The election left us with a status quo political lineup, one that failed to make any meaningful fiscal progress over the past two years. So is it realistic to expect that we can avoid the fiscal cliff and achieve some sort of “grand bargain”? Yes, it is possible, and here is how to do it:
First, President Barack Obama should form a “unity Cabinet” to demonstrate to the public and Congress that he wants to bring the nation together and accelerate progress on key challenges. It should include Democrats, Republicans and independents. All should be respected in both parties, have meaningful private-sector experience and credibility within and outside the Washington Beltway.
These criteria are especially critical when it comes to the president’s top economic team. Obama will almost certainly change the leadership at the Treasury Department, since Treasury Secretary Timothy Geithner has talked about leaving after the first term, and the Office of Management and Budget. Smart appointments could help reboot Obama’s relationships with Congress and increase the chance of success.
Since a unity Cabinet would include members outside the president’s party, who may not have supported his policies, these officials must be willing to accept the president’s agenda and vigorously promote it across the country ‑ after a healthy internal debate.
This “war cabinet” approach has been used by great leaders ‑ including George Washington, Abraham Lincoln and Winston Churchill ‑ during challenging times in the past. America’s deficit problem represents a serious national security threat that deserves similar bold leadership to rally the country.
Obama also needs to take a page out of President Bill Clinton’s playbook and pursue a bipartisan national education to bring about a grand bargain. In 1998, Clinton held town hall meetings across the country to promote Social Security reform. Obama should also meet regularly with congressional leaders from both parties to broaden and deepen his relationships and increase the chances of achieving bipartisan support. This is critical to ensuring that reforms are viewed as fair by the American people.
There is some cause for optimism. Obama does not have to worry about re-election, and he genuinely wants a grand bargain. It would help extend his legacy beyond Obamacare, and the president also knows it’s the right thing to do for the future of our country.
Speaker John Boehner (R-Ohio) wants to achieve a grand bargain as well, and he surely does not want the GOP House to be seen as obstructionist by voters in the 2014 election cycle. In addition, while the Democrats hold the Senate, it’s not clear who will control it in 2015.
Given the relative closeness of the popular vote, the return of a Democratic Senate and a GOP House and the lack of real specificity from the presidential candidates about how to address the fiscal cliff and abyss (the president’s campaign pledge to end tax cuts for the wealthy is far from sufficient), no one can credibly claim they have a mandate for their “fiscal plan.”
At the same time, the American people have made their views clear regarding what our elected officials need to consider.
I heard the public’s views during my recent nationwide fiscal responsibility tour. Voters want Washington to constrain current spending and significantly reduce projected spending ‑ without increasing the poverty level or shredding the social safety net. They want to accelerate economic growth and job creation and avoid another recession.
In addition, they recognize that we need to significantly reduce our projected deficits and debt burdens over time and that social insurance reforms and additional revenue will have to be part of that equation.
So how can we maximize the chance that we will avoid the fiscal cliff and achieve a grand bargain?
First, we have to be realistic about what can be achieved in the coming lame duck session of the Congress. It is unlikely to achieve a grand bargain in 2012.
Nonetheless, we can avoid the fiscal cliff while creating a bridge to an agreement that could help put us on a sustainable long-term fiscal path. This should include not extending certain items (the 2 percent temporary payroll tax cut and extended unemployment benefits); passing an alternative minimum tax patch and Medicare physician payment fix; and reducing defense and other spending, though significantly less than demanded under sequestration. Congress should defer most other tax increases and spending cuts, pending agreement on comprehensive tax, social insurance and other reforms – issues the new Congress should take up in January.
Any additional taxes on the wealthy can be achieved through reducing tax preferences rather than increasing tax rates. For example, Congress could limit overall deductions for the wealthy. But this should only be a bridge strategy that should be coupled with a commitment to real spending and tax reforms in 2013 that will reduce the ratio of public debt to gross domestic product to 60 percent by 2024, in a manner that will ensure such a level can be sustained over time.
This will require reforming our major social insurance programs ‑ Medicare, Medicaid and Social Security ‑ in ways that address both the aging of our population and out-of-control healthcare costs.
We must also modernize our tax system so that more people are paying some income tax, but under a more progressive tax system — where the wealthy pay a higher effective income tax rate and end up paying a greater share of total federal taxes. This can be done while reducing top marginal tax rates ‑ as long as it is coupled with the elimination and reduction of various tax expenditures that disproportionately benefit the wealthy, such as the differential tax treatment for carried interest and capital gains.
The same approach of reducing rates and closing tax expenditures can be taken on the corporate side to improve the competitiveness of our corporate tax system. This should generate federal revenue above the historical levels as a percentage of the economy (18.1 percent of gross domestic product) while not placing undue tax burdens on the middle class.
Washington stalemate does not have to continue. There is a way forward that can help us expand the economy, generate more jobs and put our financial house in order.
After all, the people are ahead of the politicians. They are also starved for truth, leadership and solutions. It is time that they got all three from their president and other elected officials in Washington.
PHOTO: President Barack Obama speaking in the White House Rose Garden, as Treasury Secretary Timothy Geithner looks on in April 2012. Jason Reed / REUTERS
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