The Obvious Shutdown/Fiscal Solution

            The House of Representatives went home to enjoy the three-day, Columbus Day holiday weekend.  The Senate stayed in Washington and attempted to reach a compromise on our national budget and our national debt ceiling.  The absence of the House of Representatives was accompanied by the absence of vitriol rhetoric from the far-right Republicans.  It felt as if a cease fire had been agreed to – the Democrats and the Republicans were actually talking to each other.

That perceived cease fire gave the hope that cooler heads might prevail.  And, Senators Reid and McConnell were working feverishly to do just that.  Then our Representatives returned.  They immediately went to work and passed a bill that includes items that they know the President will not accept.  The bubble of hope came to an end.  Our Representatives are back and so is gridlock.

It does not matter anymore.  Politicians have already pushed us back into a recession.  The credit agencies will no doubt lower our credit rating.  On August 5, 2011 Standard & Poor’s lowered our debt rating and listed the items that would cause another credit lowering.  Congress and the President have fulfilled every one of those items (see previous blog).  The difference this time is that the Chinese, who are estimated to hold $2 trillion of our $17 trillion debt, are seriously considering parking their money in Euros rather than dollars.  This time, interest rates will rise.  This time the fragile recovery will be shaken.  And, worse of all, this time is again setting up another next time – in three months.

Both the Senate and the House’s bills fund the reopening of government until mid-January, and raise the debt ceiling into February.  Neither bill does anything to address our fiscal problems other than to pledge (yet again) to solve those problems before the next deadline.  Haven’t we seen this movie?  Is there ever going to be a happily ever after?

The solution is so simple and obvious that the vast majority of Americans know what it is – and they want it.  The solution is:

Pass a bill that states:

o       We must create a trajectory to a balanced budget.

o       We have to get to that trajectory through a reduction in spending of $2 for ever $1 of new taxes. (Assuming that we are spending $1 trillion more than we take collect in taxes each year, this means, $667 billion of spending cuts, and $333 billion of new taxes.)

o       Until the specifics of spending cuts can be agreed to so that strategic cuts can be made (funding items that promote economic growth, while not causing too much pain to the needy as the Democrats say they can do), across the board cuts (like the Sequestration) will continue.  However, they may need to be even deeper than the Sequestration to obtain the needed savings.

o       Until any tax reform plan that may close loopholes, reduce marginal tax rates and still somehow raise revenue (as the Republicans say they can do), taxes will be raised on every American making more than $100K by whatever percentage is needed to obtain that $1 of revenue for every $2 of spending cuts.

There, that is it.  It is simple.  It addresses the legitimate concerns raised by Standard and Poor’s.  And, until our politicians can work together to come up with a more thoughtful solution, it provides a crude solution.  The crude solution provides the incentive for Democrats and Republicans to work together on a better solution.  What this solution does not include is another deadline.  Instead it creates a constant low-level headache that Congress can make better.  Congress can make the headache a little better, but it cannot eliminate all of our pain.  We have created a mess of our fiscal house and it is time to pay the reaper.  The good news for Congress is that Americans know the problem – and are willing to compromise (which will mean equal sacrifice for everyone).

The above solution purposely leaves the details for later – but it defines the fiscal end-game.  The insanity of not defining the end-game (as is done in the currently proposed dueling bills) does not provide any confidence in our great nation.  Standard & Poor’s have already told us that the fiscal end-game must be agreed upon.

The sacred cows still need to be dealt with; the Democrats sacred cow is entitlement programs; the Republicans sacred cow is taxes.  The vast majority of Americans know that these sacred cows have to be adjusted.  The vast majority of Americans fully understand mathematics.  The above solution is the articulation of every American’s hope.