President Obama has three big transition tasks ahead of him. First up: get past the heated deficit debate with a real solution.

As I write this in mid-October, it is not at all clear that President Obama will have a second term. There are structural factors giving the president an advantage, largely that so many states are basically determined one way or the other.  And there has been a slight tendency for all of the polls to settle into to a pattern suggesting a narrow Obama win. But there is no question that the botched first debate, coupled with Paul Ryan's draw with Joe Biden in the vice-presidential debate, even given President Obama's win in the second debate, have put this election in play and clearly given Governor Romney more momentum in the race. 

But I do not have a clue how Mitt Romney thinks. Nor do I know how the Republican Party is going to move from being an opposition party with the sole goal of defeating President Obama to a governing party that actually has to do something. So I have to write this from the perspective of a Democratic president preparing for a second term. From this point of view, President Obama has three major rethinks to undertake as he considers his second term. First, he has to move immediately after election day to break the enervating debt and deficit deadlock or it will eat his whole second term. Second, he should rethink the goals of his presidency and, in so doing, begin the historically necessary process of redefining what being a progressive should mean in the first half of this still new century. And third, he should rework his approach to being president. There is a fourth task, which is to take the lead in defining America's next economic growth model. That's the biggest task of all and is touched on in task two, but I'll write about it more after the election. 

Let's start with what almost has to be the president's first major policy move. On November 7th, a re-elected Barack Obama should announce a committee composed of Alice Rivlin, Pete Dominici, Alan Simpson, and Erskine Bowles. He should tell that committee to produce in 10 days one integrated version of the economic and debt plans they have already written. (They all talk to each other and I am reasonably certain they know exactly what they would propose.) He should say he wants a plan that will (1) allow us to avoid the impending fiscal cliff and the true craziness of the upcoming lame duck session, (2) shore up near-term economic growth, and (3) credibly get us off our disastrous debt and deficit track of the next 10 years.

He should commit to supporting their unanimous recommendation. Then he should (1) tell the lame duck Congress that he wants them to end this fiscal cliff nonsense by postponing everything to June, (2) tell them not to name another useless special committee, but instead to give the permanent committees of Congress specific instructions to solve the debt/deficit plan, (3) state unequivocally that the Rivlin-Dominici-Simpson-Bowles plan is the default and will go automatically into effect if Congress fails to act, and (4) go home.

In early December, as he makes this plan public, he should appoint either Alice Rivlin or Erskine Bowles as Secretary of the Treasury, name the other three as senior advisors, and task the Secretary of Treasury-designee with accomplishing a full agreement by June 2013.

Why these four people? They're the only four in America who have put themselves publicly in the line of fire and dared to create genuinely bipartisan, credible plans. They all have years of public service experience. Their mamas taught all of them to read and count. And not one of them gives much of a damn about the inevitable hysteria that will emanate from the left or the right. 

The U.S. economy is limping along at roughly 2 percent growth and the unemployment rate is falling too slowly. The debt and deficit track we are on is not sustainable and is becoming more and more risky. We are headed into a post-election lame duck session in which the most polarized and gridlocked Congress in 100 years must accomplish more than has ever been done in a lame duck session. And then, at the end of this session, our current plan is to jump off a fiscal cliff consisting of tax increases and spending cuts of 6 percent of GDP, certainly triggering the recession of 2013.

We also have much more important tasks to accomplish as a nation than waste several more years bickering over a debt and deficit issue that we can actually solve without enormous pain - if we would just do it rather than choose to emit an endless chorus of ideological whines. We need a new economic growth model. We have to begin to correct the extreme inequality within our society. We have to figure out how to stop trashing the planet. I would think that this president - any president - would prefer taking on these tasks than another four years of mud wrestling.

But we have to act as close to now as we can get. And if the president does not take the lead, nothing will happen. No amount of strategizing, negotiating, or consulting can substitute for one clear direct act of presidential leadership immediately after the election. 

Isn't this risky? Of course it is. But there is no course available to President Obama, including doing nothing, that isn't risky. Assessing this risk demands that President Obama ask himself the following question: am I better off taking a risk now - that gives me the initiative - or waiting and being forced later into an undefinable "third best" decision? 

In my view, President Obama's choice is straightforward. He can temporize and wait, see our circumstances become worse, and fight a protracted battle throughout his second term on the same issues that bedeviled him throughout his first term. Or he can set in motion now a real effort to alter current debt and deficit trends and have a good shot at a successful second term.

A version of this piece will appear in the November issue of International Economy.

Roosevelt Institute Senior Fellow Bo Cutter is formerly a managing partner of Warburg Pincus, a major global private equity firm. Recently, he served as the leader of President Obama’s Office of Management and Budget (OMB) transition team. He has also served in senior roles in the White Houses of two Democratic Presidents.

