Sense on Cents

Is there any doubt that our economy remains under severe duress or, as I have often maintained, is dealing with a serious bout of ‘walking pneumonia’? Are we supposed to merely wait this thing out? Is there little that can be done to resuscitate ‘our patient’? While there is little difficulty in identifying our economic malady, what is the cure? What mix of ‘economic medications’ may bring some life back to our national pulse?

Are we completely beholden to partisan posturing in Washington and debt strangulation in our state capitols?

What do you think should be done to get our economy moving again?

I received a recent communication from an avid supporter of Sense on Cents who shared the following:

December 24, 2010

Dear President Obama,

I would like to offer ideas to propel the economy’s growth and increase employment, improve the annual balance of income and expenditures and reduce the national debt.

The money in this country is held largely in corporate treasuries and by the very rich. To use this money to solve the country’s economic problems I suggest that we give corporations and smaller businesses significant tax incentives to hire additional employees, increase capital expenditures and invest more in Research and Development.

That is, a tax credit to companies for a large percentage of the salary paid to new hires for the first year. Concurrently, provide a significant incentive for capital spending, such as greatly accelerated depreciation. An incentive to spend more on research and development would also keep a firm and our country more competitive in the future. These incentives would put much of the money in corporate coffers to work in jump starting the Great American Capital Machine. This money, paid to the newly employed, used for capital projects or R&D, would multiply throughout the economy increasing GDP and Federal tax revenue

You correctly stated that the US was ahead of Europe in addressing the worldwide recession. However, it was China which led the way a year ahead of us with a proportionally larger action and assured that their country would be among the least affected by the worldwide slowdown. In part they were able to do this because they could easily raid the treasuries of State owned businesses and exert the State’s power and pressure on other businesses. Many unemployed were put to work immediately on WPA like projects. Industry continued to grow.

After corporate treasuries, much money in our country is in the hands of the very rich. I believe that this is a poor time to lower the top tax rate on high income individuals. The US’s previous experience with lowering top tax rates started in 1922 and the tax rate decreased rapidly from above 70% down to 25% in 1925 where it stayed throughout the “roaring 20’s” and into the first two years of the Great Depression. While it seems counterintuitive, top tax rates were much higher from 1950 to 1963 at 91%, a time called by some the Golden Years of American Capitalism.

The tax credits proposed for businesses are appropriate. The US has the highest corporate tax rate of the G7 nations, at 35%. Germany, the economic powerhouse of Europe, has the lowest at 15%.

Tax incentives will get the economy going and reduce unemployment. Fair taxation of the very rich will help keep fiscal problems in check and all Americans will benefit.

Respectfully,

RLJ

I thank this reader for taking the time to write and offer his thoughts and opinions on this critically important topic. Prior to commenting myself, I would like to know what others think of his proposals.

Collectively we can help each other while also spreading some ‘sense on cents.’

Larry Doyle

Please subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own and not those of Greenwich Investment Management. As President of Greenwich Investment Management, an SEC regulated privately held registered investment adviser, I am merely a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

This entry was posted on Wednesday, December 29th, 2010 at 8:44 AM and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.