Point of View

Fixing the debt, strategically

December 2, 2012 

Long-term planning is essential in the world of business. When we started in the banking and pharmaceutical industries, respectively, we had big dreams, and we believed that we could accomplish anything with hard work and thoughtful long-term planning.

More than 30 years later, the results of our efforts – along with many partners along the way – have culminated in what are now Bank of America and GlaxoSmithKline, world leaders in their respective fields.

This type of long-term thinking is even more important within the largest organization of all: the United States government. In business we cannot afford to be blinded by short-term profits when making strategic decisions for the good of the company. The same principle applies in governance.

It is imperative that we think beyond the next election cycle when making fiscal decisions for the good of our country. This is especially true when confronting a challenge that has been decades in the making: reducing our national debt.

At $16 trillion and counting, the national debt is a problem now, but it will become an intractable one if our inaction persists. With interest payments for businesses and consumers so low, many commentators refuse to see the debt as the problem that it is.

Last year, for instance, taxpayers spent $454 billion on interest payments on the debt – that’s more than we spent on transportation, housing, education and agriculture programs combined. This money wasted on interest, however, pales to the annual trillion-dollar interest payments we’ll see a decade from now unless we change the trajectory of our growing debt.

And those low interest rates won’t stick around forever, either; no country whose debt eclipses its GDP – as ours is on a pace to do within the decade – can keep finding people to lend it money at reasonable rates. This is why we need to act now, before the market forces more painful action later.

That said, there is one path of action that we should not take, and that’s choosing to go over the “fiscal cliff” at the end of the year. The cliff – that heavy-handed combination of tax hikes and spending cuts that you’ve heard so much about – will indeed help cut into our deficit in the near-term. But it is actually too much deficit reduction, too quickly and too poorly targeted to truly address the true drivers of our long-term debt outlook. Going off the cliff would pull us back into recession and increase unemployment – all without the benefit of long-term fiscal certainty.

Instead, what we need is a plan that is enacted now, but implemented gradually in order to both protect our fragile economic recovery and provide policy certainty to the private sector. This plan needs to tackle the true drivers of our debt and look at both sides of the ledger: spending and revenues.

This means any meaningful agreement must cut wasteful and low-priority spending; it must reform our entitlements to make them more efficient while ensuring they will still be there for the most vulnerable among us; and it must simplify our loophole-riddled tax code in order to broaden the base and raise revenue by ensuring everyone pays their fair share.

Regardless of the details, enacting such broad fiscal reform will be difficult for our elected leaders to agree to. It would require both parties to offend core constituencies and tackle some traditional “sacred cows.” But it’s what’s needed.

Though such a plan will, in all likelihood, be impossible to enact during the current lame duck session of Congress, we need to see a plan that would avert the looming fiscal cliff while enacting a down-payment of deficit reduction and a process by which a larger plan can be fully agreed to next year. One could argue the Bowles-Simpson plan, put forth two years ago, is a good framework for the president and Congress to use in their deliberations.

Because any plan will be a hard-sell to members of Congress, we need to create an environment in which agreeing to a comprehensive approach will be good politics in addition to good policy. That is why we urge people to consider looking into the Campaign to Fix the Debt. The Campaign includes leaders in business, politics and policy, and, more importantly, concerned citizens from across the country – more than 300,000 of whom have signed the Campaign’s Citizen’s Petition at FixTheDebt.org.

Please consider checking out the website and adding your name to the petition. Simply put, we need you to give our elected leaders the support necessary to come to an agreement that will benefit us all.

Long-term strategic thinking is essential in business and in governance in order to ensure a prosperous future. That is why we must take action now. That is why we must Fix the Debt.

Hugh McColl is a former chairman and CEO of Bank of America. Robert Ingram is a former CEO of GlaxoSmithKline. They are co-chairs of the Fix the Debt North Carolina chapter.

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