By: Shelley Nelson
Washington D.C. doesn’t have an ideology problem; it has a math problem.
That’s according to Sen. Ron Johnson, the Oshkosh Republican who defeated former Wisconsin Sen. Russ Feingold in November.
Johnson stopped at the Superior Telegram a week ago to discuss the state of the economy, his a proposal he put forth a moratorium on new regulations until jobs are created and unemployment drops, and what it’s going to take to balance the federal budget.
“I’ve always thought this was going to be a two step process,” Johnson said of balancing the budget. “I don’t think you’re going to find the political will to actually do the spending controls — prioritize spending, reform the entitlement programs — first of all, until we have a statutory requirement to do so, and in the end, I think you need a constitutional amendment.”
While the house and senate were debating how to come to an agreement that would allow both legislative bodies to come to an agreement on spending limits to raise the nation’s debt ceiling, Johnson made a plea to fellow senators to consider adopting Cut, Cap and Balance — a legislative proposal that went nowhere in the debate.
“Until you cut spending — actually cut, like real cuts from the previous year, like $100 billion, I think that’s the only way you cut close to $1 trillion over 10 years, because you can actually lower the baseline,” Johnson said. “Then you’ve locked in structural spending reductions.”
Johnson said the recent debate in Washington D.C. wasn’t about cutting federal spending; it was about reducing the rate of growth. The only actual cuts that were made were to discretionary accounts, about $10 billion in total over the next two years, he said.
“Our total budget is not declining,” Johnson said. “It’s continuing to grow … we’re not actually talking about cutting. I think that’s an important distinction … we’re trying to limit its growth.”
Johnson said bona fide cuts are just the first step. A cap on federal spending would have limited growth based on the nation’s gross domestic product. And finally, he said, the goal was for the House of Representatives and Senate to raise the debt ceiling only after passing a constitutional amendment and send it out to the states to consider, but no one was willing to risk default he said. “We weren’t going to let that happen,” Johnson said.
“The fact is most states operate with a balance budget amendment; certainly Wisconsin does,” Johnson said. He said while the deficit was difficult to fix in Wisconsin, he said the federal deficit is ten times worse to deal with and there are no spending controls in place.
The root cause of out-of-control government spending is it has gotten so large, Johnson said. He said over the last 50 years federal expenditures have averaged a little more than 20 percent of the gross domestic product. In 2009, that spiked up to 25 percent; it’s a little below that now, but the cost of federal government is on a path up to 40 percent of the GDP.
Because of that, Johnson introduced the Regulation Moratorium and Job Preservation Act. The act is designed to put the brakes on regulations that drive up costs for employers.
“President Obama had the SBA (Small Business Administration) commission a study that looked at what it cost for businesses to comply with regulations,” Johnson said. “The study came back saying it cost $1.75 trillion a year just to comply with all the federal rules and regulations and tax code. That’s about 12.5 percent of our total economy. That’s above and beyond what taxes we pay.”
As a manufacturer, a partner in PACUR LLC in Oshkosh, which manufactures custom plastic sheets through extrusion, Johnson said he knows what it takes to comply with regulations.
“As opposed to creating products, creating jobs, they’re creating paperwork,” Johnson said. “They’re complying with regulations. That has an economic cost. It costs jobs. It costs sales. It costs economic activity.”
Johnson said he hears from Wisconsin business owners regularly who come in to discuss new regulations that keep coming into play.
The senator said while the nation does need regulation, the problem is those regulations keep growing more stringent with little benefit.
“I just think it’s prudent right now — when we have unemployment at 9.1 percent — to say stop the madness,” Johnson said. “Stop issuing new regulations; give employers a chance to breathe so we can actually start creating jobs … Hopefully, at that point in time, people will realize this is working. Maybe we should start taking a look at our regulatory environment … they can’t be so onerous and so large and having such a large cost on our economy.”
And it’s an issue the city of Superior is facing right now. Three years after the city introduced a storm water utility to address infrastructure needs to manage storm water, the council is faced again with a decision to raise wastewater fees to meet more stringent environmental regulations. The increases are likely to add more than 50 percent over the next few years to the current cost to treat wastewater.
When the issue was debated last year, Mayor Dave Ross said the returns on the investment were diminishing; the costly projects driving the rates rapidly upward were targeting just a small amount of pollution.
And the city has little choice but to meet the regulations or risk another moratorium that would limit construction and economic growth — an issue the city faced in the early 1990s.
Johnson called it the law of diminishing returns.
“If we don’t do it now, when our debt is the equal size to our economy, when our unemployment rate is 9.1 percent and it’s just stuck, we have to do this now,” Johnson said of getting the regulatory environment under control. “We have to start dialing it back. The problem is our federal bureaucracy has just metastasized.”
Johnson said the regulatory environment is out of control.
“The problem is they regulate one thing, they go ‘OK, I’m done with that; now what else can I regulate?’” Johnson said. Ozone, for example, was dropped to 75 parts per million in 2008, and now regulators want to drop it to 60 ppm, he said, adding that manufacturers estimate the cost for that to be about $1 trillion.
“It’s just out of control,” Johnson said. And it is having an impact on economic decisions made by manufacturers who must compete in a global economy.
“We need to dramatically reverse course … the first step in reversing course is let’s stop the growth,” Johnson said.
Growing the economy
According to Johnson, the best way to improve the government’s balance sheets is to improve the economy and reduce government spending and growth.
After all, while the nation spends about 20.4 percent of the gross domestic product annually, that’s more than the 18 percent the federal government takes in — a consistent figure irrespective of the tax rate, Johnson said.
And the corporate tax rate — among the highest in the world — inhibits economic growth when global companies not committed to the success of the United States decide to site their manufacturing facilities in other countries.
Johnson said he wouldn’t dream of moving his company because 80 percent of his customers are in the U.S. and he’s committed to excellent customer service. However, he said, there are some companies willing to make that choice to be accountable to their shareholders who expect a return on their investment.
Anytime someone talks about a balanced approach and increasing taxes, the American people should ask how many jobs that will produce, Johnson said.
“How much will that tax increase grow our economy?” Johnson asked. “I know it will grow government but how does that grow our economy. The private sector is the only thing that produces long-term sustaining jobs. It pays for government. We’ve got to grow the economy … We need a healthy, strong economy.”