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A Businesslike Approach to the Federal Mess

Note: From time to time, we publish the opinions of friends and readers of WhoWhatWhy. Here are the thoughts of Bob Crandall, a former chairman of American Airlines. Our purpose is to generate a dialogue, and we encourage your comments.

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If you are anything like me, you spend part of every day in a rage.  Almost every news cycle brings word of some policy blunder, agency failure or political misbehavior worthy of outrage.  Unhappily, our despair about all the small failings of the system lessens our focus on the two big things that simply must be done!!

We must put our people back to work and we must come up with a plan to stop increasing our outstanding debts. Formulating and adopting credible plans to do both will put our economy back on track and restore our faith in the future.

We are in the grip of the worst crisis the western world has seen since World War II – and still our national leaders prevaricate, waffle, and sometimes tell outright lies. The performance of the political class is a terrible commentary on our own inattention to the quality of those we elect to lead our government.

Neither party has a monopoly on poor leadership – both seem populated largely by people either unwilling to tell the truth or too stupid to recognize it.  Since some of them are demonstrably intelligent, I’ll go with the probability that most are driven primarily by ambition rather than stupidity.  They just want to get elected – and the hell with the welfare of the country.

As we begin the run up to the November election, the president is touring the country pitching the idea that anyone earning more than a million dollars a year should pay at least 30% of his or her income to the federal government.

I’m not opposed to that idea – in fact, I think 30% is too low — but the amount that millionaires pay is not the issue. Anyone who understands the numbers – including the president – knows that if everyone who makes more than a million dollars a year pays at least 30% to the federal government we won’t make any recognizable progress towards  balancing the budget and eliminating our huge annual deficits.  For a simple, graphic and powerful explanation of just how big the problem is, watch this.

The last year in which total US debt declined was 1957, when Dwight D. Eisenhower was President.  Bill Clinton almost balanced the budget in 2000, but fell about $18 Billion short. In every other year, government spending has substantially exceeded government revenues, and the debt has increased.

We ignore efficiency and refuse to impose accountability. We spend too much on things we do not need and tax ourselves too lightly to pay for the things we do need. We keep our national books wrong – even kids know that investing and spending are not the same – and none of us pay enough attention to how government manages our money.

I don’t believe that anyone who has spent any time in or involved with Washington is likely to argue that government is efficient, a view underscored by our unwillingness to do such simple things as holding government contractors to the terms of their contracts, ending  Medicare fraud and collecting all the taxes that are due. These are simple things which competent people should be able to do without difficulty.  Unhappily, we seem unwilling to learn enough about what goes on in Washington to hold administrators and lawmakers to normal standards of performance.

Since our political leaders seem to have little interest in anything beyond proving their opponents more guilty of “waste and inefficiency” than themselves, and since the two parties have completely different views about what we “need” from government, our political life seems to consist entirely of shouting matches about venality and error rather than discussions about solutions.

We need to focus on finding short term ways to stimulate demand – and jobs – and crafting a long term plan to match revenues and spending.

Fixing our broken income tax system, which simply does not work, will be essential to meeting either of those goals.  Our current tax regulations encompass 44,000 pages, 5.5 million words and over 750 forms. The code is full of loopholes and gimmicks, cannot be understood by people without special knowledge and training, generates too little revenue to pay the federal government’s bills and imposes huge compliance costs on everyone.   And Congress keeps cutting the IRS budget, so we don’t collect about 15% of what is owed – which amounts to a shortfall of about $385 billion per year.

To raise the money we need, everyone is going to have to pay more. We need to eliminate the ability of individuals to deduct mortgage interest on huge homes and vacation properties. We need to stop letting companies pay health care premiums while allowing the employees who benefit to exclude those payments from their reported income. We need to insist that everyone who employs household workers make the required contributions for Social Security and Medicare.  We need to acknowledge that it makes no sense to allow hedge fund managers to report their compensation as capital gains.

People who want to solve the problem need to acknowledge that we don’t pay as much in taxes as most other countries.  Last year, Americans paid about $2.62 trillion in federal taxes and $1.42 trillion in state and local taxes.  Our collective income came in at about $14 trillion, which means an average tax rate of a bit more than 29%.   A 2008 survey put the composite tax rate at 27.3%, much lower than the average of 36.2% paid by all OECD countries.   Most Western European countries run in the low to mid 40% range.  Among OECD countries, only Turkey, Chile and Mexico have lower overall rates than the US.

