The problem with the folks in Washington is that they think small. Especially they are all about me – me me me me me. In order to fix this deficit crisis, they have to start changing the way they think from “Me” to “We”.

I would like to put forward what I call the 5% solution

  • Increase the average living wage by 5%
  • Reduce the unemployment rate to 5%
  • Cut government spending by 5%
  • Eliminate 5% of all state and federal barriers to innovation and productivity
  • Establish a minimum tax rate of 5% on all income over $50,000
  • Push business to reinvest profits over 5% back into new jobs and the economy

See – part of the problem in Washington is that they think they control the economy. In truth the economy is controlled by the actions of everyone that participants in the free market, both foreign and domestic. It is going to take a concerted effort by everyone, both foreign and domestic, to fix it.

The easiest way to accomplish that is to provide goals that are simple to remember, simple to rally around, and simple to be sold to both the public and enterprise.

The idea has to be to go beyond balancing the budget to actively reducing the debt for future generations. That means maintaining a fixed rate on government spending

None of these solutions can be enacted alone – they will require a concerted effort by everyone in both the private and public sectors. The idea here isn’t to unfairly increase the burden on any specific demographics but rather to spread the wealth of the nation around through a process of encourages capitalists to participate in

Living Wage

Currently, the average wage in the US is approximately $21/hr or $41K per year. This accounts for approximately $1.2 trillion dollars in federal receipts (approximately 45% overall). Encouraging businesses to increase the average wages paid across the board by 5% will add approximately $400 billion dollars to the tax pool.

Unemployment and Reinvestment

Reduction of unemployment to 5% and to maintain this as a stated target for future generations. This can only be achieved however if private enterprise is encouraged to reinvest profits back into the economy in the form of innovation and jobs. The problem with unemployment has never been a lack of work. The problem has been a lack of access to funding – and its only the Government’s arrogance in assuming that funding has to be from public sources that is getting in the way of putting people back to work.

Instead of trying to dole out money, the Government should instead be brokering its ties between entrepreneurs and businesses which are capable of advancing seed capital and creating new jobs.  In real dollars, an ongoing investment of $250-270 billion of corporate profits will put 6.5 million people back to work increase government revenues by $120 billion.

Government Spending

Senator John McCain said it as part of his run for President that part of the problem in the US is that there are too many entitlements associated with money bills passed at Capital Hill. A cut of 5% across the board would amount to $200 billion which is not that substantive. Further, once a balanced budget has been achieved, new spending should only be authorized in so far as funds are freed up from debt interest repayments. I.e. as the debt is repaid, interest is no longer due and can either be put towards paying down the debt faster or towards new programs.

Red Tape

One of the biggest barriers to government receipts is government red tape. Businesses having to address 50 different state statutes on everything from sales tax policies, to human resources, environmental practices. This is one of the largest wastes of taxpayers’ dollars. The Federal Government should be committing itself to reconciling overlaps in Federal-State statues which will free up private sector funds for unemployment and reinvestment. The idea is that every dollar that is being spent within the economy should be put towards innovation, not bureaucracy where there are substantive overlaps that hurt organization’s (including non-profits and NGOs) ability to compete globally.

Legislative policy based on geographic borders worked fine when the most a person could travel was 20 miles on a good horse. We don’t live in that world anymore and people need to realize that our problems are global. So it’s time to start removing local barriers to entry and start increasing regulation on national and global issues where it matters. This could save approximately a further $200 billion

Minimum Tax

Establishing a minimum tax rate of 5% on all personal income over $50,000 is not a big stretch. Such a measure wouldn’t impact low income earners because they don’t make enough. It wouldn’t impact the middle class because middle income earners are generally paying somewhere between 15-20% marginal tax anyways. Where the impact of this measure will be felt is on the people that can most afford a minimum tax – that being those whose standard of living is already above average and those who are paying no tax due to major tax loopholes.

A recent article by the NY Times suggested that as many as 47% of households own no personal income taxes. While the article goes on to suggest a number of reasons and mechanisms for this, the bottom line is still that the burden of taxation is currently placed on the other 53% who either can’t or don’t take advantage of many of the existing tax law loopholes. As such a 5% minimum tax could net out another $200 billion in revenues.

Net Impact

The net impact would be a balanced budget which would increase tax revenues mostly through an expansion of the base of people paying taxes and more efficient government allocation of resources.

The challenge however is that such a plan would require cultural change at multiple levels within US society. It is not something that can simple be put in place overnight. If the process were to start today – with this budget, then within 5 years, it is very possible that the US will be one of the few countries to go from the brink of bankruptcy to a new age of innovation and capitalism which balances growth with social responsibility.

If there is one thing the US is good at – it’s doing the impossible when it puts it’s mind to it. Now it’s just a matter of whether it had a mind to fix the problem by engaging “We the People” or whether it will be mired in self-indulgence politicking and posturing as “Me the Weasel”.

— Kevin Feenan

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