Dec 07, 2012

Debt and Taxes

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?

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