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Goldmark: This country is in fiscal hemorrhage

President Barack Obama and Vice President Joe Biden

President Barack Obama and Vice President Joe Biden walk off stage after speaking to the media in East Room of the White House. President Obama said he invited Congressional Republican leaders to come to the White House to discuss ways of the avoiding the so-called fiscal cliff at the end of the year. (Nov. 9, 2012) Credit: Getty Images

The campaign dust has settled. The echoes of wild charge and countercharge faded. The American people have settled the question of who will lead them for the next four years. We are still divided, and we are tired of being divided.

And now a harsh reality stares us in the face: Fiscally, our country is hemorrhaging. It will take a strong and coherent effort to stop the hemorrhaging, and it will cause us pain. But the alternative is to have the hemorrhaging get worse -- because every day we don't shape up is a day when we just make the hole we've dug for ourselves deeper and harder to get out of.

Large, difficult measures will be needed:

1. Big federal spending and subsidy cuts, including defense, and putting the brakes on Social Security and Medicare increases.

2. Raising taxes on the wealthiest 20 percent. Can they afford it? Yes.

3. Raising corporate taxes -- not the official rate, but what is actually paid, which today is lower on bigger profits than ever in history. Business is making big money and paying huge bonuses with the help of tax gimmicks, loopholes and special deals that amount to highway robbery and force the rest of us to pay more.

4. Letting the payroll and Bush tax cuts expire until we get the budget back in balance.

Will all this hurt? Yes. So let's compress the pain and get it all done in three to four years, rather than stretch it out over an agonizing decade or two.

To do this will require bipartisan cooperation -- something the Republicans have had zero interest in for the last four years. It will mean shelving the ponderous pieties we hear about the size of government and jettisoning the "no tax" pledge, which was in fact a pledge of fiscal insanity, since it was invoked on the heels of tax cuts that unbalanced the budget in the first place.

Are we wealthy and strong enough to do this and come out the other side with a prosperous and growing economy? Yes, we are. But how do we do it without deepening the recession?

The answer is to avoid layoffs and to invest as we tighten.

We want as many people as possible working, earning, investing and paying taxes. It is far preferable to have family budgets tighten than to have hundreds of thousands more people out of a job.

That means giving state and local governments the tools, such as flexibility in reallocating federal funds, to keep teachers, policemen and others working; as well as tools to restrain their skyrocketing health care costs, including waivers to permit cost controls on some Medicaid procedures.

Above all, it means going the extra mile and generating enough revenue to ratchet back the deficit and invest in capital infrastructure -- roads, rail, water systems, energy efficiency, the smart grid and more. That will make our economy more efficient and more competitive globally. It will mean millions of jobs that can't be outsourced. And we need those hundreds of billions pumping through our economy while we're dieting on the budget front. The federal government can create an infrastructure bank that allows any state that opts in to leverage its own capital capacity off federal dollars.

We've barely caught our breath following the election, and the debate over what to do about the fiscal cliff is already bursting onto the front pages. Our entire economic future is at stake. We can bleed and slowly sink, or we can roll up our sleeves, take in our belt a notch or two, and go to work -- together. It is time to recognize that there is no easy, painless way forward. There are two roads ahead, both of them hard. One leads to decline and continuing hardship. The other leads, through temporary hardship, to prosperity and strength.

Peter Goldmark, a former budget director of New York State and former publisher of the International Herald Tribune, headed the climate program at the Environmental Defense Fund.