Tax reform appears dead in the water, but the dreaded "fiscal cliff" could actually offer reformers some hope.

It began with a critique of Mitt Romney's tax proposal. But more than two months after the Tax Policy Center released a report with the anodyne title “On the Distributional Effects of Base-Broadening Tax Reform,” the entire promise of tax reform, whether Romney's or some other version, is near death. With its demise goes the idea of a budget grand bargain. It's been a subtle development, but a dramatic one that will reshape the landscape of policy possibilities, especially if President Obama wins reelection – probably for the better.

Tax reform is typically sold as a win-win-win that can achieve three goals at once: reduce rates, bring in more revenue for deficit reduction, and clean up the loopholes in the tax code that create economic distortions and slow growth. This vision was not Mitt Romney's alone. It was and still is shared by many Democrats, notably Senator Dick Durbin, the White House, most members of the Bowles-Simpson deficit reduction commission who voted for its report, and most of the promoters of a budget grand bargain. I've held this religion myself.

But the vision of “base-broadening tax reform” is not just a budget solution – it's a nostalgic fantasy about American politics, a hope that we can recreate the kind of bipartisan compromise and collaboration of the idiosyncratic 1970s and 1980s, symbolized by the tax reform of 1986. (Last week I argued in a debate published in the Breakthrough Journal that the old era of bipartisanship was idiosyncratic, and we shouldn't expect it to come back.)

The Tax Policy Center report was perceived as an analysis of the Romney tax plan, showing that his math didn't add up. But as its title indicates, it really wasn't a report on Romney's plan at all, but on base-broadening reform more generally. It showed that Romney couldn't achieve his two goals – lowering rates and eliminating tax expenditures without significantly increasing taxes on the middle class or raising the deficit – because while tax expenditures such as the home mortgage interest deduction provide large benefits to the very rich, the more numerous middle-class recipients account for a large share of the costs. If Romney can't achieve his two goals (his plan would not explicitly aim to increase revenues or reduce the deficit, relying instead on a vague hope that lower rates would drive economic growth to implausible heights), then how could we possibly achieve three goals: lower rates, fewer loopholes, and higher revenues? Nor would it be easy to achieve a different two other goals, fewer tax expenditures and significantly higher revenues, while keeping rates at their current level.

That's because we're in a very different situation than 1986. In the 1980s, the tax code was littered with provisions that benefited specific industries (especially oil and gas) and permitted individuals and corporations to take losses for tax purposes when they hadn't really put money at risk. These “passive losses” distorted economic decisions. Just as all those provisions had been created by a kind of log rolling among legislators (those from states that benefited from pharmaceutical or agricultural tax breaks didn't object to the oil and gas breaks), legislators in the reform coalition were essentially able to hold hands and eliminate all of their tax earmarks at once. The tax rates were nominally quite high, though no one actually paid them, so bringing the top rate down from 50 percent was a lot easier than bringing it down from 33 percent. And while there was some concern about the short-term federal deficit in 1986, it was easy enough to separate that issue from tax reform and keep it revenue neutral in the long term.

While the tax code is a mess once again, it's a mess in a very different way. Tax rates are now too low, not too high; the most fundamental problem with the system is that it doesn't bring in sufficient revenue to finance basic functions of government (not just in a recession, when that's to be expected, but in the long term); and the biggest tax expenditures are not special benefits to particular industries or constituencies, but large-scale deductions that largely benefit the well-off yet give just enough to the middle class that eliminating them affects a lot of people. And while we might prefer that tax preferences such as the mortgage-interest deduction had never been invented, eliminating them or capping them would be enormously disruptive to the fragile housing market and would disproportionately affect younger families. It's extremely unlikely that Congress will have the will to cut that deduction, the deduction for state and local taxes, or the deduction for charitable giving.

That leaves two alternatives. One is to eliminate some or all of the tax preferences for investment income – not just the “carried interest loophole” through which Mitt Romney makes much of his vast income, but the entire preference for capital gains and dividend income that makes that and other loopholes possible. (Almost all the tax gimmicks exercised by the rich involve redefining compensation as capital gains to enjoy the 15 percent rate.) There doesn't seem to be much enthusiasm even among Democrats for fully equalizing treatment of capital gains and dividends, although we did it in 1986 and the economy thrived. The second alternative is some kind of global cap on deductions, which is where Romney has gone, first suggesting a cap of $17,000, then $25,000, but never with much detail about which deductions would fall under the cap. A $25,000 cap would raise about $1.2 trillion over ten years according to the Tax Policy Center, which is not trivial. But a cap would hit upper-middle income households almost as hard as the very rich.

