The Tale of Two Campaign Strategies

It is now clear what the campaign styles are going to be with Governor Romney and President Obama.  I decided I would write about this because a lot of impatient Republicans are getting anxious and demanding that Romney goes on the attack in a way that John McCain never did.  However, if you understand the strategy as I think I do (though I could be completely wrong), you’ll have a great appreciation for what the Romney camp is doing.

First, I wanted to discuss the Obama campaign strategy, which is very much like Obama’s presidency: spend, spend, spend and talk, talk, talk.  The Obama campaign knew all along that their only way of winning was to flood media with negative ads on whomever the competition would be.  It is not a coincidence that Obama spent the last 3.5 years raising money for his re-election.  Already, the Obama campaign is spending millions of dollars trying to define Romney early, much like Bush did against Kerry.  There are three main problems with this portion of their strategy:

• Money is not coming in as fast as Obama would like; Romney actually raised more money than Obama the past two months and Romney has a lot of Super PAC money backing him too.
• The number of battleground states are growing, increasing the need for money.  At this point in the election, the Obama campaign would hope that the race would be narrowing, now opening up.
• The Obama campaign has outspent the Romney campaign by leaps and bounds and yet, the polls reflect a tie right now.  If you’re going to try to start the race fast and hold on to the lead, you need to have a lead to hold onto.

The second piece of the Obama campaign strategy is to get Obama out talking to as many folks as possible.  The one thing Obama has going for him is that his likeability numbers are pretty good, so they want to get him out there to shake hands and kiss babies.  You’ll see a lot of talks so that he can get 30 second clips in the media with him rallying crowds.  The main problem with this is that people have seen Obama talk a million times and each time, it loses its luster and coverage.

Now, onto the Romney strategy.  Imagine if you will a slingshot; at first it would appear that the projectile is going backwards as it slowly gets pulled back, but then in an instance, it is catapulted forward.  Romney runs his campaign very similar.  Do you remember the primaries?  Romney wasn’t aggressive, played it pretty safe, and did not make any big mistakes.  After Newt Gingrich got in the lead and threatened Romney, the Romney campaign (and its supporting Super PACs) overwhelmed the Gingrich campaign with a shock and awe styled campaign and took Gingrich out of the race quickly.  I would look for Romney to hold onto their money until it really matters and then go wild.  In the primaries, he showed he can go after people in the debates, can be just as dirty as the Obama campaign is right now, and he knows when to turn it on.

There are three good reasons why I believe Mitt Romney should not get overly aggressive (as many Republicans are suggesting) at this point in the election:

• In the summer, most people (besides me) are not hanging on every word that is said in the Presidential election and are probably sick of all the Obama ads already.  They are waiting for the initial noise to stop and the presidential candidates to offer real solutions and policy.
• The items that the Obama campaign is going after are small potatoes.  They talk about how he carried his dog on vacation, how he may have picked on a kid over 30 years ago, how his company may have outsourced some jobs overseas over ten years ago, and the list goes on.  These are not the issues that are make or break issues for president.  Although it can help paint a narrative, a well timed response in a debate or speech can offset millions of advertisements in an instance.
• The traditional role of the vice presidential candidate is that of the attack dog.  Usually, the vice presidential candidate is the one that goes after the other presidential candidate and Romney has not picked his VP yet, although it is coming soon.  Allow Romney the time to pick his VP and then let his VP go to town on Obama, without hurting Romney’s likeability ratings.

Romney has a lot of money in his campaign war chest and is using it conservatively.  I would imagine they have plenty of ads ready to go to convince independents to go Republican.  Statistics show that the majority of undecideds at this point will go for the challenger because they know enough about the incumbent, that if they aren’t behind Obama now, there is not much he could possibly do to swing their vote. So relax, the statistics thus give the edge to Romney when the polls are tied and Republicans are in a good position to win!

Obama’s New Tax Increase

Obama has tried numerous strategies to try to gain favor and/or bad mouth Mitt Romney in the past months.  It is has been mildly impressive that they have a new attack every week that is completely random, usually not true, but very distracting.  However, last week President Obama got back on what appears to be one of his key messages, that the rich people need to pay their “fair share” and actually presented a policy stance: raising taxes on the “wealthy.”

