The deficit: Debating our future, not our past

Link Hoewing Contributor
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For months now, there has been a lot of discussion inside the beltway about coming to a “grand bargain” that will solve our nation’s economic woes in one fell swoop. Many look to how we responded during past economic struggles in the hopes that history will be our guide. I’m not sure the answer lies in our past, but history can certainly serve as a starting point in negotiations for members of the so-called Super Committee who recently started their work.

America is facing a serious budget deficit, in part, because we have failed to modernize elements of past “bargains.”

In these economic times, and with a government as large as ours, some continuing efforts to prune spending will be needed. But the truth is the simplistic budget debates that have devolved into bumper sticker opposition to “cuts” in social programs and blasts against “tax increases” are off the mark.   The Rivlin-Domenici Commission, the Simpson-Bowles Deficit Commission and the “Gang of Six” frameworks all found, in part, that many of our existing government programs need to be updated to fit with the society and economy we have today.

Traveling back in time is not the answer, but there are a handful of steps we can immediately take to update our policies and make America more competitive.

First, good information and data is vital to government decision-making in an economy as large as ours.  Without it, we will create policies and funding programs that will result in waste, missteps, and continued verspending.

For example, the balance of trade is measured by a system that does not carefully credit the value of modern consumer and technology devices.  A smartphone made in China that may cost $300 once imported to the U.S. is valued and fully credited to Chinese manufacturers – even though most of the components for the devices are made elsewhere and only assembled in China. This means the value imparted by Chinese workers is only a fraction of the total value.  As a result, our economic and tax trade deficit numbers that are based on outdated data models heavily influences policies.

Outdated regulatory policies also constrain growth.  To its credit, the Federal Communications Commission (FCC) is seriously considering reforms to decades-old subsidy programs that impose billions of charges on consumers and support outdated voice telephone services.  But efforts to release more spectrum into the pipeline are also vital.  The process for providing mobile companies with additional spectrum is far too slow, and we still have no established path forward.

Most importantly, America’s tax policies have not been reformed in decades.  While some scream against “tax increases,” with the right reforms, our tax system could be modernized to create strong incentives for investment and growth.

The U.S. corporate tax rate stands at 35 percent, which could soon stand as the highest rate of tax on businesses worldwide. A study by the Organization for Economic Cooperation and Development found that of the various taxes a country can impose, “corporate taxes are the most harmful tax for economic and wage growth and global competitiveness.”

U.S. policymakers should take steps to make our business tax system competitive with its major trading partners or risk falling behind in the global race to attract capital, jobs, and drivers for economic growth.

While companies often identify ways in which their policies should evolve to reflect new efficiencies and support a growing customer base, there is no such driving force for government. And this problem is not exclusive to the federal government. State and local governments are still divided into thousands of townships, conservation districts, school districts, municipalities and other forms of government, many of which overlap and impose a confusing variety of taxes or fees.   While local governments can be closer to people and more accountable in some ways, modern technology makes it possible to reduce many of these overlaps and inefficiencies while continuing to keep governments accountable.

It is true that we once did create a broad societal policy framework that worked on many levels.  But we have never updated that “grand bargain” to fit today’s society and economy.

Government programs tend to lock in inefficient systems.  We far too seldom look back at policies in a considered way.   There would be nothing unfair in doing so if we took the attitude that modernizing is not cutting – it is making things more fair and supportive of a modern, innovation, and investment-based economy.

This is our chance to do so.  We should not miss it.

Link Hoewing is Vice President for Internet and Technology Policy at Verizon