Sunday, March 22, 2009

What Should We Do About the Economy?

Some friends and I been having some discussions about the economy, how deep the hole we're in will get before we start recovering, and what we should be doing about it. The following are excerpts from one thread of our discussions, put up here in the hopes of producing more discussion and ideas.

My friend, the cave bear writes

"So, what should we be doing with the bailout money instead of what the democrats are doing?" Now in a quiet moment, I think I can give a reply.

1. Lower the starting point for the lowest income tax rate (currently 15%) so that at least 50% of the people in the country pay income taxes.

2. Drop the income tax levy at all levels by 10%.

3. Give EVERY home buyer after 1 Jan 09 a $10,000 rebate. If you only give the rebate to poor people, you exacerbate the existing problem.

4. Force (there is no other word) the government at federal, state, county, and city levels to send a statement to every American detailing how much they paid in taxes into that governmental level. (Recognizing this would be rather difficult for things like gas taxes. Why does the government levy taxes like gas taxes, real estate taxes, hospital levies, school taxes, liquor taxes, food taxes, medicine taxes, etc. Precisely to make the true tax level computation next to impossible. If Americans had to pay all their taxes by writing one check on April 15th, there would be a tax revolt in 3 months.)

Those four measures would seriously encourage business, investment, and home-buying (not to mention tax policy honesty) in this country. And the impact on the treasury would be about 10% of what we're going to be paying off for the rest of our lives (and our children's' lives).

OK, since none of these are going to happen, I'm with my friend: guns, gold, and gin.

I reply
I like your answer, cave bear. The game is definitely lost if less than half are players (#1), and it may be lost if those in the game have no idea how deep they're in (#4). (I'm reminded that a Commissioner of Internal Revenue testified before Congress a few years ago that the current tax system would be insupportable if it wasn't for withholding taking taxes out without the taxpayers ever seeing the money.) #2 is also good -- there is nothing like getting more money into the hands of productive people to produce actual stimulus.

Your second sentence in item #3 is absolutely true, and that item might be something worthwhile to do. But if it were me, I'd do something a little different here: I'd follow the example of Communist China, which spurs economic growth and development by having no tax — none at all — on capital gains.

The cave bear wrote back, rather pessimistically
Depressing thought for the day. My take(s):

In a democracy the people will vote benefits for themselves until there is no one left to pay for them.

And you will reach the knee of the curve long before you hit the point where 50% of the people are no longer paying taxes. We are currently at 44% and rising quickly thanks to a number of Obama policies. The curious effect of people voting for policies that increase their own taxes is that the liberal mindset that "benefits are free" sets in very quickly in people who have never had to work for a living (like my very liberal sister who has always been taken care of by her husband).

Let me suggest some numbers.

A democracy of freedom and responsibility stops when tax policies are set so that more than 40% of the people don't contribute.

Your tax laws are a failure if:
1. The Secretary of the Treasury can claim not to know (or understand?) them. AND/OR
2. More than 50% of taxpayers need professional help to fill out their forms. (We are currently at 80%)

End of monotribe.

One more thing. The following is one of my deeply held premises: The government creates nothing.

All of this suggests a major economic policy thrust should be working our national tax policy to let workers keep more of the money they earn. It's like the quotation attributed to the late Dr Adrian Roge
What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else.

When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is about the end of any nation.

You cannot multiply wealth by dividing it.

I wonder if our elected representatives are listening.

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