On Politics, We Can Always See the Whites of Their Eyes.
5 Ways Obama Could End the Recession Immediately
by: Scott Martin posted: 2009-01-07 13:17:00
Viewed 1665 times. 22 Comments.
There will be plenty of time to rip apart whatever economic stimulus plan Barack Obama and his Congress eventually settle upon. But in the meantime, I'd rather offer up an alternative stimulus plan that fiscal conservatives could support in full, and more importantly, that would work.
President-Elect Obama campaigned as a new kind of politician, a man who would look at the best ideas available, who would avoid the partisan squabbles of the past. Taking him at his word, Obama has a tremendous opportunity here. If he enacts a plan that addresses the following aspects of our current economic problems, the recession will end within his first year in office and Obama will have proven that his campaign talk was not just empty rhetoric. There is some reason to think that a plan like this, focused on real tax cuts rather than increased government spending, could be an option:
According to research cited by former top White House economist Greg Mankiw, the economy expands by $1 to $1.40 for every $1 spent by government. But if you cut taxes instead, you really get results.Mankiw cites a major study of tax changes dating back to 1947 showing that each $1 of tax cuts brings $3 in added GDP. This study is particularly significant because one of its authors, Christina Romer, is Obama's chief economic advisor.
If not, we'll just have to spend the next four years wondering why one as brilliant as Obama could not come up with a plan equal to the commonsense meanderings of an uneducated simpleton like myself.
1. Slash Corporate Income Taxes Immediately and Drastically
Since President Bush took office, U.S. corporate income taxes have stayed roughly the same as they were under President Clinton. During the same period, the rest of the world has thoroughly out-competed the United States for business interests. U.S. corporate income taxes are now 50% higher than its economic competitors.
In our ever-growing, global economy the United States will once again decide to compete with the rest of the world, or it will die a slow and agonizing death, surviving as long as its credit will allow it to. Of this there can be no doubt. No serious economic stimulus proposal can exclude this necessary component.
A drastic rate cut would immediately bring profit-seeking companies (are there any other kind) to this country in droves. Goodbye, unemployment. Goodbye, lessening tax revenues. Goodbye, recession.
2. Promise to Retain Current Capital Gains Tax Rate of 15 Percent
The market collapse began to pick up steam when Wall Street learned that Obama was serious about raising capital gains taxes from the current rate of 15 percent to a more punitive rate of 25 percent: Obama Capital Gains Tax Hike Would Hit New York Hard
Only someone who doesn't believe that tax rates affect current and future behavior would argue that none of the current recession is due to people locking in their capital gains at the current, lower rate. The Heritage Foundation noted what higher capital gains taxes would do to the economy. (Note: This was before Obama pledged to raise the rates to 25 percent, and reflects the rates rising to "just" 20 percent). * Increasing capital gains and dividend tax rates would reduce the capital stock by $12 billion (in constant 2000 dollars) by 2012.
* Potential employment would drop by 270,000 in 2011 and 413,000 in 2012.
* Personal incomes would decline by $1,675 (in 2000 dollars) for a family of four in 2012.
* The broadest measure of economic activity, GDP after inflation, would decline steadily over the forecast period of 2011 through 2018.
* In 2011, GDP would be $44 billion below where it would be if the tax cuts were not made permanent. That figure would rise to $50 billion in 2012.
* Annual GDP after inflation losses would average $37 billion below baseline over that seven-year period.
Capital gains tax increases have been shown to not raise income tax revenues, as one would expect they wouldn't, since people know when the lower rates end, and can change future behavior. There is no excuse, except for "punishing the wealthy," not to promise to hold rates where they are right now.
