Busch: How About a 1:1 Pledge From DC?

These are the facts and are not disputed. Despite $787 billion dollars in stimulus spending, job growth in the United States remains negative. The price of this spending is an explosion in deficit spending. 2009 had a $1.4 trillion deficit that was 40% funded by debt. The overall outstanding debt of the United States expanded from $10 trillion to $11.7 trillion in less than two years. The 2010 omnibus spending bill for 2010 has given major agencies a 10% increase in spending per agency and will increase the debt. Ratings agencies are questioning the ability of the United States to sustain these debt loads and maintain a AAA rating.

Things are so bad in DC that Congress can't even agree to form a bipartisan commissionto cut the federal deficit.

Many have asked me what I'd like to see from politicians in 2010 to help change this situation. On the fiscal side, here's what I see and want. I see spending levels explode with little return except additional future debt loads. As you know, I'm a supply sider (fan of Laffer and Moore). The concept is to grow the economic pie not cut it into different pieces. Therefore, I don't believe that any government can either spend it's way out of slow growth nor create permanent, self-sustaining private sector jobs.

As most know, government is extremely inefficient in how it operates. As an example, ask any defense contractor how long it takes and how much it costs to do the simplest procedure for the military. While critics bemoan how much contractors make from the government, everyone should look into the byzantine nature of an RFP and how many layers/regulations/procedures are necessary just to qualify. It's truly mind blowing. This example can be used for almost any service or good the US government buys.

Again, I don't want to see government grow for these reasons. I also don't want to the government to increase taxes for obvious reasons beyond inefficiency. Small firms drive growth in the United States. Small firms are most likely to be structured as subchapter S corps and therefore have the profits flow through directly to their personal income taxes. Higher taxes discourage risk taking by these entrepreneurs. By definition, it also reduces job growth for small firms.

Therefore, I want to see leaders in the United States pledge to reduce taxes permanently and cut spending on a 1:1 basis. This process would lead to less inefficient government outlays and more money back to taxpayers. This would guarantee a stop to the expanding US federal deficit and reduce concerns by ratings agencies over the AAA rating for the country. It would also grow government tax receipts to further reduce the deficit. Think of what happened when the dividend tax rate was reduced from 40% to 15%. Taxes from dividends expanded massively as companies increased dividends.

What this means for the markets is that any steps along this path would mean a return to sustainable economic and job growth. We all want this to happen. The markets would have a positive reaction to any government official, Congressman, or Senator who steps forward to take this pledge. Keep an eye out for it in 2010.

Andrew B. Busch is Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a frequent CNBC contributor. You can comment on his piece and reach him hereand you can follow him on Twitter at http://twitter.com/abusch.