President Obama said that the Bush tax cuts need to expire for those making more than $250,000 for couples and $200,000 for individuals.  His proposal is a one year extension, just enough to get him through the election.  One of his main arguments was that he wants to return to the same tax rates as the Clinton era.

However, in 2001 (Clinton’s last year as President), the federal budget was $1.9 trillion.  In 2011, President Obama’s federal spending was $3.6 trillion.  In ten years, our government has nearly doubled in size and the President’s tax plan does not get us close to a balanced budget.  Further, I feel his tax plan of increasing taxes on small businesses will be a job killer.  A small tax increase can take away the revenue needed to pay someone’s salary.

The Republicans and Mitt Romney argue that tax cuts are the key to recovery, based on what Reagan did.  The reason it worked for Reagan is that he brought tax rates down by over 40 percentage points, which is a big change that did spur economic growth.  However, all of the Republican proposals I have seen have been less than 5% points, which will not be significant enough to catapult our economy.  As much as I believe in tax cuts, we need to get our spending house in order before we get too aggressive with cuts.  If we cut taxes too much before reducing spending, it could hurt our deficit so much, that it will slow economic growth instead of spur it.

As I have always said, this blog is about solutions.  There are a lot of things I would do such as repeal Obamacare and cut spending drastically.  However, I would go after two things first that are a little less political and could have the biggest initial impact for our economy.  The first thing we need to do is gain some stability, so I would try to get permanent income tax rates versus continually extending Bush tax cuts one year at a time.  Permanency gives stability to small businesses, thus allowing them to plan and hire.  Because this would not be easy, here’s my compromise: make the Bush tax rates permanent, but close loop holes.  The rates keep taxes low, but closing loop holes increases revenues, making both parties happy.  While Republicans may argue that closing loop holes are a net tax increase, I have a different opinion altogether.  Loop holes are, in my mind, unintended tax breaks that lawyers took advantage of, which is not congruent with the original intent of Congress when the code was created.

The second thing I would do is permanently cut the corporate tax rate in half.  Right now, the United States has the highest corporate tax in the world.  Our corporate tax revenue is only 8% of the U.S. total revenues (approx. $180 billion), so it’s impact financially for the government would be small, but the impact for the businesses would be large.  Cutting the rate in half does three key things:

• It reduces the cost of doing business in the United States, helping jobs come back home from overseas.
• It increases the ability to hire people and reduce unemployment.  Further, when the money goes to individuals’ income vs. corporate income, it will still be taxed, thus roughly breaking even on net revenue.
• Last, this concentrated radical change would be just big enough to spur change in our economy.  The tax cut would essentially increase the profitability of every corporation in the United States and help the stock market as well.

The key to problem solving is to start with high impact, low effort solutions (i.e. my two ideas).  Afterwards, you look for high impact, high effort solutions (i.e. solving social security and healthcare).  The two simple ideas I proposed would be easy to understand, quickly implemented, and highly effective in spurring economic growth.

How Republicans Win 2012 – Options

For my 100th blog post,  I decided to let you in on how the Republicans can create a strategy that will improve our system and economy, resonate with voters, and defend against Democrats.  It all comes down to one thing, giving citizens options.

I love having options, it is essentially a form of freedom.  I believe Republicans need to develop programs where people can choose between the current system and a new system.  Giving citizens the option between old and new eliminates the fear of the new.  Further, Democrat’s entire election campaign is around generating a fear of the Republicans.  For example, they have commercials of a Paul Ryan looking figure pushing granny off the cliff.  Just this past weekend, David Axelrod labeled Republicans a “reign of terror.”

I want to give a you few examples of options:

• Social Security –> the Chilean model essentially privatizes gains and socializes loses.  Basically, people would be given the option to stay with the current system or invest a portion of their social security dollars (instead of paying the full tax) to a private investment.  If the private investment does not meet the payout they would have received with the government social security check, they are paid the difference by the government.  It benefits the citizen because people typically get paid more privately than with social security, less money is paid out to citizens because their investments worked, preventing the system from going bankrupt, and there are still people paying in for those who want to stay on today’s version of social security.
• Medicare –> Did you know it is cheaper for us to pay citizens about $15,000/yr. for them to get their own private insurance than it is for them to be on medicare?  If we give people the option to do the private version, we would save money, even if only 10% did it.  Further, insurance is all about risk for the insurance companies.  If they have a larger pool of people paying in, it reduces the risk for them, increasing their ability to make insurance more affordable..
• Tax Code –> What if we had the ability to choose between the current tax code and paying a straight 20% of earned income without any deductions? If I had the option of paying a straight 20% instead of going through the confusion of our current model, I’d probably choose the easy path.