3. Make President Bush's Income Tax Cuts Permanent
Along the same lines, losing the benefits of President Bush's across-the-board 2001 and 2003 income tax cuts would be disastrous. From Heritage:
* Tax rates will rise substantially in each tax bracket, some by 450 basis points;
* Low-income taxpayers will see the 10-percent tax bracket disappear, and they will have to pay taxes at the 15-percent rate;
* Married taxpayers will see the marriage penalty return;
* Taxpayers with children will lose 50 percent of their child tax credits;
* Taxes on dividends will increase beginning on January 1, 2009;
* Taxes on capital gains will increase, also beginning on January 1, 2009; and
* Federal death taxes will come back to life in 2011, after fading down to nothing in 2010.
Positive effects of making the cuts permanent:
* Total employment will rise by 1,087,000 jobs per year, on average;* Annual GDP will be over $111 billion higher, after inflation;
* Personal savings will grow by $163 billion per year, on average, after inflation; and
* After-tax household income will grow by an annual average of $274 billion per year, after inflation.
It also must be noted that making it known that these rates were going to stay in place would immediately change some behaviors today. Last year I made a $10k purchase with my tax refund, because I knew I would get a similar refund this year. There is no chance that I make a similar purchase with this year's refund, knowing that this may well be my last or next-to-last tax refund check. Instead, it will go into forming an emergency fund for our family. This does next to nothing for our economy.
4. More Energy, Drilling, Nukes, Whatever
High energy prices helped lead to the current recession. Prices have since dropped due to what must be a temporary reduction in demand for oil. "Must be" in the sense that no recovery will ever happen without causing an increase in demand for energy. The other cause of the cuts in the price of oil were the words and actions of President Bush and some members of Congress who started sounding like the United States might someday consider allowing increased oil production. Obama must follow these words through with actions, whether he wants to or not, or any recovery will be jolted to a stop by $4 gas.
Allowing for new drilling and more nuclear reactors would increase employment in productive, non-government jobs, and would truly stimulate the economy. There is plenty of reason to believe Barack Obama will not choose this route, the main reason being that he likes the idea of average Americans not being able to afford gasoline, he just didn't want them while he had to campaign on the subject:
5. Freeze Government Spending and Hiring at Current Rates
OK, now we're dreaming. The main reason we are all preparing to attack Obama's forthcoming plan is that it will be an excuse to increase government spending and hiring. As already noted, government spending is among the worst ways to stimulate an economy. Beyond that, no country that I'm aware of has ever gotten freer through increased government domestic spending.
Conclusion
The point is, Obama needs to look at ways to increase private sector jobs: cutting corporate tax rates to increase business opportunities in America, lower or retain current capital and income tax rates to increase private investment in the economy, make America more secure while focusing on energy that is proven and cost-effective.
The last thing we need is more government employees getting paid to push papers, dig up and then re-fill holes, or build more monuments to the politicians that got us into this mess.
Tags: fiscal conservative, Obama, Recession, economic stimulus plan,
Related Articles
- Independence Day Rallying Call - Must View
- Poll: Obama Drops 14 Points Since March on Handling Economy
- Does Healthcare Reform Violate States' Rights?
- We're Gonna Party like it's... 1994?
Links to this post
Trackback url: http://patriotroom.com/article/5-ways-obama-could-end-the-recession-immediately/trackback
Comments 22
Great article but just one flaw. Obama is a phony who doesn't know what he is doing and is politically shrewd but by no means brilliant. He hasn't released any of his college scores, which if they were good, would certainly silence doubting Thomases such as myself about his intelligence. I'm skeptical and distrustful of him and his entire group of cabinet choices at this juncture and am waiting for the other shoe to drop with his disasterous selection of Hillary Clinton for Secretary of State.
Most likely, Jeff.
I like how creating jobs has been replaced by "creating and saving" jobs, as if you can ever show that a job would've been lost otherwise.
