Only Tax Cuts Will Work in the Long Run

I was asked several times this past week about the presidential candidates and their plans to revive the economy.How the candidates would get us out of recession is largely irrelevant. After all, whoever wins the election will not actually enter the White House until a year from now. Hopefully, the recession will be over by then.

I know that not everyone believes we are actually in a recession, but whether we are or aren't is also largely irrelevant. The fact is that economic growth has slowed tremendously and some regions of the country are experiencing contraction. In any case, the situation is dire enough that something must be done to revive the economy.

I explained on MSNBC and on the Leon Charney Report, which airs in the New York City area, that an economic recession is a bit like a patient who is having a heart attack. First the doctor treats the heart attack--usually with surgery and medication--then once the patient has been stabilized, the doctor addresses the long-term health issues. He might prescribe a change in diet and an exercise program. The goal is to make the patient healthier in order to reduce the odds that he will suffer another heart attack in the future.

From what I've been hearing so far, the Democrats' proposals address the heart attack. They are looking for ways to immediately revive the economy. But they are ignoring the long-term health issues. I'm not seeing anything on their table that would keep the economy healthy over the long term and reduce the odds of another recession.

The Republican candidates, on the other hand, are focused on the long term. They all want to reduce tax rates on individuals and corporations. Mike Huckabee is even proposing to eliminate the income tax entirely and replace it with a national sales tax. Lower taxes will certainly go a long way to ensure the long-term health of the economy, but they don't do much to address the immediate problem.

Thursday, government officials announced agreement on a $150 billion economic stimulus package. They plan to mail checks to about 117 million families. They even proposed allowing Fannie Mae (FNM) and Freddie Mac (FRE) to temporarily purchase mortgages well above the current $417,000 limit. These proposals are well and good, but they merely treat the heart attack. They don't do anything to ensure the economy's long-term health. Hopefully, the Senate will add such measures before a final bill reaches the president's desk.

Comments

[NoFate]

Forgive me for being cynical, but I think it is much simpler than that. They are ALL simply pandering to their base. It's just that the Libs base would spend their money quicker than the Cons base.

In politics they all start with the answer they want (more tax cuts, food stamps, whatever...) and then they form an argument to support it.

Good economic policy should start with the problem and then search for the best solution.

It is a mistake to confuse politics and economics.

[James Cullen]

How about balancing the budget and getting rid of the $9.2 trillion ($9,200,000,000,000) in government debt before we slash taxes permanently?

[GH]

Short of ridiculous levels like 90%, the "Tax Cuts Are Good" mantra has no defensible basis economically. Money spent in government programs largely moves from one taxpayer to another.

In contrast, consider the $850 billion the U.S. sent abroad to buy oil in the last three years. It is the same, financially and economically, as a "tax" paid to some other country that has conquered ours. Some of it flowed back into the U.S. economy via investment, but a large part of it stayed abroad and did us no good.

If you want to repair the U.S. economy, develop alternative energy sources that do not consume any finite resources, and keep U.S. money here at home: wind, wave, solar, and geothermal. Taxpayer money spent to accelerate the transition to these energy sources will in turn accelerate our economy faster than any other mechanism you can name.

Many European countries, who had no oil of their own to hide the problem, figured this out over a decade ago and are already well on the road to energy independence. Every year they are reducing the "energy tax" they pay to the oil exporting countries.

[hamzzz]

Conservatives have the right idea - slash taxes - spend money like a drunken sailor, but only on war & the military supply companies, and shift the debt to our kids! They can't vote anyway - so everyone is happy !! Conservatives are the most selfish people in the country and the religious right & the Rush Limbo media will keep them in power. Don H.

[Lucmee]

Cut taxes!.. Cut Taxes! When are people going to figure out that it's taxes that build infrastructure and fund research initiatives? You like potholes and crumbling bridges? Don't pay taxes... You'll really like it when your local sewage plant blows a major gasket because it wasn't maintained due to cuts in taxes. The interstate system... It's 50 years old... We don't need to work on that... Let's cut taxes!... Our national rail system?... Envy of the world!.. We don't need to work on that. Cut taxes for big business and they'll create more jobs!... Where ... India?

Shut up about cutting taxes already!.. We're a trillion dollars in debt... Our infrastructure reeks and real meaningful jobs haven't been created in large numbers in this country in over two decades. Raise taxes on every corporation that has more overseas workers than U.S. workers... Set up a flat tax and use the money to pay down the debt and create jobs rebuilding the nations infrastructure.