Use Investments to Fund Growth Rather Than Handouts

Our friend Brian Bristol had an op-ed published over at the Orlando Sentinel that points out how powerful capital gains tax relief can be to spur investments and give the equity markets a boost in 2009 after a very rough period last year.

We’re a little surprised that there isn’t more effort being put into encouraging investors in these economic times given how beneficial real investments are for driving economic growth in the U.S. Some of the relief efforts (like allowing businesses to get retroactive tax relief going back five years based on losses in 2008) are of very limited use. Instead of handing out money and hoping that something good comes of it why not just provide relief from future tax burdens for those private sources of capital that are looking for places to invest?

We’d go much further than declaring a long-term capital gains holiday for investments made this year. We’d certainly be happy to see it but it would be more of a short-term boost than a long-term engine.

Part of the problem is that for many Americans "investments" have increasingly looked more like financial engineering and restructuring antics rather than that which builds productive capacity, creates durable economic value and adds to job growth and quality of life.

We’re involved in a number of private financing projects right now and they all have very strong merit. Many stand to get done or at least get enough financing to keep developing. But what would really excite investors is not only relief from any long-term gains taxes but also a credit for investments that create jobs and / or productive capacity in the U.S.

Tax credits like these are not a new idea at all which is why we’re surprised not to see them more featured as part of the rumored $300B stimulus package. They could also be used to offset interest payments on debt which would further enhance the attractiveness of building economic growth.

Although we are not fiscal or economic experts we KNOW that this will lead to much more real growth than sending out $300 checks to consumers or handing businesses tax refunds to spend as they wish.

Providing incentives to invest in new capacity, fund companies that are ready to hire staff to ramp up operations are the best ways to use tax payer funds to fuel growth. Why aren’t we doing more of it?

Comments

[Gem Hudson:]

Answer. What is free enterprise? What ever works for me but what hasn't worked out. Producing nothing for the money not only sell nothing for the money. Money unearned is a devaluation because print money is still nothing but paper money. You are in the right.

Jan 06 11:00 AM

[Rob Viglione:]

Well said. Productive investment versus handouts is a good path. Nonetheless, I am skeptical of government making these "investments" on our behalf. Everyone reading this site is more qualified to pick winning investment projects than untrained bureaucrats doling out our resources.

It boggles my mind to think that the majority of the public believes the rubbish coming out of Washington D.C.. The confidence placed in the Federal Reserve, Treasury, White House, and Congress is insane. These are the people largely responsible for our problems, but for some strange psychological reason our citizens, like lemmings, continue to rally behind the social engineers telling us to jump off the cliff.

Jan 06 12:40 PM

[derryl:]

Awhile back on SA I saw a suggestion that short term capital gains (speculation) should be taxed at a high rate and longer term gains (investments) taxed lower or not at all. This looks to be a simple and effective way to implement Mr. Tuttle's idea that we should encourage productive investment rather than have gov't handing out money.

Jan 06 07:25 PM

[derryl:]

Awhile back on SA I saw a suggestion that short term capital gains (speculation) should be taxed at a high rate and longer term gains (investments) taxed lower or not at all. This looks to be a simple and effective way to implement Mr. Tuttle's idea that we should encourage productive investment rather than have gov't handing out money.

Jan 06 07:25 PM