Obviously, the examples I gave are extremely complicated.  However, I wanted to illustrate some ways that we could create platforms that provide options.

I believe Republicans are trying to convince the American people that we need massive changes.  However, people do not like change, especially big change.  The public opinion of an entire nation cannot turn like a speed boat, it is more like a massive air craft carrier that takes miles to slowly turn around.  By offering options, it allows people time to get comfortable with big ideas.  The great thing about the private options presented is they will naturally become popular because they will typically put more money in people’s pockets.

Romney and Republicans need to market options more than the big ideas.  They need to tell Democrats, “If you like the current system, keep it.  Meanwhile, us 50% of Americans (the Republicans) will take the private options, make more money, and help cut the national budget.  You’re welcome Democrats…you’re welcome!”

Capital Gains Tax Rate – Just Leave It Alone

There has been a lot of talk about the tax rates of Warren Buffet, Mitt Romney, and President Obama.  Most people don’t remember this, but when then Senator Obama ran for office, he said was going to pay for all his campaign promises by ending both wars (Iraq & Afghanistan), increasing taxes on the rich (by letting the Bush tax cuts expire), and increasing the capital gains tax rate.

Income made on investments get taxed at a 15% rate vs. income from a job, which reach as high as 35%.  However, when Obama got into office, there was a recession going on, which crushed our stock market.  Essentially, there were little capital gains to tax, they wanted to encourage people to invest in companies, and a tax hike on capital gains in his first year during a recession would have been toxic politically.

Now that the dust has settled and we are seeing a small recovery, President Obama wants to increase taxes on capital gains and on the rich as he goes back into campaign mode.  Adversely, some Republicans and conservative blogs say that we should get rid of capital gains to increase the incentive to invest in the marketplace.  I believe the government does play a role in producing an environment that promotes economic growth, but they also need to be careful about putting too big of incentives on either side so as not to disrupt the balance of reasonableness and the power of the free market.

I do not believe we should increase the capital gains tax rate because for the majority of Americans, it is double taxation.  We get taxed when we earn income from our jobs, and then that money gets taxed again if we make any money with it on an investment (note: that same money gets taxed a third time when you die).  Further,  I think it is good to have an incentive (lower taxes) for people to invest in companies.  Financial investments in corporations lead to hiring, innovation, and profits.

It is not good policy in my mind, to promote too much risk by having a 0% tax rate on capital gains.  Too many people would try to make all of their money on investments so they do not have to pay taxes, which could be dangerous at the macro level.  Investing in the stock market is no guarantee and can be extremely risky.  If you don’t believe me, ask the thousands that had to come out of retirement because their portfolio shrunk to nearly nothing when the recession hit.

The current 15% capital gains tax is fine in my mind — not too high, not too low.  I definitely think we can talk about capital gains tax rates if we are talking about restructuring the entire tax code, but it is a low priority topic right now in my mind.

The Election Begins: Obama vs. Romney

After months of being dormant on the blogosphere, I am back.  Bored and confused by the primaries, the Republicans finally have a candidate to go against President Obama.  Although there are a plethora of topics I’d love to dive into, I thought I’d start with framing up the 2012 Presidential Election.  So far, I’ve heard this election is about the women vote, the independent vote, the hispanic vote, the swing states vote, the religious conservative vote, and just about every other option.  So which group is it?  The truth is that it cannot be about one group of people, it is about what candidate do you trust to improve our country.

