REFORMATION

REFORMATION

There is a lot of talk in Washington about a “grand bargain”. There is a lot of talk in Washington, period. In fact, there is a lot more talk than action. And it has been that way for too long.

But if there is serious inclination towards a grand bargain, then the question becomes: “what is truly grand”? Grandeur is – like beauty – in the eye of the beholder. The fear is not misplaced that in the eyes of most members of Congress even a little tinkering in the margin will be considered a great leap forward.

Let’s help them out. The grand bargain required to liberate our economy from the shackles of a burdensome government and –conversely – to liberate government from the tired ideological meddling by election driven politicians - will have to bring a veritable reformation. It will have to bring reform in three critical areas:

1. Entitlement Reform
2. Tax Reform
3. Tort Reform

1. Entitlement reform is required because our demographics have changed to the point that all previous assumptions about the financing of these programs are now obsolete. In fact Congress should not create or revise any entitlement programs – Social Security, Medicare and Medicaid - without building in the requirement that the premises behind the program are reviewed and reset by Congress at set intervals.

The private sector thrives on creative destruction. It throws out the way we have always done it and starts all over again. In the public sector that does not happen nearly enough. The world is changing fast but we assume that we can live with the same decades old programs in perpetuity.

Congress’ prerequisite in any effort to reset entitlements should be to safeguard the programs for the next generation by funding them within the parameters Congress is setting for long term budgets and for the control of the national debt.

Since there is little good news in the demographic direction of our population from a program perspective, it is time to make means-testing a standard feature of our entitlement programs. In fact we should give up on the notion of entitlements. These programs were designed - and should continue to serve - as a safety net. To keep the less fortunate members of our society from falling through the cracks. Not as an unalienable right for every member of society.

2. Tax reform should aim for simplification, transparency and fairness. It should look at personal and corporate taxes. And it should address the question if the time is not right to shift part of the revenue generation from taxing income to taxing consumption. To the extent that income remains to be taxed it should be done in only a few rate steps (looking at payroll taxes and other income taxes combined) and with the fewest possible exemptions while preserving the stimulus of important societal objectives like charitable giving, education, infra-structure investments and research and development.

3. Tort reform speaks for itself. The threat of litigation and the lack of reasonable limitations on awards given by juries in tort cases are holding back growth and innovation in multiple ways. In the first place by the cost and availability of liability insurance for most any kind of productive human endeavor. The fear of being sued is holding otherwise responsible professionals back from experimentation and innovation. And the cost of liability insurance –if available at all – adds significantly to the cost of doing business, which is getting past on to the consumer.

Tort reform is complete if we rid ourselves from the ambulance chasers that interrupt out TV watching pleasure and are a blemish on the legal profession. The money spent in litigation and much of the money spent on liability insurance premium should be redirected to productive use.

But the most compelling reason for tort reform is that we need to rid ourselves from anything that keeps us from reaching for new frontiers in science and productivity.

These three reforms are required to address the deficiencies in the current modus operandi. But more than that, they are required to keep the US economy competitive in the global environment.

A grand bargain is required for the good of the nation. And it will only truly be “grand” if it addresses each of the three reforms advocated herein.

The common thread connecting the three reforms should be the objective to: A) Create optimal conditions for economic growth; and B) Assure that implementation is within the financial means of the nation for all current generations

If this can be accomplished we can speak of the second reformation.