate bill passed by the Congress and signed by the President establishes tax rates for the future which eliminates any rate expansion in that arena. So, what’s the only remaining option is to increase revenue – increase the base of taxpayers. That population is huge with some 27 million persons classified as unemployed and 47% who pay no federal income taxes whatsoever. So the cry heard for the last four years of JOBS, JOBS, JOBS is not only valid but a necessity, provided those jobs are located in the non-government sector. With some 27 million Americans currently unemployed, what tax revenue could be generated by putting them back to work! Not only do they become tax paying citizens but they leave the entitlement ranks, thus lowering the expenditure side of the equation.
But how do we accomplish this goal? Here’s my solution! For the remainder of the new presidential term, four years, declare the equivalent of total war with the single goal to create these jobs. As would happen in wartime, suspend all federal rules that affect the creation of jobs and expansion of businesses -- including environmental regulations, automotive MPG requirements, ObamaCare, Dodd-Frank – to name just a few. Turn American business loose from all the suffocating directives under which business now operates, including labor agreements. Adopt a strategy of free market capitalism defined in the book, *Conscious Capitalism, as "Free market capitalism is one of the most powerful ideas we humans have ever had. But we can aspire to even more. Let’s not be afraid to climb higher."
Retain all the regulatory agencies in place to insure no violations of the Constitution occur. Finance union hierarchy so that legal treatment of union workers can be assured. Does anyone doubt that turning American loose to start, operate and grow business with the heavy hand of government removed will not create millions of new jobs with concomitant flow of increased tax revenue flowing into the US treasury?
Now, within this four year period of free market capitalism, federal revenues will substantially increase with more Americans employed than ever before, paying their fair share of taxes while federal expenditures are substantially decreased with minimum entitlements. Not only is the federal budget easily balanced but yearly surpluses will draw down the national debt to manageable levels. Voila’ -- America is back on track!
At the conclusion of the proposed four year period of free market capitalism, all the government regulatory agencies, special interests, unions, etc. are restored with their previous powers, prerogatives, prestige and privileges. If Americans wish to return to that pre-four year condition of continuing budget deficits, high unemployment, high entitlement spending – well, this will still be a democracy where the people choose their future path. The first challenge, however, is whether the American people and their leaders have the foresight and intestinal fortitude to adopt this four year program of free market capitalism to get America back on track?
*Conscious Capitalism – by John Markey and Raj Sisodia