All these moves, along with the administration's tortured “Buffett Rule,” fall well short of real base-broadening tax reform. But the fantasy of tax reform is essential to those who believe in a budget “Grand Bargain,” because the only moments when Republicans have hinted they might accept any revenue increases have been when it's packaged under the guise of “base-broadening reform.” No tax reform, no grand bargain. That's why the Committee for a Responsible Federal Budget, an organization funded by the Peter G. Peterson Foundation to push for a budget deal, has been almost as obsessive about rebutting the Tax Policy Center's and other analyses as Mitt Romney has been, though not more persuasive. Senator Charles Schumer was the first to say out loud that tax reform wasn't going to happen in an October 9 speech. Since then, other Democrats have recognized that tax reform, especially if it begins with the current Bush tax rates as the baseline, “could be a trap,” as Chuck Marr and Chye-Ching Huang of the Center on Budget and Policy Priorities put it in a June report.

If there's no tax reform and no grand bargain, what's left? The answer is what's called, ominously and inaccurately, the “fiscal cliff.” If some sort of deal isn't reached by January 1, 2013, then all of the Bush tax cuts, as well as some Obama tax cuts for the middle class intended as economic stimulus, will expire.* And the defense and domestic spending “sequestrations” agreed to last summer, in the deal to avoid breaching the debt limit, will hit.

Many of these outcomes are undesirable and could damage the faltering economy if higher taxes and lower spending continue well into 2013. But consider some of the things that happen to taxes:

• Rates go up: the top rate, on income over $397,000, would go from 35 percent to 39.6 percent.
• Tax rates on investment income would go up. The rate on capital gains would go from 15 percent to 20 percent, and dividends would once again be taxed at the same rate as ordinary income.
• If you like the idea of a cap on deductions, such as Romney's $17,000 or $25,000 cap, you get something like it. The Bush tax cuts repealed two provisions, known as Pease and PEP, that phase out itemized deductions and the personal exemption for upper-income taxpayers, and both would return. These have an effect similar to Romney's cap but hit only the very wealthy.
• The estate tax returns.

Put these together and what do they look like? They look a little bit like tax reform. It’s not necessarily a perfect version. But revenues are higher, more income will be subject to tax, deductions will be limited for the well off. This doesn't require a grand bargain, and it's probably better than what would result from a grand bargain, if such a thing were actually possible. It's simply what the law calls for.

There are plenty of less desirable things that will happen on January 1. The bottom tax rate will go from 10 percent to 15 percent, and rates in the middle will go up three percentage points. The child tax credit will go down, as will the Earned Income Tax Credit. And the budget sequester will constrain domestic discretionary spending.

But once we cross that line, we'll be in a very different world. If President Obama is reelected, he will have the initiative to propose a package of tax cuts, restoring some of the Bush tax cuts for the middle class and perhaps others, in addition to other tax changes and modifications to the sequestration plans. Congress, even if one or both houses is controlled by Republicans, will hardly have the option to block everything, because all they would be blocking are middle-class tax cuts. The long-term budget forecast will change immediately, and any effort to temper long-term spending on programs such as Medicare and Medicaid, in addition to the savings likely to be achieved through the Affordable Care Act, will be in addition to the revenues gained from letting the Bush tax cuts expire, rather than held hostage to an unachievable grand bargain.

It's hard for me to say this, because I've long bought the gospel of base-broadening tax reform, but in the weird circumstances of this moment, it's not the right answer, and I'm glad that there's a better alternative, which can be achieved just by letting the law take its course.

* It's worth noting why each of the tax cuts expire. The Obama cuts expire because they were always intended as temporary stimulus. In the case of the Bush tax cuts, it's a different story: congressional Republicans in 2001 and 2003 wanted to push the cuts through without any compromise with Democrats. To do that, they needed to use the 50-vote budget reconciliation process, which prohibits any provision that increases the deficit in the future. To avoid that, they made the tax cuts expire, even though they wanted them to be permanent. That's the deep origins of the “fiscal cliff.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Cliff-diving image via Shutterstock.com.

Romney and his conservative colleagues have made it clear that they care more about bottom lines than investing in people's lives.

In last week’s presidential debate, Governor Romney said he will make a great president because he is a businessman and has run companies. He might know how to make a profit and possibly balance a budget like he promises. But running a country is not just about balancing the budget – which, by the way, he likely wouldn’t be able to do any better than President Obama – and it is definitely not about making a profit.

President Obama is not trying to run America like a company. He has a background in community organizing and is trying to run the country like a community, like a family, a household. A nation is not just a material system of capital, investment, and revenue. It directly affects the human lives of each and every American. Households are invested in every family member, as their shared living space, culture, history, and lineage binds them together for life. In companies, on the other hand, employers and employees are generally tied together by monetary relationships.

