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A few easy steps to an economic boom
Posted By Christopher Grey On 08/23/2010 @ 10:28 pm In Commentary | Comments Disabled
With the latest economic indicators warning of a double dip recession – or at best stagnation – another economic boom like we enjoyed in the late 1990s or mid 2000s seems unlikely. And with the current government policies, that is true.
However, there is tremendous pent-up demand and productive capacity in this country. Corporations and high net worth individuals are sitting on trillions of dollars in cash earning no return. All that cash needs to be unleashed to create another booming economy driven by capital investment and risk taking – and reverse all of these socialist economic policies that have been piled on during the last few years. Here are a few specific examples.
Instead of raising taxes like the socialists want to do, we should cut taxes even below the levels of the Bush tax cuts. Specifically, create just three new tax rates and eliminate all deductions. Families earning less than $40,000 would pay no federal income taxes. Between $40,000 and $80,000 the tax rate would be 10 percent. Between $80,000 and $120,000 the tax rate would be 15 percent. Above $120,000, the tax rate would be 20 percent. Capital gains and dividend taxes would be 10 percent for families earning less than $120,000 and 15 percent for those earning above that level in order to encourage risk taking investments in productive businesses.
This simple tax system is still progressive, which should make it more politically acceptable. It is a lot fairer because it eliminates loopholes, and likely would raise as much or more revenue as the current system. It also would unleash a wave of productivity as people work harder because they can keep more of what they earn. The economy, especially small businesses, would create millions of new jobs. Consumer demand would bounce back. Optimism and confidence would surge.
Instead of increasing entitlements with Obamacare, agribusiness subsidies, and corporate welfare, cut entitlements across the board. The retirement age for Social Security full benefits should be 70. People still could take benefits as early as 62, but the benefits would be much smaller. Social Security benefits also should be means tested.
The intent of Social Security was to be a safety net for those who needed it. It’s not supposed to be supplemental income to pay golf memberships for wealthy retirees.
Increase the minimum age for Medicare eligibility to 65 and means test benefits. In other words, those who can afford it should not get massively taxpayer subsidized medical care for the rest of their lives as our nation goes broke. This is unfair to working people and fiscally irresponsible.
End all subsidies to large agribusiness conglomerates. Subsidies to help small family farms could be maintained but phased out over 10 years. America’s farms are the most productive in the world. Agribusiness doesn’t need or deserve taxpayer subsidies. This is simply a legal form of stealing money from the taxpayers. Small farmers would benefit more from better access to credit and less regulation than subsidies.
Similarly, end all subsidies and taxpayer benefits to other large corporations. That includes the big car companies, the big banks, big pharmaceutical companies, and big energy companies to name just a few. At the same time, slash regulation on small businesses so they can compete more easily with these larger players.
Small businesses typically are the creators of new jobs and new technologies that grow our economy. The socialists have been subsidizing large, politically connected and inefficient business that do not create jobs or innovate. If this policy is reversed, our economy will boom.
Instead of encouraging more consolidation and too-big-to-fail in banking, cut off all of the large Wall Street trading houses from taxpayer and Federal Reserve subsidies. The alleged financial reform that just passed in the Congress is a fraud. It only further supports too-big-to-fail and the big banks. The top few banks should be broken up using antitrust laws. This list would include Citibank, JP Morgan, Wells Fargo, Bank of America, Goldman Sachs, and Morgan Stanley. All of these banks are too big to fail and therefore also too big to live. They must be broken up.
Instead of extending government guarantees of housing forever, cut off funding to Fannie Mae and Freddie Mac and FHA. Directing investment and money into housing is terrible for our economy. That money mostly is wasted, providing a subsidy to homeowners at the expense of productive businesses that would create jobs and innovate to promote future economic growth. Ending subsidies and guarantees to housing would direct capital away from housing and into more productive industries.
Instead of keeping interest rates at zero forever and buying more Treasuries and agency securities, the Federal Reserve should raise interest rates to at least 2 percent and start selling Treasuries and agency securities. This would have several positive effects on the economy and financial markets.
First, community banks and smaller lenders actually have been harmed by keeping rates at zero. It’s mainly the large banks that can take that free money and speculate in Treasuries and other liquid financial instruments that have benefited from the zero interest rate policy.
Second, by making Treasuries and agencies the best asset class for appreciation and basically guaranteeing nobody will ever lose money from rising interest rates, trillions of dollars have flowed away from stocks and other more risk taking and more productive investments. By selling Treasuries and agencies and creating capital losses in those assets for investors, the Fed will signal that it isn’t going to protect Treasury and agency investors anymore. Those investors then will need to find other more productive uses for their capital if they want to make a positive return. The most likely uses for that capital will be stocks and other productive businesses that create jobs.
Third, by raising the general level of interest rates in the economy, the Fed will stimulate demand and consumption among the largest and wealthiest group in our society, older Americans. Members of this group has seen their income reduced by hundreds of billions of dollars as the Fed has cut interest rates down to zero. An increase of just a few percentage points in the overall level of interest rates would be like a huge pay increase for this group of Americans that includes tens of millions of people.
Although economic times seem dark right now, there may have never been a time in our recent history when there was such potential for an economic boom. All that is standing in the way of this boom are these socialists and corporate lobbyist hacks in Washington, D.C. They are committed to destroying the private sector and nationalizing our economy no matter how disastrous it is for regular people. The question is will the American people let them get away with it?
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