Friday, January 18, 2008

A Loan Against a Tax Increase is NO Stimulus!

Yes, I've heard the news of a proposed "economic stimulus" package, that is supposed to include a $800 - $1600 check from the government. But whenever there is a check "from the government", we have to realize we tax-payers are just writing a check to ourselves, and having to pay for accountants in the process.

Keep in mind that the "Bush tax cuts" are set to expire in 2010, and since congress has refused to make the Bush tax cuts permanent; that means we have a scheduled tax increase coming in two years. What it comes down to is congress is willing to send us a check now, only to take it back with interest when our taxes go up in two years!

Expectation of higher taxes is one of the key components that is likely suppressing hiring. If we want a real functional "stimulus" it should begin with making the 2001 tax cuts permanent. I don't care if they are generally referred to as "the Bush tax cuts", and I don't care if the Democrats want to use taking credit for making them permanent as a political tool. It needs to happen, and it needs to happen now!

Another key component of our current economic slow-down is higher fuel prices. (No it's not a recession, at least not nearly yet.) Oil and gas prices have gone up almost 50% in less than two years, and there is no arguing that it's a result of supply and demand; not some supposed conspiracy between "Big Oil" and Halliburton.

There is a lot of untapped oil in America, and the primary thing that's keeping it untapped is our own government getting in the way. Why we continue to bar American oil companies from drilling in ANWR and within 100 miles of the U.S. coastline is beyond all logic; especially when we have other countries drilling within about 60 miles of our coast. If it's really a concern for "the environment", can't we do it at least as cleanly and safely as other countries, if not better? (read "Seeing Green" on my newly started "Drill Domestic Now" blog)

I agree that we have to keep in mind the importance of conservation, and that we need to be good stewards of natural resources. But the extreme restrictions and over-regulation on domestic oil production in this country is a result of such environmental extremism and minimizing the value of human progress that one can see it as the rise of a sort of anti-human neo-paganism.

We need a whole solution for any economic woes that we have, not a short term "stimulus." If anyone cares to look back to the economic disaster of the early 1970's, it was clearly brought on by over-regulation, high taxes, and trouble with the oil supply/prices. To a great extent, the oil and economic problems of the Carter era were rooted in an issue we still haven't resolved; too much dependence on foreign oil, and in particular from the middle-east.

We need more domestic oil production, a bit less regulation (as in CAFE standards) and lower tax rates (not a quick loan against future tax increases). Long term we absolutely need to change from taxing production (income tax) to a consumption tax; such as the "FairTax", being supported by Mike Huckabee.

And speaking of Mike Huckabee (as I often do), he has his own economic growth plan. Although he does use the currently popular "stimulus" buzzword as part of the description of his "A Fair Deal for All Americans" plan (-link-), it really is more of a long-term growth plan that includes some short-term measures.

We do need a real growth plan, not just a temporary "quick fix;" and I can't say too often or too emphatically, that what amounts to a tax loan against the coming tax increase is no stimulus at all!

1 comment:

Ian said...

Economic dislocations are the problem with an income tax system that is highly manipulable - subject to influence by lobbyists and continual revision by politicians, taxes business resources and payroll whose costs cannot be extracted from export prices and results in higher domestic price tags for consumers.

Clearly, the answer is in front of us - the FairTax; that's right, the same plan ardently advocated by Gov. Huckabee and demagogued by people like Bruce Bartlett.

The research makes a compelling case for every American wage-earner to get involved in voicing their support for the FairTax Act of 2007 (HR 25 / S 1025) that's been reintroduced into every session of Congress since 1999, and with growing numbers of co-sponsors:

Mr. Huckabee's advocacy of the FairTax is the single most important policy position in this election. Here's why:

The FairTax rate of 23 percent on a total taxable consumption base of $11.244 trillion will generate $2.586 trillion dollars – $358 billion more than the taxes it replaces. [BHKPT]

The FairTax has the broadest base and the lowest rate of any single-rate tax reform plan. [THBP]

Real wages are 10.3 percent, 9.5 percent, and 9.2 percent higher in years 1, 10, and 25, respectively than would otherwise be the case. [THBNP]

The economy as measured by GDP is 2.4 percent higher in the first year and 11.3 percent higher by the 10th year than it would otherwise be. [ALM]

Consumption benefits [ALM]:

• Disposable personal income is higher than if the current tax system remains in place: 1.7 percent in year 1, 8.7 percent in year 5, and 11.8 percent in year 10.

• Consumption increases by 2.4 percent more in the first year, which grows to 11.7 percent more by the tenth year than it would be if the current system were to remain in place.

• The increase in consumption is fueled by the 1.7 percent increase in disposable (after-tax) personal income that accompanies the rise in incomes from capital and labor once the FairTax is enacted.

• By the 10th year, consumption increases by 11.7 percent over what it would be if the current tax system remained in place, and disposable income is up by 11.8 percent.

Over time, the FairTax benefits all income groups. Of 42 household types (classified by income, marital status, age), all have lower average remaining lifetime tax rates under the FairTax than they would experience under the current tax system. [KR]

Implementing the FairTax at a 23 percent rate gives the poorest members of the generation born in 1990 a 13.5 percent improvement in economic well-being; their middle class and rich contemporaries experience a 5 percent and 2 percent improvement, respectively. [JK]

Based on standard measures of tax burden, the FairTax is more progressive than the individual income tax, payroll tax, and the corporate income tax. [THBPN]

Charitable giving increases by $2.1 billion (about 1 percent) in the first year over what it would be if the current system remained in place, by 2.4 percent in year 10, and by 5 percent in year 20. [THPDB]

On average, states could cut their sales tax rates by more than half, or 3.2 percentage points from 5.4 to 2.2 percent, if they conformed their state sales tax bases to the FairTax base. [TBJ]

The FairTax provides the equivalent of a supercharged mortgage interest deduction, reducing the true cost of buying a home by 19 percent. [WM]

ALERT: Kotlikoff refutes Bruce Bartlett's shabby critiques of the FairTax.