cojones

Anyone who has run a business will say you can create bottom-line impact (grow profits) by cutting costs, but that this is a short-term fix; if you can't grow your top line (sales), the business is at risk. And if you keep cutting and cutting, your top line will eventually shrink as innovation, product quality and customer service decline.

When looking at where to cut and where to invest, you focus on how the business will look 3-5 years out and make your choices strategically. Which engines have been around a while and have fat in them? Which will create future value? Which ones were important, but have now outlived their usefulness?

Good leaders will make the tough calls, making big cuts in some programs, investing significantly in others, and killing some outright.

Bad leaders implement death by a thousand cuts, trimming each department by 5 or 10%. They will have done no real thinking, conducted no real analysis, and certainly made no real decisions. They are afraid to to be bold.

The same holds true in government - President Obama and Speaker Boehner have on opportunity to achieve strategic and sustainable impact through their budgets, but unless things change in the coming weeks, they will shirk it in favor of being safe. A plague on both their houses!

In 2010 the Feds took in $2.162 trillion, and spent $3.456T, creating a deficit of $1.294T. The best Obama/Boehner have come up with is a paltry 1.7% ($60B) reduction in spending. Worse, most of the proposed cuts do nothing to prepare the country for tomorrow, enable growth, reduce unemployment, or create a more self-sustaining economy. For shame!

Four programs account for 60% of the 2010 Budget - Social Security: $695B + Defense: $664B + Medicare $453B + Medicaid: $290B = $2,102 Billion. All-up (Fed + State) spending on Education is ~$600B for 2010.

If I were in their shoes, I would:

1. Grow the Top Line (increase income): simplify the tax code, eliminate ALL deductions:
   -- Business tax: flat 3.5% on gross receipts
   -- Personal flat tax: 0% below $50K, 15% between $50-100K; 25% from $100-200K; 40% above $200K.
   This includes all Federal deductions (tax, Social Security, Medicare, etc.). States that tax must adopt a similar model. For 2007 (most recent year with comparable personal and business data), this would have increased net Federal income from $2.3 trillion to $2.7 trillion.
2. Rethink Defense: in 2009, America spent $664B - more than then next 22 countries COMBINED! We need to move away from being the planet's cop, and simply protecting the United States with the following cuts:
   -- 2011: budget capped at $500B total by phasing out ALL American military forces abroad
   -- 2012: $400B capped with cuts including reductions in nuclear arms.
   -- 2013: $300B cap
   -- 2014+: Cap = 10% of total Federal income (which per #1 above = $270B in 2007, or roughly 2.5 China's budget.
3. Redefine Social Security: Introduce legislation to add a means test + change the eligibility age to 68 in 5 years, and 70 in 7 years. Yes, this a bait and switch for many taxpayers, but one ameliorated by #4 below.
4. Eliminate Medicare/Medicaid, replace it with Universal Health Care ensuring health, medicine, dental and vision care for all Americans. As with the rest of the developed world, the costs will be shared at about 65% federal and 35% businesses. Insurance companies will suffer (yes!); some employers (particularly small businesses) will also take a hit (though their taxes (#1 above) will actually go down); most large companies will actually save money because this insurance will cost less than what they're paying now. Employees will have more disposable income, greater job flexibility, and of course be healthier.
5. Cut Education: Add a 28th Amendment to the Constitution, federalizing education, consolidating the nation to 50 school districts (one per state), and 3 years later consolidating further to one district. This would save $225 billion in district payroll alone. Enact a one-time $100B capital improvement program + $25B for a complete national curriculum with teaching resources.
6. Change Culture: do you know what LOBA is? It stands for "Lower of Budget or Actual" - this is how government budgets are set, and effectively how people are measured - your budget next year is the lower of what you did spend or were supposed to spend. The motivation is to spend everything you are given whether you need to or not. Per my post on simplicity, we should measure government employees on their ability to spend well, reward outcomes vs. process, and prioritize fewer, simpler objectives. By changing the culture, we can create a system motivated to spend less and do more vs. the opposite. This eliminates the need for the thousand cuts.

Difficult times require drastic changes. If the Republicans are to be believed, America is headed for bankruptcy, and will become the next Greece. These six changes would create a culture of lean efficiency, shrink or cut programs that are outmoded, and invest where it makes sense to enable future growth.

We need leaders who can guide this nation through the tough times ahead, and prepare the United States for sustained prosperity in the future. Legislators who waste time trying to save $50-100 million on trivial initiatives are afraid and useless. We have serious problems, and we need serious people to solve them.

President Obama, Speaker Boehner - let's see what you've got.