These plans are preposterous. The only way to end the economic problem is to force bad debts to default. It is plainly obvious and it has been plainly obvious for quite some time. Follow the link to see this problem articulated very clearly.
http://market-ticker.org/archives/703-Uh-Oh.....-Monetary-Flat-Spin.html
As for corporate tax breaks, they are a scam. Most major corporations hide their profits via trademark corporations. To the tune that 60% of corps pay no taxes and the overall tax burden has shifted 80% of corporate taxes over the last 50 years onto mainly the middle and upper middle classes.
http://www.americanprogress.org/issues/2004/04/b45142.html
Tax breaks are part of the problem. Have the balls to parrot something other than GOP/DNC line
Your links link to nothing.
Your statement that we don't tax corporations enough is so ludicrous on its face as to make me not care whether or not you fix your links.
Have the courage to examine the logical conclusion of your statements before making them. It is manifestly obvious that we would be teeming with businesses willing to invest in and hire American workers if there were zero corporate taxes. It is manifestly obvious that there would be no businesses willing to invest in and hire American workers if the corporate rate were 100%.
Any number in between is simply the amount we are willing to hurt the economy in order to gain revenue for the government to spend poorly.
"Tax breaks are part of the problem. Have the balls to parrot something other than GOP/DNC line."
Unless the "problem" that you see is called employment and productivity, I must conclude that you are a moron and that the intelligence of the discussion in this country would be of a higher level if you had fewer "balls" and nobody had to bother responding to your tripe.
Actually there George, corporations don't pay any taxes at all. They collect them, from you and me, and pass them along to the government. That mere process costs companies of millions each year in bookkeeping, compliance, legal and other expenses.
You will never actually tax profits on any company, as the company will just raise their prices to account for the cost of collecting that tax. Profits are a good thing. If there were no profits, there would be no businesses.
I do agree that all those bad debts should be allowed to default.
Tax breaks are not the problem. Spending is the problem, especially when the government spends/refunds over $14 for every $1 collected to the bottom 20%.
Have the balls to look at the truth.
Mr Welmore, corporations do not pay taxes at all; they simply collect taxes from the end user of the product, the guy who can't pass it further down the line.
When I buy a gallon of milk, I am paying not only for the milk, but the corporate taxes of the store that sold it to me, the diesel fuel and corporate taxes of the trucker who brought it from the bottling company to the store, the corporate taxes of the dairy bottler, the corporate and diesel taxes of the trucker who took in from the dairy farm to the bottler, and the taxes of the farmer whose cow produced the milk. If I happen to own a restaurant, then I can sell the milk to someone else, who will pay all of those taxes, plus my taxes as well. If I drink it myself, then I have converted the milk into something that cannot be sold -- though I wind up paying the eventual disposal costs for the milk byproduct! -- and wind up finally responsible for all of the taxes I mentioned.
Corporations are just imaginary associations of people, people who have come together to make money. People pay taxes.
Thank you for this elementary elucidation on corporate taxation. It illustrates the point taken from the links: commerce should be taxed. The government has a right to regulate commerce. The extension of this right is to use this process to fund the government. A low rate of flat corporate tax without loop holes is the solution. This is rate is about 10 to 15% using a simple, unavoidable tax code. It would be significantly smaller by returning SS to a the safety net it should be instead of the entitlement it has become. 1) The real economy grows with corporate profits. All other investment is a distraction 2) Income taxes are illegal and introduce a myriad of problems into the system. 3) Vast amounts of bureaucracy are eliminated.
Thus, we have a federal government that derives income directly from economic growth. By eliminating deficit spending we then necessarily tie the strength of the federal government to the success of American corporations in the global market.
Scott,
You KNOW he is not going to do any of that right? He is already talking about a 775B stimulus package of building idiotic and useless public works. He is pulling a New Deal, lets just hope he does not jack up taxes on businesses like FDR did. If you recall though, he plans to reward companies that hire domestically - which means companies that have international outfits might get punished. Brace yourself, things are going to get ugly...regardless of his economic adviser.
Arkady -
Of course I know this. I just thought I'd go on the record with an actual solution before hand. Just to have something to point to when people ask "what have you ever done but criticize him?"
I offered a plan that would work. When he declines to follow it, I will have all the more reason to complain about what he does.
