Sunday, January 20, 2008

OT: Stimulating the economy

So now all the political talk is about passing some sort of bill to stimulate the economy because of the trouble we're having. Lets set aside for a moment that the sub-prime mortgage crisis is completely over-blown and what we're witnessing is the inevitable correction that occurs with any bubble market. What is about to happen is a lot of noise from Congress and the President while they pick winners and losers for this round of hand-outs.

What is likely to happen is some sort of cash payment in the form of an income tax rebate. The problem with this approach is that many people will not necessarily change their buying habits. Many people simply put all of their receipts into their bank account and withdraw as needed. Unfortunately this type of behavior mitigates the stimulus effect that the government is hoping for. So, if you get a check, spend it.

Now, think what would be possible if we were under the Fair Tax. All of the wrangling in Washington trying to decide who should get a benefit and who should be punished goes out the window. There would basically be 2 strategies available for them to boost the economy, either reduce the tax temporarily or increase the prebate. Increasing the prebate suffers from the same problem that the cash payment under the current system has. We don't get the full effect because we don't change people's buying patterns.

The other method would be to do something like a tax amnesty day (or days). This would have a huge stimulative effect on the economy. People on the fence on larger purchases would have a major incentive to make their purchase on the amnesty day. There is no ability to "save" a tax amnesty. The wealthy would have a huge incentive to inject large amounts of their savings back into the economy. And the poor would have an opportunity to make their money go about a third further for that day.

It's unfortunate that adoption of the FairTax is not the hottest issue on TV or in the papers. It is the ONLY big idea in this campaign season that has the potential to improve the life of all Americans, make us more competitive overseas and remove massive amounts of corruption in Washington.

It's also unfortunate that the only front-running presidential candidate to support the Fair Tax is Mike Huckabee, and he is more concerned with courting the religious right than in promoting responsible government and Congressional Statesmanship.

2 comments:

  1. Well said, and all points seem to be well thought out and valid.

    ReplyDelete
  2. Gee, Thanks Rob. Most people think I'm a crackpot.

    ReplyDelete