Tax Innovation: The Path to Long-Term Prosperity


By Robert Brands and Martin Kleinman

We Americans need to wake up – now – and stop acting like spoiled, immature children.  Elected officials need to put aside partisanship – now – and do what’s in the best interest of our country and speak the truth to the electorate.  And we all must do this without fostering and perpetuating certain convenient misconceptions and without coddling us like soft, over-indulgent parents afraid to say “no.”

We are in an economic fix of epic proportions, one that a short-term approach, will not cure.  Innovation in the halls of industry drives long-term success and, similarly, it will take sustainable innovation by government – and by all citizens – to pull us out of the hole we are in.  As we’ve learned in our business lives, these days, you innovate, or you die.

What Happened?

It took some doing to get in the fix we’re in.  It’s a familiar litany: housing bubble that decimated personal wealth and reduced local revenues, personal credit cards maxed out, two 10-year + wars run off the books, a Wall Street meltdown that torpedoed retirement accounts and personal wealth, frozen capital markets frozen.  Consumers cut spending and companies cling to cash, with hiring and capital expenditures on “perma-hold.”

Meantime, cuts in Federal spending shifted the onus for needed programs to the States and local municipalities.  Accelerating global demand for petroleum, from new economic powerhouses such as China and India, helped drive up prices (along with pressures from market speculation), further constricting the U.S. consumer spending on other goods and services that helps drives economic growth, here and abroad.

On the revenue side of the ledger, “temporary” and unfunded Bush tax cuts (made semi-permanent) threw our huge budget surplus into the wood chipper.  Add the pressure of reduced revenues from current income tax rates, the lowest in six decades, and you begin to see why we face a gaping chasm of a deficit and a fragile economy that is so slow to recover.

The Result?

Millions of Americans – our friends, neighbors and families — are unemployed or underemployed.  Too many have simply given up and are out of the workforce altogether.  And the answers show no creativity, only a startling lack of decency and compassion for those less fortunate that this country was built upon.  Such solutions denigrate our sense of national pride and tread upon the Golden Rule we all hold to.

What’s the Answer?

The solution of all too many in Congress is to balance the budget solely through “elimination of bloat.” Eviscerate government programs that protect the most vulnerable of us, slash “entitlements” — cuts, cuts and more cuts (but keep your hands off the Pentagon budget), they say.

But raising revenues?  Here is where today’s new breed of fiscally conservative ideologues dig in their heels.  No tax increases, period, they say.  To our way of thinking, that is an approach that is more than uncompassionate.  Tactically speaking, it won’t work.  It’s simply not nearly enough to take the machete to human resource programs and, frankly, it’s not the approach that our nation needs or deserves, philosophically, morally or fiscally.

We need to think as innovators.  This needs to be a major effort, an economic Apollo Program.  We need to reward and encourage innovative ways of attacking our problem, rather than clinging to past failed policies.

Yes, of course: we need to surgically, compassionately and intelligently reduce costs.

Simultaneously, we need to increase revenues as we surgically cut expenses.  Let’s close tax  loop holes, let the Bush tax cuts expire for higher net worth earners and creating a fairer, progressive tax code.

Raising taxes is not without precedent.  Many of our most well-respected leaders raised taxes in response to, and in anticipation of, fluid economic scenarios.  Fact: Ronald Reagan raised taxes nearly every year he was in office, 11 times in all.

As we all know, when managing one’s household budget, both a sharp pencil for unnecessary costs and a path forward to maximize revenue are necessary, in order to succeed.  We strive to keep expenses in check and optimize salaries.  And each of these elements requires creativity and innovation in order to be successful.

Innovation drives success and must be fostered, in the boardroom and in our government’s halls of power.  The need for sustainable innovation was the mantra in our recent book.

Experience shows that innovation is an imperative in today’s world.  In business, you innovate, or you die.  Yet, in today’s business climate, one of the first budget line items to be cut – in a misguided attempt to achieve “addition by subtraction” – is Research and Development and New Product Development.  Innovation is the very last thing managers should eliminate during rough economic conditions.

By extension, cutting education budgets and constricting access to higher education, is – to our way of thinking – the same as curtailing R&D expenses in business.   It’s a false savings.  Innovation and education are powerful investments in the future.

Our leaders should be doing all they can to bolster education.  We need to encourage our best and brightest to become educators.  These educators, in turn, must enhance the learning process to leverage the latest technology and captivate the power of our young minds.  Our elected leaders need to widen the pathway to needed higher education, including specialized technical and vocational programming.  That’s the way to foster the innovative thinking we will need to best the international competition that, at this point, is far outpacing our youngsters in terms of knowledge and critical thinking skills.

The Misconceptions

To our point made in our opening statement, there are certain misconceptions that some find it politically expedient to promote and protect.

Please note: “Tax” is not a dirty word.  The Constitution of the United States grants Congress the “Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States…”

“Entitlement” is not a dirty word either.  Medicare and Social Security, as two examples, are commonly referred to as “entitlements.”   They are, in fact, paid for over a lifetime of earning and are not “hand outs” or welfare, as the word “entitlement” might imply.

We have one last popular misconception to debunk, about oil.  Here’s the reality: the U.S. cannot drill its way out of higher gas prices.  Even with falling domestic consumption, U.S. crude oil consumption far outpaces home production.  Further, home production is sold on the world market, not captured for proprietary, domestic use and prices are set globally.

Conclusions

As the 2012 Presidential election looms, we call on all Americans, from every part of the country and from every political persuasion, to work together to understand the magnitude of our economic situation, the ramifications of not taking responsible action and of not sharing sacrifice.  Further, we need to stop perpetuating certain the popular misconceptions that blur our thinking.

Efforts to correct our past errors must include both budget refinement and revenue increases, as every head of household knows.  Shared sacrifice along with compassion for the least fortunate among us should be our watchwords.  Our country has and will continue to be driven by innovation.  And the innovators of the future, our children, must be spared from draconian cuts to education and training needed to ensure their success in a global economic playing field.

Finally, we must act without rancor and with maturity and intelligence.  We must learn to face facts squarely and address and dismiss common misconceptions.  There is an all too pervasive cultural mythology that demonizes the most vulnerable in our society and discredits, or dismisses out of hand, the economic tactics needed to get us back on course.

For, make no mistake: we are in this together.  And so we must share in the sacrifices ahead, proportionate to our financial abilities.  Together, we can get back on track.  Divided, we fear an economic, political and social cataclysm that will make the hardships of the last five years pale in comparison.

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Robert Brands, with Martin Kleinman, authored Robert’s Rules of Innovation (Wiley & Sons).  Brands is President and Founder of Brands & Company, LLC. and InnovationCoach.com.  His hands-on experience in bringing innovation to market spans decades, and includes the creation and improvement of product development processes and company culture.  Kleinman is Managing Director of Communications Strategies, LLC, the NY-based marketing communications firm.

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