It has been a hot summer. As the US government worked through weeks of dramatic political negotiations to increase its debt ceiling, the debates were heated and reflected strong differences. Common ground is not easily found.
Oversimplifying, the Republican side believes the government has a spending problem. Their solution is to constrain the 'government beast' and its revenues, so that the government will be forced to 'design to cost'. More funds left in the private economy will create prosperity, growth and employment. Many believe that only by their winning the 2012 elections will the right course be set, so until then, just do no harm.
The Democrat side believes some spending reforms are appropriate, but they also think the government needs additional revenues. In their view, the government must ensure adequate public spending and sufficient 'investments' (eg, medical care, green technology, etc), and then collect whatever revenues are required to meet these 'strategic needs'. They also believe in redistribution, so added revenue sources are easily targeted and tax deductions afforded to the wealthy are particularly offensive, especially if spending is reduced for social safety nets.
The federal financial challenges have been mirrored in most states, resulting in significant but different tax and spending responses. Considering choices made and anticipated, direct investors into the US as well as US-based companies are considering the longer-term impact on the business climate nationally and among the states. Companies (and talent) continue to vote with their feet – fleeing some states and countries and flocking to others. Many S&P 500 companies are showing robust earnings, principally due to operations outside the US.
Hopefully, whatever decisions continue to emerge in Washington and in state capitals, policies and conditions that enable and encourage growth will be given as much attention as dealing with deficits and debt.
Daniel Malachuk works with business and government leaders on global direct investment strategies. He has advised many of the world’s leading companies and served in the public sector as director of White House operations. E-mail:firstname.lastname@example.org