Those on the right seek to mislead by claiming our 39% corporate tax rate is too high, despite knowing full well that actual corporate taxes in the US average roughly 12%.  Many companies pay even less.  On April 29th, the NY Times published a study revealing that Apple paid a rate of only 9.8% on the almost $35 billion it earned in 2011.  That is clearly not Apple’s fair share!

Critics like to point out that some other countries have lower statutory rates, and they are correct.  But in other countries, actual tax rates and statutory tax rates are closer to the same than in the US, which makes lots more sense to me.

The bottom line is that we need to raise taxes, and sooner or later, we will do so. I think everyone is Washington knows that and although a few will acknowledge it, most will deny it.  Everyone needs to step up and get the job done, since waiting just makes the problem worse and the solution more painful.

Everyone in government – on the left and on the right -also needs to acknowledge that there must be big spending cuts.  Some will result from greater efficiency – doing more with fewer resources – and some will come from giving up some of the programs we think we “need”. A big piece will have to come from Defense, since we spend far more than any other country in total and per capita. Another big piece will have to come from modifying Social Security and Medicare, which can be means tested and age adjusted without imposing too much pain on anyone.   Neither Democrats nor Republicans will be happy – but both have an obligation to set aside their ideology and get the job done.

Happily, there is a plan available.   Not long after he was elected, the president appointed the Simpson – Bowles Commission, which came up with a solid plan to substantially reduce our deficits by cutting costs and raising taxes.   Unhappily, because it included lots of unpopular things, both the President and the Congress ignored its recommendations.   It’s time for everyone to set ideology aside, endorse the Simpson-Bowles recommendations and thus lay down a marker that America is serious about fixing its problems.

While adopting a plan that will curb deficits in the long term, we need to make sure we invest enough in the short term to stimulate the economy and put people back to work. We can do so by providing funding to make good on the $2 billion infrastructure maintenance deficit we’ve accumulated.  Building and repairing roads, fixing our dams and bridges, creating a 21st century energy distribution network, bringing water and sewer systems up to date, and making needed repairs to our schools is different from spending on current consumption.  These investments, which will generate lots of decent jobs, will also lay the foundation needed to keep the US competitive and growing in the years ahead. Balancing the budget in the short term is less important than revitalizing our economy; balancing the budget in the long term is essential to restoring confidence in the future and assuring continuing prosperity.

Doing all this would make lots of people mad, and will doubtless mean that some politicians will lose their next election. However, I suspect that those politicians courageous and smart enough to offer credible plans will win more often than they lose.

The public isn’t as stupid as the politicians seem to believe.   The public knows that the government can be run more efficiently but also knows that even an efficiently run government needs sufficient  resources to defend the country,  safeguard our food supply, regulate our financial institutions, defend our environment, sustain and improve the country’s infrastructure, provide a first rate education for every child  and sustain the social safety net. The public knows that we cannot balance the budget by spending cuts alone. I think most people also know that allowing the planned year end spending sequester to occur, refusing to stimulate employment by investing in refurbishing the infrastructure and having another pointless debate about raising the debt ceiling will weaken our already fragile confidence and will likely drive the country into recession.

Most politicians know all this as well, but seem so obsessed with ambition that they continue to prevaricate, waffle and lie. The President, Governor Romney and our congressional leaders steadfastly avoid fulfilling the responsibilities of the leadership roles they all seek so avidly.

Meanwhile, on July 3rd, only a day before our national holiday, the Director of the International Monetary Fund warned of the need for a fiscal course correction in the United States. What a disgrace!!

It’s clearly time to focus – and since the politicians won’t do it without encouragement, it’s up to us to push them along.

To get it done, we all need to pay more attention, study more carefully, participate more fully and complain more loudly.  If we don’t, our kids and grandkids will pay the price.

 

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GRAPHIC: http://media.tcpalm.com/media/img/photos/2010/11/21/220101121164851003_t160.jpg


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  • Danieljamesleach

    The one thought I had as I read this was in regards to the tax rate. Hidden taxes are an interesting and sometimes angering problem. The Federal government gets a lot more than 30% as we spend money. Everything we buy is taxed. I am not disagreeing with this overall opinion… just a thought.

  • Spatter7

    The reason US debt declined in 1957 isn’t simply because we spend more now than we did then. In 1957 the top tax rate was 91%. Shouldn’t you at least mention that fact in an article about how to balance the budget?

