Sunday, December 19, 2010

Economic Ideas.

In keeping with my ideals, I've spent more time educating myself on politics than just throwing out my opinions. I've spent a lot of time on what this blog is about and its about ideas. So in keeping with this I have a huge idea about how to restructure the economy and the American tax structure.

Usually, this blog is a lot about process in addition to ideas. In other words, how do we get stuff done? What is politically possible? I try to answer these questions in ways that try to make people think. Today though is not about the art of the possible but what needs to be done.

All of us have been hearing a lot about the economy and taxes. How do we make the American economy better? Well I have an idea that probably won't make a lot of people happy but here it goes:

First, end temporary tax cuts. All tax cuts have to be permanent. This is basic Milton Freedman economics. Temporary tax cuts do not increase consumer spending so all these temporary stimulus cuts (Bush tax cuts and the American Recovery and Reconstruction Act, also known as the stimulus package) do absolutely nothing for the economy. Consumers use this money to save or pay off debt because they realize this is temporary so they use this money to get ahead not to spend it. Sounds great but in reality does nothing to boost jobs or GDP.

Second, slash corporate taxes and capital gains permanently. The problem with the American economy is we are focused so much on consumer spending that we get into large bubbles and spending money we don't have. This is an epidemic over all over the place from business, to government, to the average person. The United States has the second largest corporate taxes in the world while we have on of the lowest personal income taxes. This needs to change. Corporations don't pay taxes consumers do. Business just pass on taxes to consumers. These taxes prevent companies from investing which is were the U.S. economy needs to focus more on instead of consumer and government spending.

Third, include a Value Added tax. Sales taxes are another way to discourage spending and raising investment. Since we lowered or eliminated corporate taxes consumer prices will go down. Make this up by adding on a sales tax so that consumer prices have a zero net difference. Instead of buying things we don't need the economy can focus more on innovation, investment, and building.

These ideas are not very original Fareed Zakaria talks about these a lot on his CNN show GPS, but these are not talked about enough.