New Year’s resolutions worth considering

With just a few days remain­ing before we ring out the old year and wel­come in the new one, peo­ple will soon be mak­ing New Year’s res­o­lu­tions. All too often the promises we make to our­selves seem to last about as long as the last few drops of the bub­bly con­sumed on New Year’s Eve, but that doesn’t keep us from engag­ing in this annual ritual.

With this tra­di­tion in mind, I would like to offer a few sug­ges­tions that our nation’s politi­cians and pol­i­cy­mak­ers might con­sider as eco­nomic res­o­lu­tions for 2012. Poli­cies that could, in the long run, pro­duce a more vibrant econ­omy. Actions that put people’s best inter­ests first, rather than enact­ing another series of polit­i­cally expe­di­ent policies.

First, resolve to make 2012 the last year Social Secu­rity will be used as a tool for pro­vid­ing tem­po­rary tax relief for work­ing Amer­i­cans. By its design — which cer­tainly needs to be over­hauled to insure con­tin­ued sol­vency —- Social Secu­rity is sup­posed to pro­vide sup­ple­men­tal income for retired Amer­i­cans. And, by its design, Social Secu­rity is a pay-as-you-go sys­tem where pay­roll tax col­lec­tions from cur­rent work­ers sup­port the pay­ments made to cur­rent retirees. Sadly, given the weak­ened state of the econ­omy and the demo­graph­ics of the pop­u­la­tion, the U.S. is now at the point where more is paid out than what is taken in from cur­rent work­ers. To cut pay­roll taxes to give “work­ing class fam­i­lies” a tax break is flim-flam, pure and sim­ple, since those reduced tax col­lec­tions require more gov­ern­ment bor­row­ing to meet Social Secu­rity oblig­a­tions. If con­tin­ued year-after-year for self-promoting polit­i­cal pur­poses, the pay­roll tax rate cut amounts to an assault on the finan­cial integrity of an already stressed social insur­ance pro­gram and sim­ply pushes the true costs onto future Amer­i­can work­ers and their families.

Sec­ond, bring gov­ern­ment spend­ing under con­trol. The coun­try, its present-day cit­i­zens, and gen­er­a­tions of future Amer­i­cans can­not con­tinue to avoid painful deci­sions. Over the past few years, peo­ple and busi­nesses have engaged in a de-leveraging effort, that is, putting away the credit cards (and other forms of bor­row­ing) to bring long-term spend­ing more in line with income. To be sure, this is not a pleas­ant process; it is one that nec­es­sar­ily involves painful cut­backs, but for the sake of a more pros­per­ous future the process must be undertaken.

Isn’t this same lifestyle change of embrac­ing thrift also needed by the fed­eral gov­ern­ment? The “stim­u­lus’ spend­ing uti­lized by gov­ern­ment over the past few years can be judged as either a fail­ure (by its crit­ics) or hav­ing pro­vided less-than-hoped-for growth (by its sup­port­ers). Either way, if the fis­cal integrity of the nation is val­ued, the de-leveraging effort under­taken by oth­ers must now extend to the fed­eral gov­ern­ment. Fail­ure to do so — along with accept­ing the pain which nec­es­sar­ily ensues — will pro­duce a Greece-like night­mare which will haunt the lives of Amer­i­cans for gen­er­a­tions to come.

On a related note, pol­i­cy­mak­ers should resolve to not pun­ish suc­cess or the suc­cess­ful by try­ing to shake down high-income Amer­i­cans through higher “fair share” tax rates. If spend­ing is brought under con­trol, huge tax col­lec­tion increases become less nec­es­sary. And if there is a real desire to address prob­lems with our var­i­ous means of rais­ing tax rev­enues, then do so hon­estly and in a long-term, com­pre­hen­sive fash­ion; not through quickie, polit­i­cally expe­di­ent deci­sions such as rais­ing tax rates on “mil­lion­aires and bil­lion­aires” or cut­ting pay­roll tax rates.

Fourth, in an effort to cure our eco­nomic ills, do not over-regulate the econ­omy. While it may be a leap of faith, assume that peo­ple and busi­nesses know more about what is in their best inter­ests rather than rely­ing upon politi­cians and their self-selected “experts” to impose their will, thereby pro­duc­ing a stag­nant or reced­ing eco­nomic envi­ron­ment. In the same way that physi­cians do not over-medicate a sick patient, pol­i­cy­mak­ers should not over-regulate a sick econ­omy. To do so would be a seri­ous mis­take when try­ing to encour­age long-term health.

Finally, on a more local­ized level, pol­i­cy­mak­ers should resolve to avoid buy­ing eco­nomic devel­op­ment through var­i­ous busi­ness tax give­aways. While such poli­cies may pro­vide much-desired news­pa­per head­lines, some­body else even­tu­ally will be forced to pick up the tab for that busi­ness welfare.

In short, politi­cians and pol­i­cy­mak­ers should resolve to con­duct the public’s affairs in an open and hon­est fash­ion; in a way that assumes the best role mod­els for gov­ern­ment are the indi­vid­u­als whom they are sup­posed to represent.

Dr. James New­ton serves as Chief Eco­nomic Advi­sor to Com­merce National Bank and is an aux­il­iary fac­ulty mem­ber in eco­nom­ics and sta­tis­tics at OSU-Marion and OSU-Newark. Dr. Newton’s views do not nec­es­sar­ily reflect those of Com­merce National Bank or OSU-Marion/Newark.

Posted by Jim Newton on Dec 28 2011. You can follow any responses to this entry through the RSS Feed. Comments can be made below.