January 2, 2013

KITCHELL: Avoiding “cliffs” should be permanent

There is a reason why congressional approval ratings are at an historic low and why statesmen seem to be leaving Washington just as highly-charged partisan warriors are belting it out in the Beltway.

Government in the United States has become more about who has more votes than who has the best ideas. Lost among all the wrangling is a deliberative debate over where we’re steering this country. For the past few months, we’ve been told we’re headed right over the edge, just as Christopher Columbus was told he would sail off the edge of the world.

Fortunately, it was not the case in Columbus’ case, and if we’re mindful of how a government should work and a country must function, it won’t be true in our case either.

What the debate over the fiscal cliff boils down to is this: Our country evolved in the 20th century into a land where the government incentivized ways to avoid paying our country in return for acceptable investment and behaviors that create a stable culture – home construction, college educations, retirement savings, nonprofit organization contributions and various other deductions. What we also did in the 20th century is deal with inflation. Those who remember the late Gerald R. Ford’s “Whip Inflation Now” (WIN) buttons remember the turning point in that battle. But when we whipped inflation, we also whipped wages, and with slow-growing wages and rising costs of living, government had the short end of the stick.

The solution to the fiscal cliff problem is simple: We have to incentivize ways to invest in the American government.

What does that mean? It means we have to do more things like offering long-term treasury notes known as T-bills that encourage Americans to invest in their country for the long run now, knowing they’ll receive interest later. It means we might consider incentivizing the tax code so that inheritance taxes are paid years in advance. It means we might have to think about income and corporate taxes like the post office thinks of “Forever stamps” – paying costs in advance so that we never have to pay the costs of postage later when prices are higher.

What that also means is that we have to play to our strength – our brand. If foreign countries believe in us and what we mean to the world, we have to provide investment instruments that are backed by the federal government.

It also may mean that if pay-as-you-go is the goal of Medicare or Social Security, that we calculate a maximum benefit for a lifetime. If an American doesn’t live long enough to collect that benefit, their contributions are used to pay down the federal debt. It’s maybe not the leading entitlement reform proposal out there, but it’s one of few that hurts no one in the process, except those paying into the system if the program costs exceed contributions.

Of course, all this doesn’t matter if we continue spending levels that are not fiscally sound. If Congress adopts unfunded mandates on future generations without attaching funding mechanisms, we’ll be back in this mess again several times over in the near future.

One final thought is this: For all the bitter struggles over the auto industry and financial industry bailouts, both have made money for the U.S. Treasury. GM stock went on sale at the end of 2012, and that company along with Chrysler has avoided the fiscal cliff that would have cost millions of jobs and an incalculable loss in reputation worldwide for the United States. The proposals would not have passed muster if there were not provisions that ensured the U.S. would be better off for ensuring their is a competitive auto industry in this country. And we are.

We just have to take that same kind of thinking back to Washington – and keep it there.

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