A few comments on the aforementioned groups:

• Women vote – I believe both candidates underestimate the diversity of thought among women.  To put all women in a group and say they have a collective set of key issues is vastly misplaced and demeaning in my view.  Like men, women have a variety of views and issues.
• Independent vote – most believe independents are people right in the middle.  The truth is, most have strong views on the left and strong views on the right that leave them conflicted – for example, they may be socially liberal but pro-life.  The candidates who spend time arguing their points versus bad mouthing their opponent will convince independents to vote for the strong view on that candidate’s side.
• Hispanic vote – a large majority of Hispanics are Catholic and have a lot of conservative principles.  However, Republican have not typically come alongside Hispanic voters.  Bush carried 45% of Hispanic votes vs. McCain only getting 31%.  Romney is in the drivers seat on this one.
• Swing State votes – these 12 states will ultimately decide the election, but their key issues are quite diverse.  Because of their diversity, there ends up being little difference between a general election campaign and a 12 state campaign.  The only real difference is that they will have more visits in these states.  With today’s 24-7 media coverage, it doesn’t really matter where presidential candidates stop because even if they were in your home town, you probably wouldn’t see the events live anyway.  The only interaction you’d have is waiting in traffic longer.  On a side note, I do think this could affect Romney’s VP choice.
• Religious conservative vote – Even though Romney has flip flopped on some religious conservative stances, he has aligned with their views and will still be much closer to their views than President Obama.  Like other sects of the population, although they have viewpoints they are passionate about, they will look to the candidate that they feels gives the United States the best chance at success.

In 2004, Democrats hated Bush with a passion.  I believe Republicans disapprove of Obama’s leadership in a similar fashion in 2012.  Many Republicans are counting on that passion to win the election.  However, like in 2004, you cannot win an election based on hatred of the other candidate.  People do not vote against a candidate in the booth, they vote for a candidate in the booth.  If they are not mildly excited about the direction that candidate is going to attempt to steer the country towards, they will not show up to vote for their candidate–this is especially true with independents.

If you ask people today what John Kerry’s top issues were, they’ll rarely be able to tell you because his campaign focused on Bush bashing rather than casting a vision.  You can see the power of casting a vision by looking at the 2008 Obama campaign, which casted a vision of Republicans and Democrats holding hands, Washington working together to cut deficit spending, and more.

President Obama’s strategy this time around appears to be one of divide and conquer.  He is trying to divide the country and get enough sects of the population to support him in order to get a majority.  He does this by alienating groups and demonizing Romney.  For example, he’s willing to lose the “rich” group if he gets the middle and poor class by calling Romney a rich person not in touch with the American people.

For Romney to win, he needs to focus on casting a clear vision of where he wants to bring America.  It will take a lot of discipline to stay on message and use every opportunity he has to share his vision, especially with the onslaught of distractions and attacks from the Obama campaign.  I personally believe Obama has been worse than Jimmy Carter because Carter’s failures didn’t cost $5 trillion in four years.  Although Ronald Reagan pointed out factual information that showed Carter’s shortcomings, the main reason Reagan beat Carter was because of the positive vision he cast for the United States that rallied people on both sides of the aisle.

It is going to be a very close election…should be fun!

Are We Really Free?

I will be getting into a series on basic economic principles soon.  I have done all my research working within the confines of a democratic, free society.  The more I thought about it, I started questioning our true freedom.  I want to share a few concerns:

Freedom of Property:

Democracy started with the idea that people were willing to pay a body for protection of their property.  Although people were willing to give up money for protection, they were not willing to give up their property rights; people maintained that you have the right to do what you want on your land, true freedom.

The world is a different place now.  Eminent domain is when the government obtains private property without the consent of the citizen (for a fair market value).  The only threshold is that it needs to be used for “public good.”  In Lakewood, Ohio, the government forced a family out of their home to build more expensive condominiums.  In the City of Meza, AZ, the government forced a man who inherited a brake repair shop from his father out of his shop to sell the land to make way for an Ace Hardware.  In New York City, the government forced a man out of his property that his family had owned for over 100 years to make a new headquarters for the New York Times.

There are thousands of gross examples of eminent domain and the threshold seems to be dwindling, along with our property rights.

On a more simple level, my friend tried to build a deck on the back of his house in the suburbs of Minneapolis and the city did not approve the plans.  Another friend wanted to take down his one car garage and put in a two car garage and had to go get approval from his city.  It was approved, but the fact that they have that power to determine what I do to my house is scary to me.

