OK. What Next?

There is no time for gloating or a victory lap. Unemployment is high, the economy and financial system remain fragile and the debt and deficit have reached levels unseen since WWII. Our fiscal circumstances are unsustainable. So, what will we see in 2010? Ranked in order of probability:

Gitmo/Terrorist Protocol – a bargain will soon be reached that closes Gitmo and moves the bad guys stateside. Military tribunals, rather than civilian courts, will be used almost exclusively for foreign defendants accused of anything related to terrorism. Substantively, this will be a win for the GOP.

Financial Reform – We will see this passed this summer. It will essentially be a Democratic bill and many Republicans will support it, as they cannot go into the next election having opposed financial reform. I see 70 – 75 aye votes in the Senate.

Carbon Tax Implementation/Payroll Tax Cut – I have supported this concept since John Anderson (R) suggested it in 1980. Prominent Republicans Arthur Laffer and Jeff Flake, among others, have signed onto the idea. In fact, it can be described as the free market approach to our energy and climate problems. Though highly unlikely, why might we see it this year? It would kill Cap/Trade in its crib and provide substantial payroll tax relief for employers and workers. I’d suggest eliminating Medicare from the payroll tax and cutting the FICA tax in half to 3.1% (for employer and employee sides), with a corresponding increase in carbon taxes. Said taxes would automatically go to Medicare/Social Security, in the manner of the payroll tax. This will reduce the cost of an employee by 4.55%, which makes it a jobs bill. It will add billions to consumer’s paychecks. The price mechanism will cause thrift and innovation to find new ways to efficiently produce clean energy and reduce consumption of fossil fuels. Iran, Venezuela and Al Qaeda patrons (among other bad actors) will suffer body blows that will completely change the game in favor of the good guys. We will have to find something else to argue about rather than climate change. We will have rewarded the noble concepts of employment and labor at the expense of finite and deleterious resources that have left us economically and geopolitically vulnerable for nearly 40 years.

Raise the Eligibility Age for SS & Medicare – this “third rail” approach will absolutely come, but when? The sooner, the better. Our debt and deficits are such that this simply cannot wait. This will not happen without support from the leadership of both parties – the political costs are simply too high. Let’s gradually raise the age to 72, adding four months per year for the next twenty-one years. As part of the package, the Social Security surplus needs to be invested in financial assets rather than simply offsetting operating deficits and being recorded as self-owed IOUs. Enable Americans 50 years and up to “buy in” to Medicare on an actual cost, non-subsidized basis. Myriad issues will have been addressed without raising a single tax. The fiscal implications will be positive in the extreme, with profound benefits being found in the strength of the dollar and world financial markets. The talk of a waning America will recede and it will have been accomplished on a bipartisan basis.

Wow. Will all of the above solve all of our problems? Obviously not, but it will go a long way in that direction. Unfortunately, we will still suffer from massive deficits. Much will remain to be done in reconciling our federal receipts and spending. Nonetheless, 2010 can be a year of great achievement rather than one of ever more partisan rancor.