If Congress and the Obama administration don't reach an agreement before year's end, income tax rates will increase automatically for every taxpayer, defense spending will be slashed, and other federal spending will be cut across the board. This could push the United States back into recession and increase unemployment from its already too-high level.
The most obvious way to get something done quickly to avert this crisis is to begin with approaches that already have received significant bipartisan support. The Republican leadership of the House of Representatives took a bold step on Dec. 3 when it announced its support for a plan advocated by Erskine Bowles.
Mr. Bowles, former chief of staff to President Clinton, was co-chairman of the Simpson-Bowles Commission, established by President Obama to address the fiscal crisis. The Bowles plan would pare the deficit by $2.2 trillion over 10 years through increased revenue, reduced expenditures and reforms to Social Security and Medicare. The total deficit reduction would be $4.6 trillion over 10 years, counting expense reductions enacted last year and the reduced cost of wars in Iraq and Afghanistan.
As part of any "fiscal cliff" legislation, we also should allow companies to bring back to the United States the $1.5 trillion in accumulated profits from foreign operations now residing overseas, by paying a 10 percent surtax. This would raise $150 billion in revenue to reduce the deficit and would enable those firms to use the money to invest and create more jobs in the United States.
To remove the uncertainty that is inhibiting investment and employment, the fiscal-cliff legislation should include a commitment not to increase taxes, other than comprehensive tax reform, or to pass additional regulations or to impose additional costs on businesses that materially impact jobs until unemployment falls below 6 percent.
All of these programs and ideas have had bipartisan support at one time or another. They are common-sense initiatives and should be passed before year's end.
Finally, we should create a bipartisan commission on economic growth charged with recommending what needs to be done and what conditions need to exist to cause our economy to grow at a 3 percent to 4 percent rate instead of the current 2 percent rate. A higher growth rate in gross domestic product (GDP) is essential for bringing unemployment back below 6 percent.
A 1 percent higher GDP growth rate over a 20-year period would increase per capita income by about 25 percent and produce an incredible increase in the standard of living for all Americans. We cannot support reasonable entitlements and appropriate safety nets, a strong national defense and other necessary programs without greater economic growth. The Economic Growth Commission also would address those aspects of immigration, education reform and domestic energy production that are important to future economic growth.
We also think good policy is good politics. We think it's in the self-interest of both political parties to support all of these initiatives.
It's good policy because the economy will grow faster and unemployment will decline. It's good politics because voters will give both parties credit for doing the right thing, and their approval ratings will increase. Congressional approval ratings are at an all-time low, even below those of bankers, so politicians must know they have a serious problem.
It's simply wrong to suggest, as many politicians have, that these problems are so difficult, complex and politically insurmountable that they can't be addressed before year's end. If we don't take strong actions to get our fiscal house in order, we are almost certainly facing a downgrade of U.S. debt by Moody's. Many companies have investment policies that limit the bulk of their investments to AAA-rated securities. If Moody's joins S&P's 2011 downgrade of U.S. debt to less than AAA, those companies will need to significantly reduce, if not eliminate, their holdings of U.S. debt.
Our country deserves better than it has been getting from our political leadership during the past decade. Our nation needs to regain its historical position as the engine of economic growth for the world. A stronger America will help make the world more prosperous and as well as safer.
We salute the leadership in the House for taking the political high road and proposing a grand bargain not only to deal with the fiscal cliff but to tackle the deficit problem head-on and spur economic growth. We urge President Obama to embrace this bipartisan proposal and help lead our nation on the path to economic recovery and full employment.
William M. Isaac is former chairman of the Federal Deposit Insurance Corp. and chairman of Fifth Third Bancorp. Richard M. Kovacevich is retired CEO of Wells Fargo & Co.