Washington needs to rediscover its ability to compromise and commit to a long-term plan to reduce the nation's debt, the head of the country's second-largest stock exchange said on Monday, warning that lawmakers are flirting with disaster.
Nasdaq OMX CEO Robert Greifeld, in the latest corporate call for congressional action, said lawmakers need to think less about winning.
Instead, he said Republicans must budge on tax increases, while Democrats must give ground on spending cuts.
The federal budget must be put on a path to sustainability that can clearly withstand any changes in the political winds that may occur in 2014, in 2016, and beyond. This means additional revenues will need to be raised, including from businesses, by broadening the tax base, while reducing the top rates, Greifeld told an audience at the Brookings Institution, referring to corporate tax rates.
We also acknowledge that federal spending will need to be curtailed, including spending on our favorite government-funded programs.
Greifeld said the best that the markets can hope for in the short term is for Congress to make a deal to avoid the year-end fiscal cliff and then commit to deliver a longer- term grand bargain on debt reduction during the first half of next year.
Greifeld's speech comes a few days after President Barack Obama began negotiations with congressional leaders in an effort to stave off the fiscal cliff, a combination of spending cuts and tax increase in early 2013 meant to cut the federal budget deficit, but that also tip the economy back into recession.
If an agreement cannot be reached, then some $600 billion in spending cuts and tax increases will kick in starting Dec. 31. The combination of these two things at once could push the country back into a recession, analysts say.
The Obama administration is pushing for Republicans to allow tax rate cuts for the wealthiest Americans to expire as a way to raise additional revenue.
Republicans, by contrast, want to largely rely on spending cuts to tame the national debt, while extending the lower tax rate for everyone.
Why hasn't the government taken any action? Let's be candid about this. Putting aside the rhetoric and posturing of the past two weeks, the behavior in Washington in recent years confirms that we've lost the ability to compromise, Greifeld said.
On Friday, Obama and top lawmakers agreed to work on a framework for reforming the U.S. tax code and entitlement programs next year.
Although this longer-term plan would not be enough to avert the more immediate fiscal cliff, it is widely seen as an important step toward achieving a compromise. 'FINE' WITH WEALTHY PAYING MORE TAXES
Greifeld confirmed on Monday that he is a member of the Fix the Debt campaign, an ad hoc lobby group made up of more than 80 CEOs pushing for long-term deficit reduction.
The group advocates for reforms to entitlement programs such as Medicare and Medicaid, as well as pro-growth tax reform that would lower rates and raise revenue. Greifeld told Reuters on the sidelines of the Monday event that he met last week with Treasury Secretary Timothy Geithner, who is expected to be a main negotiator for the Obama administration on the fiscal cliff.
Greifeld said he came away feeling Geithner was pragmatic and data-driven. That is a good sign, he said.
He also said during the interview that he would be fine with wealthier Americans paying more in individual taxes as long as they were properly balanced with spending cuts.
I think to the extent that the Bush-era tax cuts lapse and we went back to the rates that were in the Clinton time ... if that were part of a balanced plan, I would be fine with that, he told Reuters. If those tax cuts expire, the wealthiest would see their rates spike to 39.6 percent from 35 percent.
Greifeld declined to offer his view on which federal spending programs should be cut, although he noted there was no one program big enough and the government should be looking at small steps it can take across the board.
More likely, you are going to see budget sanity be achieved by a thousand small steps as opposed to one or two large ones, he said.
He would have concerns, however, about extending such smaller cuts to the U.S. Securities and Exchange Commission - the federal agency charged with regulating Nasdaq OMX and other stock exchanges.
The White House's Office of Management and Budget has projected that, if the sequestration portion of the fiscal cliff takes effect, the SEC would be faced with an 8.2 percent cut, or $108 million to its $1.3 billion budget.
Greifeld said such a cut could harm the ability of exchanges to get things done. That is because federal securities laws require exchanges to seek SEC approval before they change rules or modify fees.
Any decline in the SEC's ability to act will hurt our plans for 2013 and beyond, so that would be a bad outcome for us, he said.
The SEC's budget currently does not impact the deficit because the amount appropriated by Congress is offset by fees the agency charges the industry. Greifeld believes the SEC should be a self-funded organization similar to other financial regulators such as the Federal Deposit Insurance Corp.