No. 1 Cause of the Country's Budget Woes
Last month Paul Ryan proposed the Republicans' budget, which promised to cut our long term national debt by $4.6 trillion over the next ten years primarily through cost cutting, restricting spending to a percentage of GDP and changes in the way certain entitlement programs (like Medicare) are funded. Around the same time, Senator Pat Murray shared the Democrats' vision, which promised to cut our debt by about $2 trillion over the same period, relying on tax increases and additional costs cuts (but also coupled with more infrastructure spending).
And now this week the President, taking into account both sides and searching for a "grand bargain" reveals his plan which promises to cut our debts by $1.8 trillion over ten years (or over $4 trillion when added to previously enacted cuts) through tax increases and cuts in entitlements, most notably (and controversially) by limiting social security payouts and placing more taxes on the wealthy.
There's good stuff in each of the three plans. But which is the better one for your business? Unfortunately, it's none of them. That's because a typical small business owner...no, wait...a typical business executive, would not be proposing any of these. A business executive, at least the many who I know, would be taking a much different approach.
The objectives, thankfully, would still be the same. Our rising national debt, now approaching $17 trillion needs to be brought under control. Our annual deficits which have exceeded $1 trillion in each of the past five years (yes they're decreasing but are projected to increase after the next few years yet again) needs to be brought into balance. And this has to be done through a combination of revenue raising and cost cutting steps.
Yes, Republicans, revenue raising. Any business person knows that exploring ways to get more money from our customers is one of the first things we consider when profits are down. And the reality is that the taxpayer is the government's customer. But a typical business executive wouldn't just raise revenues by increasing his rates. He would charge more to the people that could afford to pay while at the same time giving them a better choice of products and services.
Yes, Democrats, cost cutting. Government people cut the increase in spending. Business people cut spending. There's an enormous difference. Government people avoid making difficult decisions because they don't want to lose their jobs. Business people make difficult decisions because they don't want to go out of business. I've had to fire employees, eliminate beloved marketing programs and discontinue product lines where I've sunk significant time and money. I've hated it. But I've done it. Because that's what business people do.
So what would a business executive do to get the government's deficits under control and balance our budget? Well before going further, first take a look at this perfect pie-chart by Ezra Klein. The government spends approximately 41 percent of our money on some type of insurance. And this percentage will rise as our population ages. A business executive would attack this problem first and foremost. And he would do so by matching his services to the right customer and charging the right amount for those services.
For example, I do not need social security. The Ford retiree sitting behind me on a recent flight to Palm Springs who I overheard telling his seatmate that he "planned to visit his grandchildren in California after playing a couple of rounds of golf" doesn't need social security. In fact, many of the people I know in my own neighborhood do not need social security. So don't argue about cutting the inflation rate used to calculate our future benefits. Just cut our benefits. Yes, we've paid it in. But we get it: it's a tax. And it's history. The government provides too many services, like social security payments, Medicare reimbursements, retirement checks, disability insurance and other like entitlements to people who don't need them. A business executive would be fired from his board for allowing this to happen. Check my tax return. If my income is above a certain level then reduce or eliminate my government benefits. Re-allocate to the people that truly do need this support and apply these savings towards our deficits.
A business executive would change his pricing to reflect the market and his customers' choices. If I choose to use I-95 then I should pay a toll to the Federal government. If not, then I can take an alternative route. My choice. If I choose to use the U.S. postal service in lieu of e-mail or faxing or Facebook then I should have to pay a true price for the cost of a stamp (and clearly the current $0.46 price isn't a true price because the USPS is bleeding cash). Outside of the government's safety net (the military, unemployment benefits, welfare, etc.) all other government functions from TSA checks at the airport to services offered by the Small Business Administration, should have a price that's commensurate with covering all costs and based on the need of the consumer. My company had different product and service offerings that fit different budgets. It's not genius, it's just what a typical business person does.
And a business executive would stick to certain spending targets. Ryan's proposal to target government spending to a specific percentage of GDP makes sense. It's a sound way to control costs. It gives us choices. Difficult choices of course. But we can choose what's more important: the military or education, social programs or new construction. I have my opinions. You have your opinions. We elect our politicians just like a CEO appoints his managers to figure this out and execute what we want. And we trust that they will figure this out. But all within the confines of a budget. Most companies tie spending to profitability. For the government, the next best thing is tying this to GDP.
And those grand schemes of reform? I'm not sure how that would play in any executive suite. No one could deny the benefits of anything that would squeeze more profits or make things more efficient? So proposals to overhaul the tax code, reform the way the government spends its money and re-structure our defense programs would meet with the hearty approval of any CEO. But these are vague proposals. And even if and when they do get approved and implemented they'll be based on assumptions that forecast savings over a great many years with few ways to figure out if any of these things were ever effective. A business executive would liken these types of programs to Six Sigma, ISO 9000, or other quality control initiatives: good for PR, some value for the company, but very difficult to quantify the actual results into real dollars.
So which of these budgets is best for your business? Unfortunately none. Because these budgets are not the product of business people. They're the product of politicians. Our budget deficits are huge and need to be fixed. And any business executive will tell you that the problem is fixable. But the people who are trying to fix it are politicians, not business executives. That's the real problem.
GENE MARKS | Columnist | Owner, Marks Group
Gene Marks is a columnist, author, and small-business owner. He oversees the Marks Group, a 10-person technology consultancy to small and medium-size businesses. A certified public accountant, Marks has also worked in the entrepreneurial services arm of KPMG. He writes for The New York Times, Forbes, and The Huffington Post.