A few years ago, I met a member of the Pan-African Parliament at the United Nations Commission on the Status of Women. We had a conversation about how to encourage women to participate in politics. She said she talks to women living in the villages in her country, and they typically respond that politics is not for them, as they “only” know how to run a household. The member of Parliament then told them that if they can run a household, they can run a country. Think about it: you have to work together and negotiate with your spouse or partner to make decisions and get things done (bi-partisanship), understand and respond to the needs of the various family members (constituencies), and do so strategically with limited resources (budgeting, redistribution, long-term investments).

This is President Obama's strength. Sure, he hasn’t been a perfect president – if such a thing exists. But I trust him as a leader. I believe he truly cares about all constituencies, especially those who have traditionally been disenfranchised. He understands the strategic, long-term social and economic benefits of investing in quality education, efficient universal healthcare, healthy lifestyles, fair distribution of resources, and respect and equal rights for every individual. He understands that a country is only as strong as its weakest link and that leveling the playing field for everyone facilitates equal opportunity and empowerment for individuals as well as for the entire country. He understands that creativity, innovation, and progress are promoted by leveraging our rich diversity. His commitments and policies regarding healthcare, gender equality, poverty, education, and immigration, for instance, give us the feeling that he is everyone’s president.

Governor Romney, on the other hand, recently made it very clear that it is not his job to be concerned about 47 percent of Americans. He implied that almost half of the country does not take responsibility for itself and that he won’t be able to convince it otherwise. But most people want nothing more than to be economically independent, and the fact that some are not is more a reflection of social inequalities than of their characters. As most parents know, to raise your children to be self-sufficient and productive members of society, they need to develop skills and gain knowledge. They need to be invested in; they need opportunities for personal and professional development.

David Brooks argues, "People are motivated when they feel competent. They are motivated when they have more opportunities. Ambition is fired by possibility, not by deprivation." Deprivation of opportunity -- an unleveled playing field -- does not create self-sufficiency and actually fosters dependency on others, including on the government. For all the conservative rhetoric about economic self-sufficiency and individual freedom, President Obama seems to get this logic better than his opponent, with a long-term plan to empower all Americans and with strategic budget decisions that will set us on the road to economic recovery, deficit reduction, and a more equitable society. Republicans say they so greatly value “the family as the cornerstone of society,” yet they disregard the factors that promote economically independent, educated, healthy, and thriving individuals and families.

By not raising taxes, cutting capital gains, and reducing the corporate income tax, Governor Romney is catering to big business and the wealthy and their interest in making a profit. Like companies, Republicans are focused on their own bottom line and the bottom lines of those they consider stakeholders in the conservative political ideology, rather than on the empowerment of all the American people. I’m sure Governor Romney is a wonderful husband and father. It just doesn’t seem like he would be a true family man when it comes to 100 percent of the American family.

Minjon Tholen is a Roosevelt Institute | Pipeline Fellow and the Training & Development Specialist at Cook Ross Inc.

After last night's debate performance, did any substantive policy solutions get through? Roosevelt Institute | Campus Network students didn't hear a lot to go on.

Lydia Austin, Roosevelt Institute | Campus Network Senior Fellow for Economic Development and Chapter Head at the University of Michigan:

It's unfortunate that political debates are primarily judged on the candidate's personalities, and not their policies. Much of the consensus regarding "who won" is based on who was perceived to be in charge, who didn't get rattled, and who made it through the night without a bemused look upon his face. President Obama won the personality debate, but what about the actual policy proposals? Some of the most outstanding moments from the policy debate came from Mitt Romney: he championed flexibility for working women in a way that indicated how much he truly valued their presence in the workplace, and he put forth an interesting capital gains tax proposal. As part of Governor Romney's tax proposal, he would eliminate capital gains taxes for individuals making under $200,000 a year. The implications of this proposal are interesting: while it would encourage people to invest in savings, it would also benefit those individuals who already earn much of their income from investments (up to a certain point). Democratization of capital holdings is essential for a thriving middle class, and while both candidates implicitly addressed this in the debate, Romney's tax plan was what caught my attention.

Jessie Molloy, Roosevelt Institute | Campus Network member at DePaul University:

The selected voters had some interesting and insightful questions, but neither Governor Romney nor President Obama seemed particularly inclined to answer them. Instead, both candidates fell back into familiar side-step routines and parroted over and over again the same answers and points they have given a dozen times before at the conventions, at rallies, and at the first debate.

One particularly good example of this indirect approach to answers was on the issue of inequality in women’s pay. Obama talked about his mother “hitting the glass ceiling” and then spun the question into a tangent about education and creating opportunities for America’s youth. Romney discussed his experience as governor when he reportedly saw too many male cabinet candidates and sent out his staff to find “binders of women.” In the eight minutes or so the topic was on the table, neither candidate actually acknowledged how he would ensure women would be paid the same as their male counterparts.