    • antoinepgrew

      We were still on the gold standard in 1957, well at least internationally. Every US dollar was convertible to gold. We had to watch our expenditures, otherwise every other country in the world holding US dollars could convert to US gold, which would also reduce the amount of gold needed for domestic consumption. Less gold in our vaults, the fewer bills we could print.

      Once Nixon took us off the gold standard completely on August 15, 1971, we became a sovereign non-convertible currency (not convertible to metal) and could go into debt in our own currency, which we can always pay back. We cannot go broke. We can never run out of money. We can always pay all our debts.

      It was only after Greenspan resigned and had to start burnishing his legacy—which should be that he lied to sitting presidents and caused the worse financial crisis since the Depression—that he stopped mumbling and bamboozling and told the truth. Watch him here on Meet The Press last August, although the term he is using, “print money,” is a holdover from the gold standard days.

      24 sec.

      He should have told that to Clinton instead of telling him that the US was going to run out of money and that he had to quit programs. He did this two weeks before Clinton took office. Why? Because he and Rubin told him that Clinton should just let the markets take over and decide everything. See Part 2 of The Trap by Adam Curtis. That’s why we’re in the damn mess we’re in. They polished it off with revoking Glass-Steagall in October 1999, and then making it a law that we couldn’t regulate derivatives in the 262-page addendum tacked onto the 11,000-page budget on the last day of Congress on December 15, 2000.

      Greenspan should go to jail.

      • Kusokurae

         Explain how inflating the currency to support profligate government spending (and thus robbing widows and orphans–the common people–of the purchasing power of their savings) is good economic policy.

  • eddieleaks.org

    The man behind the curtain so to speak is the fractional reserve lending system where central banks are allowed to create money out of thin air. Money is created as debt/loans that by design cannot be repaid (Soverign, IMF, Housing, Student Loans Credit Cards et) and then assets are seized when the loans are defaulted on (austerity).

     I highly recommend viewing Bill Still’s “The Secret of Oz” for a history lesson on money and those who have controlled the issuance of it. Like Russ’ book “Family of Secrets” reveals, everything you know may be wrong.

    http://eddieleaks.org/follow-the-yellow-brick-road/

    • http://www.911Blogger.com/ Orangutan.

      The Secret of Oz:

      The Money Masters:

      The Men Behind the Curtain:
      http://video.google.com/videoplay?docid=-1693084887024293324

    • antoinepgrew

      You are mixing up what the federal government does, which is create the base money  or money of account (where else would it come from), and what banks do in their public/private partnerships, which is credit creation.

      If people really believed the platitude of government ‘of the people, by the people, and for the people’, they would first know how their monetary system works. Who creates the money, operationally. Not with some theory or philosophy, like neoclassical or monetarist models, but how it really works in the real world. That ignorance is keeping us from a recovery.

      The federal government is the issuer of the currency.

      The 50 states, all business, and all households are the users of the currency.

      So the last thing the federal government should be doing is acting like a business or your or my household. (Also why ex-state governors screw up as Presidents; they’re working from the wrong paradigm.)

      See my suggestion above for Mr. Crandall.

  • Morocco Bama

    One place we could start is by allowing the airlines to go out of business. Inexpensive and ubiquitous air travel is a failed business model that relies on government bailouts and subsidies to keep it afloat. Air travel should be 1/100 of what it currently is, and it is a significant factor in the degradation of the planet’s ecology, both directly and indirectly. Directly, because it spills all manner of filth into the atmosphere in both the creation and operation of the aircraft, and indirectly, because it enables people to be increasingly mobile, thus ensuring that the rate of consumption increases exponentially.

  • http://profile.yahoo.com/7F6NLWB6QWW4XCU5OO37TH4BXQ Neal

    Cool, I’m glad you are not friends with Lorenzo,also:)

  • z1Patriot

    Mr Crandall’s first assertion is
    absolutely correct. He says, “We must put our people back to work
    and we must come up with a plan to stop increasing our outstanding
    debts. Formulating and adopting credible plans to do both will put
    our economy back on track and restore our faith in the future.”
    However, with all due respect, everything said after this reveals the
    gentleman as a victim of the Left-Right-Paradigm ubiquitously taught
    in our schools and colleges. Surely you must be planning to run for
    office (as a democrat we would guess). Your comments show you to
    miss the target entirely, yet it is the same drivel espoused 20 years
    ago (think Clinton) by our “elite” caring,
    better-for-us-than-we-know politicians. A better, smarter, more
    efficient government, where we “customers” can “voluntarily”
    pay our taxes and be snuggled in the bosom of Big-Bro. Alas, the only
    efficiency we need from government is to efficiently follow the U.S.
    Constitution.

