Fix the debt. It’s a lot harder than it sounds. Earlier this year, a group of longtime deficit hawks came together to accomplish what has eluded their predecessors for so long.
Unveiled at the National Press Club in Washington on July 17, the group had a new name – the Campaign to Fix the Debt – some old faces; Erskine Bowles, Alan Simpson, Pete Peterson, Alice Rivlin, and all of the familiar platitudes associated with previous efforts to put the federal budget on a sustainable path. A “non-partisan coalition” working to replace “temporary patches” with a “comprehensive solution” that will “grow the economy” and “protect the most vulnerable”.
Pretty soon, chief executives of major US companies were signing on: folks like Dave Cote of Honeywell, Andrew Liveris of Dow Chemical and Duncan Niederauer of NYSE Euronext. By the end of October, the number of business leaders had grown to 100. The campaign had a steering committee, a citizen’s petition, a budget of $40 million (R354.5m) and a set of core principles, starting with the recognition that “our growing debt is a serious threat to the economic well-being and security of the US”.
It sounds a lot like a 12-step programme for Debtors Anonymous. I don’t mean to belittle the campaign’s noble intentions. Faced with automatic tax increases and spending cuts on January 1, President Barack Obama and Congress need all the support, and cover, they can get to negotiate a short-term fix with enough enforcement mechanisms to produce a long-term solution. I’m wondering why this time is different.
For example, Democrats and Republicans already agree on, or pay lip service to, a “core principle” of tax reform: something that simplifies the tax code and raises revenue by broadening the base and eliminating loopholes that exceed $1 trillion annually. So why are they still talking about it 46 days from the fiscal cliff?
Answer: Because agreeing on principles isn’t the same as closing a deal. To the 100 chief executives who insist “everything is on the table”, where is one – just one – who says “here, take this off my plate”?
Jeffrey Immelt, the chief executive of General Electric (GE), has signed on to the Campaign to Fix the Debt and was among those who met with the president on Wednesday. GE maintains a 975-person tax department, and it isn’t to dot the Is and cross the Ts on the corporate income-tax return. The reason for the army of lawyers and accountants is to exploit the tax code to minimise the company’s tax liability. And they do a darn good job.
I participated in two conference calls sponsored by the Campaign to Fix the Debt. On the October 25 call, I asked Honeywell’s Cote if the chief executives gathered to ring the opening bell at the New York Stock Exchange that day would sign a pledge to forgo all lobbying that benefited their particular company and industry.
“We all signed a pledge not to sign any pledges,” Cote said, to laughter.
On the November 8 call, I asked a similar question. After commending the chief executives for their effort, I wanted to know what exactly they proposed to do.
Actions, not words. Call it first-mover disadvantage. Maya MacGuineas, the president of the Committee for a Responsible Federal Budget and a leader of the Fix the Debt campaign, said she was “encouraged by the level of outreach” on the part of business leaders.
I still wasn’t hearing much about the “do” part. To what extent are chief executives, who are accountable to their shareholders and focused on their stock price, willing to “put national interest ahead of special interests?”
For that matter, how many of the ordinary Americans signing on to the Fix the Debt initiative want to sacrifice their mortgage-interest deduction or exemption for employer-provided health-care benefits? There is a constituency for every loophole. More than half the lobbying in this country is related to the tax code, which is just one of the many reasons to strip it down to its bare essentials.
Based on past efforts, and limited success, in attacking deductions and exemptions, the best we can probably hope for is something Republican presidential nominee Mitt Romney proposed: a cap on itemised deductions for high-income earners. If that’s what reform looks like, the tax code will continue to encourage inefficient behaviour to the detriment of the economy.
Both sides have staked out their positions in the wake of the November 6 election. The president said he would veto any extension of the Bush-era tax cuts that includes households making more than $250 000 a year. Republican House and Senate leaders, who were scheduled to meet with the president on Friday, were open to increasing revenues, not marginal tax rates.
Will the support of business leaders be enough? In an interview last week, MacGuineas said the chief executives realised the nation needed to make major changes in the budget “on our own terms before it’s forced upon us” by the markets. Nothing would concentrate the mind on fiscal deficits like soaring interest rates.
Absent that sense of urgency, it will take shared sacrifice, to borrow a phrase from Obama, to solve the nation’s budget issues. There may be no “I” in team, but there’s a lot of “ego” in CEO.
Caroline Baum is a Bloomberg View columnist.