Debt and Taxes

Posted on Dec 7, 2012 | 8 Comments

Should debt scare us? Should the “fiscal cliff”?

As President Obama and Congressional Republicans look to break a standoff over tax hikes and spending cuts, voices on the sidelines have grown louder. One especially prominent voice has been that of Fix the Debt, a group formed by business leaders who are concerned about unsustainable deficits in the decades going forward.

While Fix the Debt is not lobbying for specifics, it does, on its website, have some suggestions. The U.S. should “improve efficiency in the overall health care system and limit future cost growth,” “strengthen Social Security,” and put in place “comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues, and reduces the deficit.”

If the aim of Fix the Debt is to advance sensible compromise, some observers see things differently. Attacking from the left, the Institute for Policy Studies warns of “a Trojan horse for massive corporate tax breaks” and accuses Fix the Debt of enlisting “80 CEOs of America’s most powerful corporations to lobby for a debt deal that would reduce corporate taxes and shift costs onto the poor and elderly.” Los Angeles Mayor Antonio Villaraigosawho has signed onto the steering committee of Fix the Debt, has been called on by some of his constituents to resign from the organization.

Would Peter Drucker have approved of the efforts of Fix the Debt? His answer, we think, would have depended on whether he thought its leaders were acting in the interests of the nation or just themselves.

Photo credit: B. Monginoux

Certainly, the nation’s fiscal policy was something that business leaders should help to shape. “We have today an illogical, unmanageable, indeed an immoral system of taxation that encourages and rewards irresponsible actions and decisions of businesses and private individuals alike,” Drucker thundered in The Practice of Management. “Here management can make a major contribution—and it has therefore a major responsibility. But it has responsibility for positive action.”

One litmus test for whether such action by business leaders was indeed positive involved their tax proposals. “It is not enough to scream that taxes are too high,” Drucker wrote. “What we need is a policy that reconciles the necessity of continuing high government expenditures, in the world we live in, with the requirements of society and economy.”

To the extent that Fix the Debt is a leading group in society, Drucker would have offered this guidance: “It is not enough that the group subordinate its own interest to the common good. It must succeed in harmonizing public and private interest by making what is the common good coincide with its own self-interest.”

What do you think: Is Fix the Debt acting with Drucker’s directive in mind, or is it a “Trojan Horse” for self-interest?


8 Comments

  1. wayne diotte
    December 7, 2012

    ”Without optimal biological integrity which is a major factor enabling the possibility for big picture responsible action… Without it we are destined to circle around solutions for the symptoms of societies ills. If anyone is thinking that the hardened or semihardened arteries, the radically fluctuating blood sugar levels and so on of these well-heeled decision-makers is going to be offset by their education or faux fair decision-making ; they are simply delusional. We can no longer think in terms of managing meltdowns. We need to transform our way of thinking simultaneously from the inside out and the outside in. The jargon of change is akin to an organizational and political pathogen that has been attacking civilization from the inside out.Finally, we are at this stage where it has become absolutely necessary to integrate our personal and collective biological condition with our capacity for the best intellectual clarity, psychological/emotional astuteness and philosophical wisdom. Focusing on inputs/outputs, demand/supply, monetary and tax policies will eventually go the way of the dodo bird. We have educational systems which cost a fortune and do not deliver a product even close to the present day need because the focus is on answers before inspiring the best questions. We have a healthcare system that is exactly that; a system that focuses on care after people become ill instead of focusing on responsibility and methodology for creating individual and collective health of the nation. AND the biggest problem of all is that all the FIXERS continue to propose that everyone needs to change except of course themselves.” :-) WD
    ” What’s wrong with this picture is not that the camera is out of focus; it’s that we need an absolutely brand-new way of taking the photo… With a massive influx of fresh, clear big picture thinkers who are willing to hold the brand-new camera AND THEN somehow, someway we need to figure out how to get the massive general public to join in/join up/be part of ….for the sake of the every day long-term happiness that can be available to every single person on the planet” WD

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  2. wayne diotte
    December 7, 2012

    ” Fiscal cliff”,” physical Cliff”,” emotional cliff”,” psychological cliff”,” philosophical Cliff” ……

    ”Do the math! The deficit in all of these areas is phenomenally large. Insecurity/lack of confidence/lack of willpower is overriding individual and collective courage. Impatience/frustration/anger has overshadowed spirited creativity. Bitterness/hardheartedness has sidetracked the joy that accompanies freedom. Suspicion/indecisiveness/lack of empathy has covered up the feeling that comes from knowing all is possible with both individual and collective effort… at a steady throttle. Malaise/sadness/even grief has taken over what used to be not so long ago a sense of abundance and generosity.” WD :-)

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  3. Carl
    December 8, 2012

    Since there is no other currency that guarantees security that the dollar does then there is no need to worry that their debt won’t be covered by borrowing until of course like all Empires they continue looking at their belly buttons and finally the poo hits the fan and the world pays the consequences.
    Such is the power of economics.

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  4. Mike Grayson
    December 8, 2012

    The claim by the Institute for Policy Studies where they warn of “a Trojan horse for massive corporate tax breaks”, has no merit. There is nothing in the core principles that state as an objective massive corporate tax breaks. Quite the contrary, the principles call for a bipartisan fiscal plan that reforms all areas of the budget.

    Their strategy of calling for the recommendations of the Simpson-Bowles Commission is certainly proof of their bipartisan approach. If their recommendations had been accepted it would have reduced the debt from the current, almost 70% of the GDP to 30% by 2040.

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  5. Mike Harmanos
    December 9, 2012

    Ask anyone who believes taxes are too high what the requirements of society and the economy are, and they will look at you as if you’ve just arrived from Mount Sharp on Mars. But it is roughly the same concept as “price-led costing” that Drucker championed. It’s a completely different mindset than what Washington knows today. A debate on what the requirements of society and the economy would have a healthier effect on politics in America. We would all be forced to understand the motives of each other through policy.

    Reply
  6. Alba Patricia Valencia
    December 9, 2012

    To fix the debt, we have to create a new economic process different neoliberal model. At the moment, we do not have a mind in the world capable to fix our economic problem. We are inside transition process, between savage capitalism, survival and subsistence.

    Para reparar todas las deudas tenemos que crear un nuevo proceso económico diferente al modelo neoliberal. En este momento no tenemos una mente en el mundo capaz de reparar nuestro problema económico. Estamos en un proceso de transición, entre el capitalismo salvaje, supervivencia y subsistencia.

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  7. Will Hopper
    December 11, 2012

    I am the Founding Chairman of the Institute for Fiscal Studies in the UK and a member of its Exec Committee. Politically neutral, the IFS is consulted by parties of both the left and the right and by the British and other national government on fiscal matters. With an annual budget of $5 million and a staff of 40 talented economists and fiscal experts, it has no exact equivalent anywhere else in the world, so far as I am aware. You can read about it at http://www.ifs.org.uk.

    I’d recommend, in particular, the concluding chapter of IFS’s recent publication “Tax by Design,” which contains conclusions and recommendations for the reform of the UK tax system. Since a “good tax system” is more or less the same all in the world, it should not be difficult to rework this report form a U.S. point of view.

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  8. What Peter Drucker Would Be Reading | The Drucker Exchange | Daily Blog by The Drucker Institute
    December 11, 2012

    [...] Comment of the Week: Last week, we paid a visit to the fiscal cliff and heard what some different people had to say about it. When we asked whether budget hawks are [...]

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