Archive for November, 2012

An open letter to President Obama



Dear Mr. President:


Congratulations on your decisive re-election victory last week. I am pleased at the nation’s affirmation of your approach to governing. I am also glad that your victory was made possible by such a broad, multicultural cross section of grass-roots America.


This is the first of an occasional series of notes in which I respectfully suggest approaches in dealing with some of the key issues facing the nation.


With the so-called fiscal cliff looming the budget is the most immediate issue and therefore the subject of this first message.


My view is that while it is critical that we address our nation’s fiscal situation, it is not an immediate crisis. Getting the economy growing and creating jobs is the most immediate concern. Not only is job creation and economic growth the most immediate priority, success in that issue would make it easier to control spending. Thus I favor a grand strategy that focuses on job creation now and then pivots to a determined deficit reduction mode that would make the Concord Coalition proud.


The pivot to deficit reduction should occur upon the achievement of a significant growth milestone. What that milestone is would be subject to debate and negotiation. Examples:

  • 3 consecutive quarters of real economic growth exceeding 2.5%.
  • 3 consecutive months of unemployment below 7 percent with at least 200,000 net new jobs per month.


You get the picture. When the time comes to pivot I suggest that you

1) Follow the money. Deal with Social Security, Medicare/Medicaid, and defense in that order. Significant progress on these would reduce the need for cuts in discretionary social spending that have little budgetary impact but big social impact.

2) Use Bowles-Simpson as the starting point for beginning negotiations. You’ll have the spirit of compromise built in. Rep Schakowski will pull in one direction, Rep. Ryan in the other. Hopefully we’ll end up with something sensible.


I would like to offer one approach, based on the broad recommendation in Bowles-Simpson and some possible deficit reduction measures listed by the Congressional Budget Office.


Bowles-Simpson proposes $200 billion in spending cuts including a 15% reduction in defense spending and a 10% reduction in the federal workforce. Bowles-Simpson also adds $100 billion in revenue by imposing a $.15/gallon fuel tax and eliminates several deductions including mortgage interest. Thus Bowles-Simpson results in about $300billion in deficit reduction.


The CBO presents a long list of potential deficit reduction measures, some of which are quite drastic in my view and take a lot of money out of average workers’ pockets. I have selected several which have significant budget impact:




Mandatory Spending
Raise Medicare eligibility to 67 30
Reduce Floor on Medicaid Fed matching 20
Add Public Plan to exchanges 15
Link Social Sec to prices instead of earnings 30
Raise full retirement age in Social Security 30
Raise earliest eligibility age of Social Sec. 30
Total Mandatory Spending 155
Discretionary Spending
Defense appropriation per Bud. Control Act 75
Spending Reductions 230


High income tax cuts expire, keep estate tax 110
Increase fuel tax 25 cents a gallon 30
Repeal domestic production deduction 20
Revenue Additions 160
Total Deficit Reduction 390


That’s almost $400 million in deficit reduction. If you really want to make positive change and reduce the deficit even further you could more aggressively cut defense spending. Bowles-Simpson’s 15% would be larger than the CBO number. You could phase out wasteful market distorting subsidies in energy and the farm sector. Finally—and this needs to happen for a number of reasons—please finish what you started in the 1st term’s dramatic reform of healthcare. We must bring down the cost. I know you’ve all read Gawande and understand the damage done by the fee for service model. If you can reduce healthcare’s share of GDP, you can reduce Medicare even further and perhaps preserve benefits for recipients.


These are tough choices to make and I don’t envy you having to make them. But the approach and significant measures I’ve put forth will take a bi slice out of the deficit, with a minimum of economic pain. Yet there are plenty of places to split differences and compromise where necessary. It shows the world and the financial markets that we’re serious while leaving room for you to implement your other policy priorities.


, , , , , , , , , , ,

Leave a comment