December’s jobs report was not good. With the unemployment rate still stagnate at 10%, the economy is still sputtering. A number of labor economists point to the real unemployment rate sitting at 17% to 20% when you include discouraged workers and the under-employed.
To add to this weak situation, larger firms like United Parcel Service (UPS) have announced significant layoffs forthcoming. UPS can be considered an indicator of how well the economy it doing. If package shipments are up it’s a good sign that the economy is improving or robust. Currently, it does not look good.
The Keynesians in power seek to push through another stimulus package. President Obama is emphasizing “green jobs” as part of that package. The first stimulus did not work very well. What makes them think a second one will? It won’t.
In order to effectively stimulate the economy, CUT TAXES NOW!
To those who will argue that a tax cutting policy will only add to the deficit, phooey. Perhaps in the short run that might be the case, but in the long run the revenues will increase as job growth and income growth rise as a result of significant tax cuts.
Tax cuts worked during the Kennedy administration in the 1960’s. They worked during the Reagan administration in the 1980’s. They worked during the Clinton administration during the 1990’s. Even the Bush tax cuts helped an economy mired in recession at the start of this century.
Four simple tax cuts are urgently needed now.
1. Cut the payroll tax (FICA) to 5%. Employees have this tax taken out of their paycheck. A cut would put more money in their pocket for saving and spending. Employers pay this amount too. A cut would free up more cash for their business operations.
2. Spread the Marginal Tax rates for the Federal Income Tax. Make the adjustment retroactive to January 1, 2010 allowing for more take home pay. The rates should be adjusted as follows:
Rate-- Single Income-- Married Income
10%-- Up to 20,000---- Up to 40,000
15%-- 20K to 45,000-- 40K to 90,000
20%-- 45K to 90,000-- 90K to 180,000
25%-- 90K to 180,000- 180K to 360,000
30%-- 180K and UP--- 360K and UP
3. Cut the Capital Gains Tax to 10%
4. Reduce taxes across the board for small business owners.
All of these tax cuts taken together will provide plenty of capital to get the economy rolling again. Spending will not. It is through economic growth and income growth that produce the revenue stream to retire government debt. The alternative would be the Keynesian exacta of Death through Taxes.
1 comment:
You are partway there. First, Employee contribution to FICA out to be zero for everybody below 110% of the minimum wage. Employer contribution remains the same.
Why? To minimize the size of the unreported Gray Market by creating a vested employee interest in the reporting by his employer. The Gray market is as far as can be estimated approximately 110-15 percent of GDP. Economists admit their inability to measure it because it falls into what I call "Quantum Economics." witrh the same laws and Quantum Physics and the Heisenberg Uncertainty Principle. Employees cross over from the Gray Market to the to the White (Reported) market as the economy fluctuates. As well, they stay in the Gray Market because to report income means their family will not be eligible for welfare.
Employers who participate in the Gray Market keep their profits the same by under reporting sales, minimizing taxes as well.
Second, there should be a single rate tax. (Forbes lost the semantic battle when he called it the Flat Tax. Too many people assumed that he meant dollars and not rate.)
We have got to get over the Keynesian idea that there is a diminishing marginal utility for money, just like there is for eating apples at a meal. This may have been true when money was stored in a mattress. There are so many ways to achieve and grow wealth in today's economy.
A single rate tax properly set would have minimized housing games and thus the bubble.
Third, the Capital Gains Tax rate should be zero if the money is reinvested domestically in for profit enterprise. If not then tax it at the Single Rate.
We must regrow domestic enterprises. They create jobs.
Fourth, We must have a similar tax rate on money invested overseas which is returned for investment in America.
We need to realize that we have improperly transferred the responsibility for economic growth from the investment sector to the consumption sector. Consumers balance their liabilities. The equilibrium has mortgage debt on the one side and installment debt on the other. As the asset value (basically the home) grew they felt safe increasing their installment debt. When the bubble burst, they rationally reduced their installment debt and saved.
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