Patience, Grasshopper.
You make way to much sense for The One to actually follow.
The One is more interested in the same thing FDR was interested in, making America a socialist country with endless Democrat rule. Ergo, the land of the endless freebies and open borders -- welfare for all. As long as the printing presses last.
BTW, what happens when people realize there never was any magic?
Here is the list of corporate tax rate by nation. The U.S. ranks 2nd highest.
I agree with the points of your plan, and now with the comparative aspect you have really came upon something. Investment seeks comparative advantages, if the we in the USA seek to retain and lure investment we need tax and regulatory policies that are the most attractive not the 2nd worst. We do not need to go to the admittedly attractive but unsaleable 0%, but we do need to beat or equal the nations.
I would like to see a sixth point of: Begin the aggressive privatization of government functions and programs. Government's competition or in many cases monopoly both directly and indirectly stifles or bars much private sector activity and growth in both the profit and NFP segments. The greater productivity of the private sector reduces costs and the larger economic multiplier of private investment allow this reduced expenditure to spur more economic activity than even the much larger government expenditure. Cutting our way into growth.
Well Scott, if President-elect Obama had any intention of following any of the five points you have outlined, he would be a Republican.
He might have an economic adviser who understands how tax cuts actually stimulate economic growth, but he is simply not of the party that is willing to admit such fact.
Quite frankly, the government should do nothing at all, because the government doesn't control the economy.
Recessions come and recessions go; that's simply part of the business cycle. The economy will improve on its own.
Government, to the extent that it represents more than 20% of our economy, absolutely exercises some control over it, Dana. If you don't think our economy would drastically improve in seconds if we eliminated taxes of all kinds, you are as mistaken as can be.
There might be some downside to taking that course. It's a matter of how much government control we are willing to allow. When times are at their worst, the prudent action is to eliminate as much government as seems practical.
Again, the argument is how much control we are willing to let government exercise, not whether or not it does. That is a given.
i think dana's point is that government fiscal policy should stay out of government. monetary policy is enough - control the flow of liquidity through the historical use of the federal funds rate.
if the government stopped trying to manipulate the economy with their social engineering and not faux-stimulus programs, the natural macroeconomic swings will correct themselves. FDR's screwing with the economy in the 1930s is ample proof of that.
and you point, scott. of 20% active participation is a good one. but also think of how the credit for investment in this country would expand if the feds were not crowding out private needs with their own debt.
Your statement itself is a contradiction. If the gov't does not control the economy, why leave it alone? It is right that they should leave things alone and eventually the economy will recover, but it is wrong to suggest that the government does not control the government.
The best example is the New Deal. Government can significantly prolong recessions by implementing additional government programs and raising corporate and personal taxes. Reason would suggest that an inverse policy might stimulate the economy and that reasoning is largely right.
Not to suggest that Art Laffer is vindicated in his reasoning that all tax cuts yields government revenue. A government must do what it naturally and logically cannot, shrink itself. But we are in the age of liberal democrats and big government Republicans. We are screwed.
laffer is generally vindicated when you look at the reagan era economy. yes, there is a point of diminishing returns as with any stimulus, but laffer's basic principle is correct.
but always remember, he draw that curve simply to illustrate a point on a napkin in a restaurant. sometimes brilliance can be simple.
George - either I grossly misunderstood your point yesterday and you misunderstood mine, or you are a new person today. Because today you make sense.
i've read so much about the pros and cons of a flat tax. to me, it makes sense - a single rate across the board. done. george suggests that be done at the corporate level rather than the personal level. that would leave out, i suppose, investment income that individuals make. can't you hear the dems screaming that only rich people can make investment income?
if taxed at the corporate level, then it would just be passed to us in price. we pay it anyway. that is why i favor a flat tax at the personal level. the issue then would be to ensure that corporations did not horde its wealth ... but market forces would correct that - for public corps - through shareholder voting. however, i can certainly see myself setting up a C corp to horde my money until i needed it!
perhaps a combination flat tax - personal and corporate - is the answer.
the reason corporations do that, George, is because of the ridiculously high taxes they are forced to pay.
