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How Do We Get Our Economy Moving Again?

Posted by Larry Doyle on December 29, 2010 8:44 AM |

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.

  • whoisjohngalt

    1. Allow deep water Gulf drilling again & expand off-shore drilling in CA, FL & up the east coast.
    2. Allow more drilling in Alaska.
    3. Build more pipelines from Canada to the USA. Canadian tar sands = worldwide conventional oil reserves. The only thing holding this back is lack of pipes out of Alberta.
    4. End the stupid ethanol subsidy. If there should be any subsidy it should be for compressed natural gas for vehicles.
    5. Reinstate tariffs on foreign goods–it was good for the first 140 years of the USA. The USA did not have income tax until Woodrow Wilson. Tariffs give an incentive to produce things in the USA–not China.
    6. Shut the borders, give jobs to citizens–not illegals.
    7. End frivolous lawsuits by making the loser pay legal costs like they do in the UK.

    Of course it will be a cold day in hell when all of this happens. The new religion is global warming & green energy which is fraudulant use of science. Individual rights and capitalism are the solution, not more government & crazy complicated tax laws.

    • http://www.beruthless.net phil trupp

      Just out of curiosity, what “individual rights” are being denied to you? We’re all for capitalism–or a return to it and an end to the present trend toward “monopoly capitalism.” In this regard I suggest reading Barry Lynn’s “Cornered: The New Monopoly Capitalism and the Economics of Destruction.” As for the Galt reference: Are we to assume you’re in the same company as Greenspan, Summers, Rubin, et. al., the same Ayn Rand devotees who helped engineer the meltdown? FYI: Narrow, ideological agendas may sell outdated books, but in the real world they get us nowhere.

      • whoisjohngalt

        The biggest individual right being denied me is the access to the $ I earn. If I add up federal income, social security, property & sales (I live in TX so no income) & gas (which I do not mind so much because it is a user tax) taxes, it is 35 to 40% of my income.

        True, Greenspan was in the inner circle of Rand’s group. However, the financial colapse was primarily caused by the housing bubble & Freddy, Fanny & banks making loans to people who put no money down. Banks were almost forced into this by redlining laws enforced by Janet Reno first & others after her. Freddy & Fanny are good examples of government doing what they do best in the market place–screwing it up. I do not think Greenspan had a lot to do with this & Rand would have invested in industry first–not condos.

  • fred

    Some thoughts about the letter…

    When revenues increase employment will follow. Corps have to have a longer term perspective than next quarters earnings. Feds must focus on fascilitating a better business environment by reducing uncertainty, simplify regulation and proposing lasting changes rather than temp, one time fixes.

    Instead of tax incentives how about trying tax disincentives when it comes to “freeing up” corp cash and individual wealth. I’m not so sure “supply siders” have it right either.

    ID vital public works projects for gov’t spending; world class electric grid upgrade, internet access, roads, rails, airways rather than pork, waste and admin. Across the board spending cut of 10% to the fed budget for all non vital public works projects. Term limits for all elected officials, (it will significantly reduce legacy costs and entrenched corruption).

    How about a globally competative corp AMT or better yet no tax if > 90% of EBITDA is distributed as dividends.

    Less gov’t regulation better enforcement, all in the name of the public good rather than special interests.

    • fred

      Another thought,

      In corporate America, let’s promote rightsizing and conservative LT growth targeting rather than exceeding NT earnings expectations.

      Maybe we could reduce the cyclicality of employment and the economy by changing the rules of the game. Business is now quick to downsize in part because of the unemployment benefits provided by gov’t, business takes little responsibility.

      What if business and management were penalized for doing layoffs rather than rewarded (via incentives tied to near term earnings). An idea would be mandatory reductions in executive compensation and corp tax disincentives when layoffs occurr.






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