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The Cutting Edge^™ January 2005

Public Policy

Presidential Initiatives
By John Satagaj, WMMA Legislative Counsel, email@jsatlaw.com

Last month, I wrote about the potential for legal liability reforms. The President has made enactment of legal system reforms a priority for his second term. This month I would like to cover three other priorities - tax reform, social security reform, and deficit reduction.

Our past experience has taught us that when you enter the world of tax reform it is very difficult to turn out the incumbent tax system. For all its warts, the current tax system does reward certain behavior. Charitable giving and housing come to mind as two of the more prominent recipients of tax-favored status. The list is long, and ironically, the recently enacted export tax repeal law added new favored industries to the list and domestic manufacturing finally gained some meaningful recognition.

Then there is the matter of deficits. Of course, all the advocates of "swapping out" the current system will argue that the debate is "revenue neutral;" that the new system will collect no more or no less than the current system. Experimenting without knowing the answer is slightly more hazardous to our economic health when federal deficits are soaring and this is likely to dampen enthusiasm.

During the campaign, the President expressed some interest in a national sales tax but he has not endorsed any specific game plan or proposal. Advocates of a flat tax or a more traditional Value Added Consumption Tax will be promoting their ideas as well. There are some key players in the Administration that favor tax system simplification. If there is a window of opportunity, this is it. So expect to hear a lot about the virtues of the various alternatives.

Another issue the President will take on is restructuring of the Social Security system. On that topic during the campaign, the President said, "Social Security represents a solemn commitment to the American people. To keep that commitment, we must fix Social Security permanently for our children and grandchildren. Fifty years ago there were sixteen workers paying into Social Security for every person receiving benefits. Today, there are just 3.3 workers for each person on Social Security. Without principled leadership, sound policies, and courageous action, Social Security will be unable to pay the benefits promised to our children and grandchildren without enormous payroll tax increases."

The day after his acceptance speech, the President said in a press conference, "You might remember in every speech I talked about the duty of an American President to lead. And we must lead on Social Security because the system is not going to be whole for our children and our grandchildren. We'll start on Social Security now. We'll start bringing together those in Congress who agree with my assessment that we need to work together. We've got a good blueprint, a good go-by. You mentioned Senator Moynihan. I had asked him prior to his -- to his passing, to chair a committee of notable Americans to come up with some ideas on Social Security. And they did so. And it's a good place for members of Congress to start. The President must have the will to take on the issue -- not only in the campaign, but now that I'm elected.

" Reforming Social Security will be a priority of my administration. Obviously, if it were easy it would have already been done. And this is going to be hard work to bring people together and to convince the Congress to move forward. And there are going to be costs. But the cost of doing nothing is much greater than the cost of reforming the system today. That was the case I made on the campaign trail, and I was earnest about getting something done. And as a matter of fact, I talked to members of my staff today, as we're beginning to plan the strategy to move agendas forward about how to do this and do it effectively."

The President has put forth these principles to strengthen Social Security permanently:

1. No Changes in Benefits for Current Retirees and Near Retirees--For those already in or near retirement, promises made must be promises kept;
2. Voluntary Personal Retirement Accounts for Younger Workers--These personal accounts would give workers ownership, control, and the opportunity to use their Social Security payroll taxes to build a nest egg for retirement that can be passed on to their families;
3. No Increases in the Social Security Payroll Tax--the President has stated that we cannot tax our way to fixing Social Security.

1. Budget Enforcement Legislation--President Bush has sent to Congress budget enforcement legislation to restrain the growth in spending and to offset proposed increases in mandatory spending;
   
2. Line-Item Veto--President Bush proposes a Constitutional line-item veto linked to deficit reduction that would provide authority to reject new appropriations, new mandatory spending, or limited grants of tax benefits whenever the President determines that the spending or tax benefits in question are not essential government priorities. All savings from the line-item veto would be used for deficit reduction and could not be used to increase other spending.

Table of Contents
A Message from the President - The Year in Review 2004 and Focusing on the Future
2005 WMMA Public Policy Fly-In Update; NAM Events Celebrate Manufacturing
Presidential Initiatives
Small Business Legislative Council Announces 2005 Priorities
Building a Culture of Improvement: Employees of a Somerset, MA Millwork Company Create Solid Foundation for Change
WIC 2005 Registration Has Begun!
Call for 2005 Baldwin Award Nominations
What Is On the Minds of WMMA Members - Results of a Quick Survey