TINKERING

It is somewhat astonishing that Congress spoilt its members New Year’s Holiday by waiting to make the easy decisions until the very last minute. If this is all they ever intended to do, it could have been done weeks ago and everybody could have had a relaxed Holiday Season.

Unfortunately, all that was done by Congress’ action to steer away from the Fiscal Cliff was doing the obvious: avoid further immediate damage to the economy by keeping the Bush tax cuts in place except for family income earners of $450,000 or more and by deferring sequestration. The only spending cut that I could find is the elimination of the temporary 2% payroll tax relief.

If you keep in mind that the debate is, or should be, about how to begin the eliminate the now epidemic budget deficits and thus how to begin the bend the curve on the increase of the National Debt, then it is evident that nothing got done by Congress’ action over the New Year’s Holiday. It is just tinkering at the margin!

The fight, as it turned out, was only about getting the highest income earners to pay somewhat higher federal income rates than enshrined in the Bush tax cuts, while leaving the rates for everyone else unchanged. So the focus was on income redistribution from the very rich to the less fortunate when it should have been about stopping the theft by the current generation of income earners from the next generations.

As it stands we have been borrowing for years now more than a trillion dollars per year to fill the gap between federal revenues and federal spending. This is the equivalent of a family taking out credit card debt every year, from year to year, just to keep consuming at a level that is beyond its means. That results in bankruptcy and some people believe that we already are a bankrupt nation.

The IMF warns that funding America’s long term obligations will require an immediate and permanent 35% increase in all taxes and a 35% cut in all benefits!

Whether the IMF has it right or not, there is no argument that we are spending way beyond our means and we are not spending on structural improvements of our infra-structure and our competitive advantage in an increasingly globalized environment. We are spending to meet expectations that we have raised but now find that we cannot fully fund without mortgaging our future.

These expectations reside in the entitlements (including healthcare), in government retirement programs, in the role of our military as a global policy force.

Even Wall Street is short sighted. It shot up on the first trading day of 2013 in response to Congress’ tinkering with the fiscal challenges of the country. Wait until the new Congress has to raise the debt ceiling, which is only weeks away!

When will we know that Congress has moved from tinkering on the margins to seriously addressing the nation’s challenges? Look for any of the following:

• ·         Comprehensive Federal Tax reform to possibly include introduction of a new value added tax
• ·         A binding framework for controlling the growth of the national debt and a mechanism to keep the debt within an acceptable range as a percentage of GDP
• ·         Restructuring of existing entitlements to put them on a long term sustainable footing, commensurate with the demographics of the foreseeable future
• ·         Converting all government pension plans from defined benefit plans to defined contribution plans
• ·         A growth oriented economic policy that enables innovation and productivity and enhances America’s competitive position in a globalized world

The big question is if our existing political system is capable of producing the results the nation needs.

America is in deep trouble if the answer to this question is negative.