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01.22.2009:... REAL ways to help the US economy...


Yeah, I got to thinking again...

You and everyone else it talking about "fixing the economy" or "kick-starting a recovery."

And virtually every suggestion includes something about bailouts and providing money to help individuals and companies get back out of the ditch.

Many complain that these ideas amount to little more than mortgaging our futures and delaying the bill for past mistakes and putting all the load onto the "credit cards of our grandchildren" who will eventually have to pay it all back.

It dawned on me that there's too much truth in that: by giving money to people and companies to "restart things," what we're really doing is taking money out of people's pockets, by taxes or whatever other means, and redirecting it to chosen parts of the marketplace, whether it's automotive, green energy, infrastructure, or whatever. Taking money from anyone and giving it to someone else means that Peter will have less money to decide what to spend it on and Paul will have more. And the government has to take part of that money in order to administer the programs.

I wondered if there were any alternatives which might have a similar or better effect without running up a bill for ourselves or our progeny, and I think I found one.

Here's the "What If...?" What if there were a simple way to not have to take money away from anyone who has it, but instead, leave it with the folks themselves to plant and grow?

Here's how... pick industries you want to grow. Be careful to choose parts of the economy which employ people and, if possible, would result in more exports or less imports if they're successful. Then, rather than give them someone else's money, let them keep their own: allow them a period of at least ten years, maybe twenty, to grow their businesses with lower tax rates on profits, income, etc.

Here's an example: solar energy. What if there were a lower income tax on all solar industrial companies? What if people working for those companies were cut a break on their personal income taxes... say, 10% maximum on salaries up to $100,000? What if sales taxes on the products they sold were given a ten year moratorium by all states? You'd need to convene a meeting of all State Governors to sell that one, and as you can guess, it would take a lot of selling. But...

The immediate result would be a shift in resources to those parts of the market. People would start and expand companies because they'd be guaranteed a lower tax rate, thus higher profitability, for a decade or two. People with expertise in that industry would flock there for jobs, since they'd have a higher take-home pay than if they stayed wherever they are now. If they're not successful in ten or twenty years, well... they probably wouldn't be successful in fifty years, either. Cut 'em off the list. Tough love.

What's the downside? There are actually very few.

Tax revenues wouldn't drop much, because the products aren't being taxed now because they're not being sold now.

A shift in expertise [human resources] to select industries would increase their disposable income, and without that, they can't buy the fruits of their own labor, let alone anyone else's!

The same shift in workers into the new industries would create labor shortages in the previous industries, thus driving up wages in order to attract people into those areas. A similar tax break could reduce the impact on the "older" industries, too.

Finally, by choosing an industry like solar power or other renewables, the proliferation of products would increase the amount of generation of clean energy within the US. In doing so, less money would flow out of the US in balance-of-trade cash to foreign oil-producing countries.

Thus, something as simple as tax breaks inside the US could create job growth and improved cash flow at the same time.

Worth looking into? I hope so. As the cartoon says, drop me an email one of these days...

Added, 02.26.2010...

But remember the bad news... When I said, "pick industries you want to grow" I forgot to mention that, looking back at lots of history, the government has a terrible track record of picking winners and not losers. So, why should you be doing the picking anyway? Pretty arrogant of you to think you'll always be the one to get it right, eh?