    Point of fact: The way we put our
    people back to work is by eliminating our debt and allowing the
    market to work. We do this by eliminating the debt money system that
    is the Federal Reserve Act of 1913. Mr. Crandall seems to think “we”
    can put people to work (who is we? we the govt? We the Corporation?).
    “We the people” can put ourselves back to work once the
    marketplace is cleansed from the massive corruption and fraud that
    has and is taking place under an unholy alliance between government
    and “To-Big-To-Fail” Corporations. It is the Crony Capitalism,
    The Corporatism that pervades the marketplace that is infecting and
    clogging up the arteries of the mechanism that is the economy; that
    was the free market. Furthermore, to “restore faith in the future”
    does not mean “ formulating and adopting credible plans” as the
    gentleman suggest but rather ENFORCING THE CURRENT LAWS ON THE BOOKS
    AND PUTTING THE CRIMINALS IN PRISON … FOR A LONG, LONG TIME!

    To suggest that we must increase taxes
    is to imply that we have a revenue problem. It is quite the
    opposite. We have a spending problem. We have a voracious
    monstrosity called the FEDERAL GOVERNMENT which is exercising
    UN-CONSTITUTIONAL power and like debt money, the more we feed it the
    hungrier it gets.

    We suggest Mr Crandall read or re-read
    Russ’ book “Family of Secrets” and look for that hidden history,
    the networking, then read some other well written similar books and
    he may well find a “Secret Team”; some of whose characters he may
    be familiar considering that Mr. Crandall is a former airline exec.
    Any govt/security ties there?

    Orangutan is on the mark. Take his
    advice Mr. Crandall, respectfully, you have some homework to do.
     

    • antoinepgrew

      Money IS debt. Read your dollar bill. The term “Public Debt” or National Debt” is the record of what we OWN, not OWE. We have a sovereign currency. Big difference from what we had in 1913.

  • Dan Garden

     Mr. Crandall’s spot on, if we ignore the spending called “defense” and the related spending like the VA and “foreign aid”, which is simply money laundering of tax money that goes mostly to companies that make war, er, “profitable”. Of course the several satraps syphon off their “share”… This defense and related spending, with the corruption it fosters, amounts to at least 1/2 of spending…maybe 3/4…

    But there’s no blame. It’s structural.

    Step back and take a look at the Big Picture. Their lordships are looting the State and “leveraging” public equity to try to dominate the globe by force. Given the PNAC operation – (a tasty little job!) – the very idea of responsible adult-supervised and equitable State, particularly in the face of global storming, resource depletion, and the inevitable  Malthusian population crash, is at best a wishful conceit. It assumes conditions that do not and cannot exist.

    I wish it were not so.

    Peace.

  • antoinepgrew

    Mr. Crandall, read this book: “The 7 Deadly Innocent Frauds of Economic Policy.” It’s free online here or you can buy from Amazon. At the VERY least, read the testimonials on page 2.
    http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

    Then listen to this:
    http://michael-hudson.com/wp-content/uploads/2012/GunsnButter03.07.2012.mp3

    Transcript here:
    http://michael-hudson.com/2012/03/mmt-as-the-austerity-alternative/

    You will not regret it.

  • antoinepgrew

    Mr. Crandall. Like your spending on infrastructure plan.

    Not this, however:
    “Not long after he was elected, the president appointed the Simpson – Bowles Commission, which came up with a solid plan to substantially reduce our deficits by cutting costs and raising taxes.”

    The Simpson – Bowles Commission had no budget, so they outsourced it to the Peter G. Petersen Foundation. (Petersen is the guy trying to totally gut Social Security and Medicare.) This included the listening tour that America Speaks put together to take the ideas to the people, which the Peterson Foundation paid for as well. The Foundation initially wanted to fund and sponsor it by themselves, but America Speaks refused. Petersen got the MacArthur Foundation to lend their prestigious name and seeming support, but it was all Petersen’s money and his policy rolling around the country softening everyone up, scaring the hell out of them and BSing about the state of the economy.

    It’s a scam. You don’t raise taxes went the economy is ice-cold. And you increase fed govt spending to jumpstart it. The stimulus was waaaay too small.

    As you can read from my other posts below, we do not have to gut Social Security and Medicare. The Federal Government is the issuer of the currency. We cannot go broke. We can easily afford Social Security and Medicare. Gutting these social programs is throwing working public programs into Wall Street for their financial gain. More theft.

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