Freedom of Convene:

A couple was fined $300 in San Juan Capistrano, CA, for having a Bible study.  The city said they were fined because they did not have a special permit to transform a residential area into a place where people regularly assemble.  In a democracy, people must have the right and freedom to convene.

Freedom to Contract:

Two people should have the right to contract with each other.  Even if there are risks involved, parties can negotiate around those risks.

The FDA has shut down local grown farms that sell to neighbors for various reasons.  In one instance, the FDA seized a family farm that made cheese because they thought the cheese might have Listeria, despite no proof.  The FDA has even shut down lemonade stands.  The FDA is one example of a governmental body that is taking away our ability to contract freely with other people.  The government does not think we can make our decisions or negotiate, but that we need the government to tell us with whom we can do business.

Freedom to Work:

Did you know that one of three Americans need a license to do their job?  In other words, 33% of Americans need permission from the government to do their jobs!

I could go on and on…

The more you think about it, little by little, we are losing bits and pieces of freedom, especially by city ordinances.  Every time the government increases, our freedoms decrease.  Freedom is an extremely important economic subject because in a “free” economy, resources flow to the most efficient medium.  When the government spends money, it is not typically an efficient use of resources.  For example, in Los Angeles, $111 million in stimulus dollars translated into just 55 jobs (roughly $2 million per job).

Will Rick Perry Will Be the Next President?

Are you looking for a strong conservative candidate? While he has only been running for office for one day, here are some things that Rick Perry is doing well.

Be Positive:

For those of you who know me well, you’ll know that I worked for Governor Tim Pawlenty back in Minnesota and have the utmost respect for the man.  Today, he dropped out of the race because his team did not see a path to victory.  I personally believe the number one reason people did not rally around him is because he focused on the now instead of painting a bright picture.

Pawlenty often told the truth about the crisis we are in and instead of rallying people, it just kind of depressed people.  Mitt Romney and Michelle Bachmann have excited people by talking about how much they dislike Obama and how they are going to get him out of office.  This excites the kind of person who goes to the caucuses, but not the average Joe.

In 2004, John Kerry tried to rally the democrats by saying how bad George W. Bush was and he lost.  Instead of running on how great the world is going to be when he is president, he focused on the negatives of Bush.  Obama on the other hand, talked about how glorious the future would be if he were president and people ate it up.  People actually believed that he’d get rid of politics in Washington D.C.!

The fact remains that being positive leadership motivates people and Perry’s belief in the American dream and the way he talks about how our country’s brightest days are in front of us will catch on with Republicans and Independents.

Results:

Although it is not mandatory to have past results to win a presidential election (see Barack Obama), having the right results in the area that people care about matter.  Since the beginning of our economic “recovery,” Texas has produced roughly 40% of the jobs in this country, all under Governor Perry’s belt.  The general population does not care about the debt limit as much as they do jobs and he has a good story to tell.  Further, Perry has over 10 years experience as governor of one of the largest states.

On the other hand, Barack Obama cannot talk talk about hope and change, because people are tired of waiting.  Unemployment is up, the market is unsteady, consumer confidence is down, and the polls indicate that people do not feel we are going in the right direction.  He does not have any results.

Likability:

At the end of the day, people often vote for who they like.  Perry’s positive demeanor is much more likable than some of the other candidates.  Simple question: when is the last time you saw Romney, Bachmann, or Obama smile?  All of Perry’s competition seems bitter and upset.

Perry is the only Republican candidate that is liked by the Tea Party, the social conservatives, and fiscal conservatives.

Competition:

Mitt Romney’s record as Governor is not amazing.  His signature legislation is Romneycare, which has been a travesty.  Additionally, he is vulnerable in my mind because he was better at creating wealth than creating jobs.  Most of his experience was buying out companies, splitting them up, and making a profit off the parts of the company that had value.  He will be portrayed as a rich Republican that does not care about anyone.

Bachmann has no real accomplishments.  She has not authored any key legislation; she has pretty much just voted “No” on everything.

President Obama’s approval rating today posted at an all-time low of 39% today (with 54% disapproving), according to a gallup poll.  He has not taken a leadership role in many tough situations and his policies have simply not worked.  The economy is in trouble and the electorate are skeptical of Obama’s plans for the future.

