Suspend federal income tax
I'll credit this idea to my friend Frank Beckmann, and it's a dandy.
The WJR radio hosts suggests a very simple and unique stimulus package new President Barack Obama and Congress ought to consider.
Beckmann notes that the federal income tax on individuals brings in roughly $1.1 trillion a year, an amount not much greater than the $1 trillion Obama says may be needed to jump start the economy.
So instead of spending the stimulus funds on a laundry list of pork barrel projects and new welfare hand-outs, why not just suspend the personal income tax for a year?
Put all of those tax dollars back in the wallets of American taxpayers and watch what they do with it. They'll spend it and invest it. Even if they sock it in the bank, it'll boost the credit markets by providing more funds for lending.
And in the end, the bridges, roads and internet lines Obama envisions will get built by state and local governments awash in revenue from local taxes collected on all that new spending.
The beauty of this idea is that we'd get the stimulus without the huge expansion of the size and role of the federal government.
Tax cuts always work to boost the economy. Even the much derided Bush tax cuts worked to create 52 months of job growth and kept the economy moving forward despite a terrorist attack, two wars and a devastating hurricane.
The ultimate tax cut Beckmann suggests would be ten times that effective.
And if it works, make the suspension permanent and find a way to fund federal government with a tax system that encourages spending, saving and investing.
Comments
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Nolens Friends Suggestion
Sorry Mr. Finley, I completely disagree with this suggestion. This last year has given us insight to what the consumers will do. Unlike Corporate America, the average joe/josephine is circling the wagons for protection. We are keeping as much of our money just to make ends meet and not purchasing the little extras that was once the mainstay of the economy. Where was your outrage when Billions was handed over to large Financial Institutes who conitued to give bonuses and lavish getaways, and now refuse to answer questions about where the money has gone. Just a little Hypocrytical don't you think! As for Frank Beckman the want to be Rush, convince hin to go back to Michigan Footbal Braodcasting where he can at least make some people believe he knows what he's talking about. People are in need of help right now, desperatly. We are a community where everyone has to contribute, "taxes" you call it pork. People honestly do not , not want pay there taxes. They just want more bang for the buck. Maybe you and those like you could direct your energies to that.
Suspend Federal Income Tax
This is very similar to an idea that's been proposed by among others Steven Moore and Dr. Burt Folsom of Hillsdale (and some congressman from Texas who's name escapes me). The lost tax revenues will approximately equal the 'stimulus' that the government is proposing. The fact that it would be free of politcal influences, corruption and pork would make it much more efficient. We wouldn't even need a Czar! But just think of the response that would greet the reimposition of the taxes because after a year the people would start to get accustomed to taking home their whole check. Thousands of pages of tax regulations and the resultant compliance apparatus could be dismantled. This is a marvelous idea but the tax monster will not go gently into that good night. Never forget: politicians get elected by bribing people with their own money.
Suspending the Tax Won't Work
The first problem with this idea is that giving Americans their tax dollars back will only serve to further boost China's GDP because Americans spend virtually all of their discretionary income on "stuff" made in foreign countries. To some extent this is inevitable because hardly anything we need is made in America anymore. The whole point of having the government spend the money on targeted projects is that the money will stay here at home and go for things that Americans need but never want to pay for -- like roads and bridges and national defense.
Second, it is hardly likely that states will be "awash in revenue" as a result of increased spending. Some states have no sales tax. And a lot of the federal tax rebate money would be spent paying down consumers' bills, mortgages, credit cards, and the like, which would not generate tax revenue. Also, a lot of the money would be spent on the Internet, which is also not taxed. Finally, any money put in the bank or otherwise invested would not be taxed. So, any benefit accruing to the states short term would have to come from income taxes, not spending taxes.
Third, Obama's $1 trillion stimulus package does not entail a "huge expansion of the size" of the federal government. That's a lot of conservative fearmongering. No huge new departments will need to be created to build roads and bridges, etc. Those departments already exist. They just need more money.
Finally, it is by no means a sound assumption that "tax cuts always boost the economy" or that Bush's tax cuts were responsible for even the tepid "growth" we supposedly enjoyed for 52 months during his term. It is far more likely that enormous, record-breaking deficit spending of the federal government (partially occasioned by the aforementioned two wars, terrorist attack, and devastating hurricane) had as much or more to do with said "growth" than Bush's tax cuts.
And the fact that those 52 months of "growth" were so weak in spite of such a tremendous infusion of borrowed dollars by the federal government, as well as tax cuts, with no permanent economic momentum achieved, demonstrates how bankrupt such a policy is.
No, there is only one way back to economic prosperity in this country: You must employ people here at home in permanent, sustainable jobs, producing valuable products and services for an American price that Americans will buy.
Giving people more spending money will not create those jobs. Americans will simply spend more dollars on more "stuff" that is being made overseas. We need to fundamentally rework and rebalance our trade policy so that American workers and the American way of life are not continually undercut by slave labor from third-world countries. Unless we all want to live like people in third-world nations, we have to stop expecting to buy everything for a third-world price.
I am not a big fan of Obama's plan, however. Jobs created by government programs are not the answer. They vanish when the money dries up because there is no permanent consumer demand for "infrastructure" -- the dollars always have to come from tax revenues. And unless there is a large, gainfully employed middle-class to furnish those tax revenues, government projects cannot continue without deficit spending -- which is ultimately far more insidious and dangerous to our economy and our way of life than terrorism and taxes combined.
Suspend the income tax
Of course, suspension of the income tax is great idea for economic stimulus. However, the reason it won't happen is that many people would finally realize just how much money the federal governement is taking out of their pockets! Folks would be (justifiably) outraged when the tax was reinstated. No, the great outrage will continue.
Tax cut proposal
A consumption tax placed equally on everyone, at both the state and federal level, would bring in more money to support government projects while making everyone aware of just how much they have and how much they spend. Those who want to keep their money only have to stop buying things, while those who want to buy things pay taxes on it. And investments should never be taxed if the governments (state and federal) really want to encourage financial planning. The Fair Tax is a good idea for this situation. Mr. Beckmann and Mr. Finley both have a great idea. We should take it all the way.
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