Advice for Congress on the “fiscal cliff”

No sooner had the presidential election ended than attention swung to the looming “fiscal cliff,” when a set of automatic tax increases and federal spending cuts threaten to send the country back into recession should lawmakers fail to agree on a deficit-cutting alternative.

Capital Business asked Washington area business leaders for their ideas on how to get the nation’s fiscal house in order. Their suggestions ranged from the prescriptive to the practical. Here’s a sample:

Michael Farr, president of Farr, Miller & Washington, a District investment firm.

Farr said Congress should not act precipitously until the economy is on more stable footing. Here’s his recipe:

“1. I would extend the Bush tax cuts until gross domestic product growth is 2.5 percent or greater for four consecutive quarters.

“2. I would eliminate many of the tax loopholes.

“3. I would enact a prorated plan for increasing the retirement age over a 10-year period. The new retirement age would be based on the average life span of Americans using the actuarial tables ... Once we’ve completed the first 10 years of adjustment, I would permanently link retirement age to the actuarial tables.

“4. I would have a means-tested deductible for Medicare. For example, a person receiving Medicare coverage who makes $250,000/year, would have a $2,500 deductible.

“5. I would review and revise the 10 largest government programs and contracts that are currently adjusted with formulaic annual increases. I would change the increases to negotiated rates no greater than the rate of inflation. And these contract increases would no longer be guaranteed.

“6. Carried interest [such as the profits private equity investment managers receive from the sale of portfolio companies] needs to be treated as income [instead of taxed at the lower capital gains rate]. This is a matter of fairness rather than an attempt to move the needle.”

— Thomas Heath

John Kane, president and chief executive of the Kane Co., an office-moving firm based in Hyattsville.

Kane offered a variety of options for raising revenue, including taxing Internet sales and treating capital gains and dividends as ordinary income. He suggested any money raised should be matched by some portion of spending cuts.

“We should have a three-tier income tax bracket with rates of 15 percent, 28 percent and 36 percent. The 15 percent applies to the first dollar earned. The 28 percent is on income in excess of $300,000. Income in excess of $1 million should be 36 percent with decreasing deductions based on increasing income,” Kane said in an e-mail.

“Leave charitable contributions as they are and deductions for interest as it is. Private charitable groups do a better job of serving the poor than the government.”

Kane’s most provocative idea: “Incentivize [anti-tax crusader] Grover Norquist to retire.”

— Thomas Heath

Greg J. Baroni, chairman and chief executive of Attain, a Vienna-based professional services firm.

Baroni said contractors would be more willing to accept changes in government procurement if the trade-off is more predictable spending patterns. For instance, contractors could work under performance-based contracts, which pay for outcomes, not effort.

The industry recognizes Congress has “got to look for opportunities to cut costs and look at programs that are frankly underperforming,” he said. “They could lean on industry to do performance-based contracting, to do some shared-in-savings contracting so there is incentive in the industry to partner with the federal government in this fiscal crisis.”

— Marjorie Censer

Ilisa Halpern Paul, a health care lobbyist and chair of government relations at Drinker Biddle & Reath.

The key to avoiding the “cliff” may be reaching the “Gang of Six” — the bipartisan group of six senators that worked to resolve the debt ceiling crisis.

“I’m hopeful that the leadership and ‘Gang of Six’ are still having conversations,” Paul said.

“I’ve been at this 20 years. When I first came to Washington, you could make a deal and it wasn’t seen as weak or giving in. I remain hopeful we can return there, but it’s going to require a number of folks willing to break with the leadership and the party.”

— Catherine Ho

Steve Case, chairman and chief executive of Revolution, a District-based investment firm.

The former AOL chairman-turned-venture capitalist sees a precedent for bipartisanship. Case championed the Jumpstart Our Business Startups Act, which passed both chambers of Congress and was signed into law by President Obama this spring. The bill aims to ease the regulatory burdens on young companies and make it easier for them to raise money.

“It was a great example of what can happen when both sides of the aisle agree on the fundamental outcome, and can compromise on the path to that outcome,” Case said. “I do think it was a tremendous sign of progress, and can be replicated in other legislation.”

— Steven Overly

Douglas J. Donatelli, chairman and chief executive of the Bethesda real estate firm First Potomac Realty Trust.

Donatelli said new revenue and cuts are both probably needed, but that the most important thing for the economy — above all — is that a decision be made.

Donatelli said that even companies with plenty of cash on hand feel so uncertain about the future that they are unable or unwilling to make any new investments, whether that means hiring new people or signing a new lease.

“Unfortunately, I am not all that optimistic. I think there are certain people who would like to say, ‘Let’s drive this thing off the cliff and see what happens,’ ” he said.

— Jonathan O’Connell

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