A lot can happen between now and November 2012, but I think Perry will most likely win.  I am not officially endorsing Perry yet, but logically looking at it, Perry, who has never lost an election, seems to be the likely candidate!

Debt Ceiling Increased – the Wins and Opportunities of the Bill

The House and Senate have voted to increase the debt ceiling.  The bill that passed was definitely a compromise. Before I get into the wins and opportunities of the bill, let me just take a second to clarify what is worst about the outcome of this bill and what the democrats stood for in this debate.

The saddest thing about this deal is that we could have saved trillions of dollars against the baseline by simply freezing our budget. Instead, they assume about a 7.5% annual budget increase and their “cuts” are against the 7.5 increase baseline.  As my father said once, “you can never ‘save’ money when you are spending it.”  If you buy a $100 sweater for $75, you did not save $25, you spent $75.  You may have paid $25 less than the proposed value, but you still spent $75.  The United States may have ‘saved’ a few trillion dollars in this debt deal, but they are still spending many more trillions!

The democrats did not support balancing the budget, they wanted to increase the debt limit with no restrictions. People may think I am mean because I am a republican who wants big budget cuts, but I’d rather be mean than reckless.  Democrats ASSUME that we will always be able to borrow money, but would you borrow to someone that owed over $14 trillion and was borrowing roughly $100 billion more every month?  Do you really feel like someone in that much debt is going to pay off their debt?

The reason our credit rating is potentially going down is because we are not a great investment and it does not appear that we are going to pay our debts back.  Our economy grew 0.4% last quarter.  That is not the kind of return you are looking for as an investor.  Russia’s leader called the United States a parasite on the world economy today.  If countries stop borrowing to us, we’ll either have to stop paying for medicare and social security, because we will not be able to afford it, or we’ll have to print money and have massive inflation.  I feel the RESPONSIBLE thing to do is to make the tough decisions now, to avoid a crisis tomorrow.  Wouldn’t you rather see someone get 90% of medicare for the rest of their life than 100% for two years and then 0% afterwards?  I am not mean, I care about those people that are relying on a promise that may not be kept.

Hopefully this debt deal is a really small step in the right direction.  Below are some of the wins and opportunities of the bill.

Major Wins:

• America did not default on paying the bills.
• There were no tax increases.
• President Obama did not get a blank check.
• There are some measures in place to look for more cuts.
• There will be a vote for a balanced budget amendment (which was previously tabled by Senate democrats).

Major Opportunities:

• The cuts weren’t large enough – from what I read, there will only be $7 billion in cuts in 2012 and $3 billion in cuts in 2013 (less than 0.1% of the budget).  I could cut that in the blink of an eye and no one would even notice!
• The debt ceiling increase was one of the largest, if not, the largest in United States history.
• President Obama will not have to talk about it again before the next election because of the large increase to the ceiling.
• Spending is still increasing, as was explained earlier.
• There was no transformation on the way Washington works or views taxation and spending.
• We are still the laughing stock of the world (seriously think about watching this from the outside – we are a smart nation who has elected leaders that do not believe in having a balanced budget, despite massive debt!).  They are looking at us like I look at Greece!

The Tea Party did some great things to make this an issue.  The Republicans were in a tough spot and because of their commitment to their beliefs, the democrats knew they had to give in if they were ever going to pass a bill.  So, it was the convictions and principals of  the tea party candidates that made this a better deal, not their politics.  The deal is not even close to perfect, but I hope all of the attention on the debt ceiling puts pressure on candidates in the fall of 2012 to pledge that they will balance the budget.

Debt Ceiling Debate – Finally There is an Acceptable Plan!

In my last posting, I said there were three keys to a ‘successful’ debt debate: deal by August 2nd, major, but gradual cuts, and address entitlement programs.  Boehner and Reid’s plans being proposed probably won’t be agreed upon by August 2nd, they’re not major, and neither address entitlement programs.

