U.S. Must Cut Entitlements to Pare Debt, Honeywell CEO Says
Any plan to reduce the U.S. deficit will need cuts to Medicare and Social Security in addition to tax increases, said Honeywell International Inc. (HON) Chief Executive Officer David Cote, who served on President Barack Obama’s debt commission last year.
“It’s impossible, because what’s happening is we have the baby boomer generation retiring,” Cote said in an interview that will air on Bloomberg Television’s “Conversations With Judy Woodruff” this weekend. “And there’s not enough people paying into the system. We will literally crush the system.”
It also will take a combination of entitlement cuts and tax increases to reach a compromise that can pass in Congress, said Cote, who is also chairman of the Morris Township, New Jersey- based company, the world’s largest maker of turbochargers.
Democrats who would like to reduce the deficit without cutting Medicare and Social Security and Republicans who would like to slash it without raising taxes need to come to an agreement to get it done, Cote said.
“I tell them both the same thing: ‘Cut a deal. You will get some spending reduction, and there has to be some revenue increase,’” he said. “It’s almost like we want to revel in our discordant pluralism rather than pull together.”
“There do come times in a democracy when you actually have to pull together and say, ‘We need to get something done, and let’s deal with the facts,’” Cote said.
Cote, 58, has defended the administration’s economic policies, saying in October that the president received “no credit” for steering the country away from a depression. He is among the CEOs whom Obama has chosen for public-service roles, a group that includes General Electric Co. (GE)’s Chief Executive Officer Jeffrey Immelt, who is heading an advisory panel on economic competitiveness and job creation.
The 18-member debt commission consisted of Republican and Democratic lawmakers, corporate executives and union leaders, and federal budget specialists. It produced a bipartisan $3.8 trillion plan to shrink the deficit with a mix of tax increases and cuts in entitlement programs, while falling short of the 14 votes needed to forward the proposal to Congress.
While Cote said higher taxes are necessary to cut the deficit, he also favors a zero percent corporate tax rate, though he said he knows that’s out of the question for the American public. Cote said he would like to see the lowest rate possible on companies, with loopholes stricken from the tax code.
“I would say you need to eliminate all deductions, because all deductions, whether you do them for individuals or you do them for companies, are market distortions,” Cote said.
The U.S. economy will continue to improve during at least the next three, four, maybe five, years, Cote said. The best way for government to create jobs is to build an environment amenable to hiring, he said.
“That’s the one thing the government can do,” he said.
Cote said he expects that oil prices will increase as the economy improves. Crude settled yesterday at $104.27 a barrel in New York, a 14 percent increase this year.
“If you’ve gone back eight years ago when oil was $20 bucks and you asked me in an interview, what happens if oil hits $35, I’d have said, ‘Recession. There would be a recession.’ Instead, we got to $150 before that happened.”
Honeywell, which manufactures energy-saving products including turbochargers and programmable thermostats, could benefit from higher oil prices, he said.
“The highest oil price that doesn’t damage GDP, that’s where -- that’s the best spot for Honeywell,” he said. “So to the extent the economy can keep growing and oil prices go up, it causes people to focus even more on energy efficiency.”
Cote praised Obama’s goal of reducing by a third, the 11 million barrels of oil imported by the U.S. in a little more than a decade and his bid to generate about 80 percent of electricity by 2035 from clean energy.
“Everything that’s been happening across North Africa should be a huge reinforcement for us to finally do something,” he said, alluding to the turmoil in Libya. “I’ve never seen so much talk with nothing substantive happening.”
To contact the reporters on this story: Judy Woodruff at email@example.com; Will Daley in New York at firstname.lastname@example.org
To contact the editor responsible for this story: Ed Dufner at email@example.com