THE CART AND THE HORSE

In business we learn that looking at other industries and companies, what they do, how they do it and what tools and processes they use, can provide inspiration and stimulus for improving the performance of your company. This does not require industrial espionage. Companies that find ways to ‘do it just right’ attract the spotlight and get written up, their top executives are getting interviewed and invited to business forums and seminars. Many of them are proud of their contribution to business development and are willing to share the ingredients of success with others, particularly if the others are non-competitors. The term for this process is ‘best practices sharing’. The thought behind it is that we don’t necessarily have to reinvent the wheel all the time in order to find the path to durable success. Sometimes the solutions to our challenges are hiding in plain view.

You would think that what is good for the goose is also good for the gander and that our public sector would look at the private sector to find better ways to run the business of the people. But if that happens at all, it happens far too rarely and not at all when it comes to big ticket issues. Case in point the U.S. taxation system. The U.S. has in one generation’s time (my lifetime) accumulated a national debt of more than 18 trillion dollars, which is more than the size of the total American economy. This has happened, because year in and year out the federal government has spent more than it has collected in taxes. If the U.S. public sector was a business it would be bankrupt many times over. But, also, if it was a business it would have never gotten to this point.

In the public sector we are willing to put the cart before the horse. Rather than first deciding what needs to get done, then calculating what it is going to cost and determining how to pay for it, the federal government just seems to run its operations and programs and if the bill for all that exceeds the income, the deficit gets added to the national debt. This is in part because we have made a mockery of our budgeting system with the two parties so far apart on national priorities that we can never agree on what needs to get done (or get done differently) and always end up just doing more of the same. And because raising taxes (or changing the tax system) has become the third rail of American politics that nobody wants to touch. It is mind boggling to me that Washington fails to investigate if it is not primarily the inefficiency with which taxes get levied and collected that causes the revenue side of the ledger to continuously fall short. Are we taxing the right transactions and activities? Are we taxing the right entities (people and companies) at the right (fair, equitable) rate? And are we collecting the taxes we are owed? The answer in each case is no, but our public sector is doing nothing about it.

Most Americans hang on to the belief that running perpetual deficits is ‘the other party’s’ doing and that a resounding electoral defeat is required to solve the problem. The record proves otherwise: deficit creation is practiced on both sides of the aisle, by the Democrats mostly through spending increases and by the Republicans mostly through tax cuts. It has a momentum of its own and is virtually immune to changes in the balance of power in Washington.

If politicians had the courage (and the free reins from their campaign donors) to break with deleterious precedents and traditions and take their cue from best practices in the private sector, they would be giving up on the current practices in public finance and be pushing for two new constitutional amendments:

1.       Calling for the adoption of a national strategy that sets priorities to be achieved along a five and ten year time horizon and that would transcend administrations.

2.       Calling for the passing by Congress and the President of multi-year balanced budgets that are in compliance with the implementation of the adopted national strategy.

The rationale for these two constitutional amendments is that, together, they would provide the political shield required to have our federal government (congress and the President) put the horse back before the cart by mandating a complete restructuring of the U.S. tax system to the effect that the national priorities can be achieved and financed without increasing the national debt.

If politicians have a vision of what needs to get done at the federal level they should also have the courage to make sure that enough tax is getting collected to pay for it. It is high time that through a combination of adjustable consumption taxes, user fees, income taxes and franchise taxes the federal government creates a new age revenue collection system allowing Washington to make certain that the national objectives are achieved and the bills get paid without printing new money.

It is time to move the horse in position to pull the cart and establish a simple public finance rule that the federal government first determines what its priorities are, what needs to get done over what time period, then calculates the cost and ultimately set taxes at a scope and a level required to cover the cost of running the people’s business. That’s how the private sector operates and there is no shame in best practices sharing and borrowing a chapter from someone else’s book.