Here’s what you need to know:

• What they do not tell you is that every year, there is an assumed 7.5% increase in spending on autopilot.  So, when they say they are going to save $2 trillion in 10 years, they may be adding around $9 trillion, and then cutting $2 trillion, equaling a net gain of $7 trillion in additional debt. They’d save more if they just froze spending.
• Despite the Tea Party being mocked, if it wasn’t for them, America would not care about this debt ceiling debate.  The debt ceiling has been raised over 70 times and this is pretty much the first time America cares.
• There is only one plan being proposed that is worth looking at right now, the Connie Mack “Penny Plan.”  The plan isn’t perfect, but it makes sense.

Before I explain the plan, I should admit that I have not yet seen the actual verbiage of the bill, I have just heard the writers talk about it’s features:

• The “Penny Plan” is the only plan that has real cuts.  Essentially, the plan freezes spending this year and then cuts federal spending by 1% (vs. raising it 7.5%) every year for the next six years.  By doing this, we would have a balanced budget in 5-8 years.
• The plan would then cap federal spending at 18% of GDP going forward (which is where federal spending has traditionally been).  A balanced budget amendment would be much more feasible at that point.
• The plan allows Congress to decide how to make the cuts, but if they cannot decide, it mandates a 1%  across the board cuts.

Although the plan does not address entitlements immediately, the plan is simple and makes real cuts.  The plan has a path to a balanced budget, which could keep our triple A credit rating and put markets at ease about the future of the United States.  Last, at 1% annual spending reductions, the cuts are gradual and humane.  If Congress cannot find 1% in cuts in fraud and waste alone, then they aren’t qualified to be leading our country!

Debt Debate – Who Will Win?

Amidst all of the debate about the debt ceiling, my big question is, who will win?  I think this question is particularly interesting because most Americans do not know what side they are on.

First of all, Americans are desperately looking for a solution in Washington and are not finding it from either party.  In 2008, the electorate ran from President Bush and the Republican party to heavily endorse the Democrats.  Two years later, Republicans recorded the biggest turnaround in our history.  Yet, despite the pendulum swinging back and forth, the Congressional approval rating is currently sitting at 18%, according to Gallup polls.

If you look at the debt crisis, 69% of Americans say Congress should not raise the debt ceiling, according to a recent CBS poll.  The debt ceiling has been raised 74 times, but this time it would seem to be different.  Further, 73% say spending too much is to blame for the debt crisis (vs. not taxing enough), according to a Gallup poll.

It would seem that Americans support reducing the deficit by reducing spending.  However, when people are polled about whether they still support cutting spending when the spending cuts affect them personally, the tide changes quickly.  More specifically, people get really nervous when cuts to entitlements (Social Security, Medicaid, Medicare), which make up over 50% of the budget, are discussed.  According to Gallup, 66% are worried about cuts to Medicare, and 65% are worried about cuts to Social Security.

Gallup polls also show that Americans are looking for their leaders to make compromises and work together.  I have to give credit to President Obama for announcing today that he is open to increasing the age for Medicare eligibility from 65 to 67, which goes against his party lines.  John Boehner also seems to be willing to negotiate on a lot of issues as well.

Even if Boehner and Obama develop a compromised plan, it is not a guarantee that Congress will vote for it.  When it comes to voting, the politicians that toe the party lines are often the ones that get re-elected.  Michelle Bachmann has become quite popular for voting against compromises, despite her one vote never being a deciding vote.

So who wins in this battle?  I think the only potential victor is the American people if three things happen:

• An agreement is reached by August 2nd so we do not default on our debts and hurt our credit rating.
• We need major, but gradual cuts to the long-term budget.  Our annual deficit is conservatively $1.5 trillion, which is $15 trillion of additional debt over the next 10 years or roughly $29 trillion in total debt.  Congress and President Obama have discussed reducing the deficit (not the debt) by $4 trillion over 10 years, which would still make our debt be around $25 trillion in 10 years.  We need major cuts.
• Entitlement programs have to be changed in a humane, but impactful way.  The entitlement programs are the ticking time bomb, growing at uncontrollable, exponential rates.  If these programs are not changed, then we do not have much hope for a legit solution to our budget issues.

It is going to be difficult to find a solution for this one.  Ultimately, all of the solutions above involve self-sacrifice and personal responsibility by all Americans.  We can either be a nation that fights through a tough problem or we can be a nation that pushes the problem down the road.  Either way, we’re going to have to face these issues eventually.