Have an opinion?
blog advertising is good for you
blog advertising is good for you
Publius' Newsstand
-
Colorado company offers banana coffins
I trust these have a small carbon footprint. Otherwise, I am absolutely clueless.Views: 5 Comments: 0
-
Rangel criticizes Obama for butting into primar...
Warren Buffet, Colin Powell, and now Rangel. The list grows. What do they know?Views: 20 Comments: 0
-
July 4th priority: God
Nice post by a fellow blogger.Views: 13 Comments: 1
-
Honduras quits OAS
It's another sign of protecting the sanctity of their Constitution. Nice to read on America's Independence Day. Too bad it is beyond the Socialist-in-Chief's pay grade to understand.Views: 13 Comments: 0
-
Obama Urges Groups to Stop Attacks
Remember when Bubba Clinton said the politics of personal destruction were over, and continued to wear his Ghengis Khan uniform? It meant blood was being drawn. Keep up the good work!Views: 21 Comments: 0
-
Sotomayor: Affirmative Action Terrorist
"A civil rights group advised by Supreme Court nominee Sonia Sotomayor in the 1980s brought several discrimination lawsuits that sought to scrap the results of job tests because too few Hispanics scored well, according to new documents that are fueling GOP criticism of the judge."Views: 11 Comments: 0
-
Biden: We're all girls now
"Biden Says Violence Could Cause U.S. to Disengage From Iraq." This guy is such an embarrassment.Views: 31 Comments: 0
-
Audio Book: The Law, Federic Bastiat
Only 107 pages as a PDF, the audio book is well-worth your time. Here's the audio link - two ZIP files presented in three-minute tracks. Bastiat defines two forms of plunder: "stupid greed and false philanthropy." Stupid greed is "protective tariffs, subsidies, guaranteed profits" and false philanthropy is "guaranteed jobs, relief and welfare schemes, public education, progressive taxation, free credit, and public works". Monopolism and Socialism are legalized plunder which Bastiat emphasizes is legal but not legitimate.Views: 20 Comments: 0
-
Powell airs doubts on Obama agenda
First Warren Buffet, now Colin Powell. When big people start to publicly distance themselves, they usually know something.Views: 24 Comments: 0
-
Slight Shift in Obama Policies Detected
This is beautiful: Arab intransigence and the realization that Iran nukes might be more important than Jewish houses are leading the Obama administration to a slight shift in policy. The Arabs tell him to go pound sand, and Iran goes off its meds - so Obama changes course. Not a very good sailor, is he?Views: 25 Comments: 0
Get Your PR Button!
More Articles By Scott Martin
- Video: Sarah Palin's Resignation
on 2009-07-03 with 62 views - We're Gonna Party like it's... 1994?
on 2009-07-01 with 160 views - Video - Kos to Dems: No More Excuses
on 2009-06-30 with 85 views - Disciplined and Emotionally Controlled Dem: My Free Speech? Good. Rush and Sean's? Terrorism.
on 2009-06-30 with 150 views - Obama: Micro-Manager-in-Chief
on 2009-06-30 with 188 views - Barbara Boxer Deserves Respect like Government Deserves your Tax Dollars
on 2009-06-19 with 95 views - Your Tax Dollars at Work: Tennessee GOP's Racist Email
on 2009-06-16 with 272 views - Stewart and Colbert Losing their 'Cool'
on 2009-06-16 with 242 views - Bachmann: Obama's "Gangster Government"
on 2009-06-16 with 240 views - Rich Gov, Poor Gov: Why Obama can't Fix the Economy
on 2009-06-16 with 6199 views
This information just gives me all the more reason to believe the comments by President-to-be Obama about saving jobs and 1 Trillion dollar deficits, et c. are all meant as cover of how diastrous the next several years are going to be.