originally published at Mediard
President George W. Bush’s jobs program and the one presented by the
Democrats reflect their traditional approaches to economic stimulation.
Both parties tend to ignore the actual causes of economic situations in
favor of ideological approaches that falsely assume all similar economic
situations have the same cause. Both also assume that their approaches
will automatically trigger a magical process to increase jobs.
Stimulants may help in the short run, but they don’t deal with the
basic structures of the economy. Many of these structures are outdated
and need remodeling. Some of these structures need to be changed to an
employment maximizing economic system.
The tax system is a Rube Goldberg like structure. It has become so complex
that no one really understands it. The tax system needs a major overhaul.
The nation’s surface transportation isn’t adequate for the current
needs. The Interstate system needs to be expanded and the downsizing of
the railroad network reversed. Jobs don’t just magically appear. Industries
come and go. Government needs to encourage development of new industries
as old ones become less productive of jobs. The method of dealing with
damages caused by products and services needs to be changed to insure faster
payment to the injured with less money going to parasitic attorneys on
both sides of the disputes.
Politicians keep adding to the complexity with measures designed
to benefit a small segment of taxpayers(business and individuals) at a
specific time. These measures often remain in the tax code long after they
served any useful purpose. .Complex tax systems force businesses and individuals
to waste time and money on figuring their taxes that could be used for
more productive activities. Politicians need to stop fiddling with the
tax code and restructure it.
The corporate profits tax needs to be replaced by a
Value Added Tax The profits tax encourages businesses to operate with
one eye on the tax code instead of operating in the most efficient manner
The tax is based on the old idea that “profit” is revenue minus
expenses. Today “profit” is primarily a function of the accounting
system and may or may not reflect the actual health of a business. The
tax also ignores the fact that “profit” is the stockholders’ income,
not the corporation’s income. The corporation’s income includes executive
A Value Added Tax featuring the taxation of the difference between revenue
and taxed expenditures would be easier to administer for government and
business. To prevent it from becoming a tax on labor costs, government
could allow deduction of labor costs on which employer matching FICA taxes
are paid. Such a provision would be consistent with the idea of exempting
taxed expenditures to prevent multiple taxes on the same revenue.
This tax would allow corporations to immediately deduct the cost
of new buildings and equipment financed with revenue instead of having
to use complicated depreciation schedules.
The individual income tax needs an overhaul rather than just a change
in rates. One change would affect income from dividends paid by American
companies. Dividends would be taxed at the corporate level instead of at
the individual level for most taxpayers. The first $20,000 an individual
received from any one U.S. corporation would be exempt from taxation. Dividends
from foreign corporations would still be taxable for individuals. This
approach would simplify taxes both for taxpayers and the government.
An exception to the tax would occur after new issues of new stock to
finance building and equipment purchases, but not purchases of other corporations.
Dividends would be exempt from taxes until the sufficient dividends had
been paid out until it equaled the amount spent(the amount spent to issue
the stock would be considered a building purchase cost). A similar provision
would apply to start up companies after their Initial Public Offering.
Dividends wouldn’t be taxed until the amount exceeded the amount raised
by that sale.
This tax would increase the net income of those owning preferred stock
unless corporations were allowed a one time opportunity to reduce the percentage
paid to owners of such stock. The impact would be felt by those owning
common stock who may be more likely to be corporate executives who prefer
the potentially higher income from such stock. Preferred stockholders are
more likely to be retirees who need dividends to provide for daily needs.
The limit on the amount of income received from one corporation exempt
from taxes would encourage investors to diversify their stock holdings
and thus reduce the risk of income loss if a single corporation has economic
The long term capital gains tax would be replaced with a sales tax on
stock sales. The buyer would pay the tax. This change would simply the
tax system and discourage frequent stock sales. Stock speculators would
no longer be able to offset stock profits with sales for a loss. Switching
to such a tax would initially lower stock price, but would soon be ignored
in determining prices other than in discouraging frequent stock trades.
Stock transactions between a corporation and its stockholders,
other than top executives and board members, would be exempt from the tax.
New stock issues would also be exempt.
The sale price of stock to executives, or purchase from executives,
would be determined by the closing price on the appropriate stock exchange
at the close of business on the day of the sale. Any significant sale by
executives would have to be preceded by notification to the Securities
and Exchange Commission five business days before the transaction. This
approach would discourage misuse of stock sales by executives.
In general, individual tax rates should be based in part on the source
of income. Gambling income would be taxed at a higher rate than earned
and investment income. To encourage investment in bonds, taxes on bond
income would be lower than on earned income.
The amount of the standard deduction should be increased to discourage
people from itemizing deductions(which complicates tax filing and administration
of tax collections). Those using the standard deduction would also deduct
more per exemption. The standard deduction should more accurately reflect
basic costs per household including the cost of housing. Exemptions should
reflect the actual cost of food per person along with other costs.
The federal government should replace the minimum wage law with some
form of guaranteed
wage that would supplement the incomes of the working poor. The minimum
wage tends to eliminate manufacturing jobs for those with the lowest job
skills without providing sufficient income to support a family.
It also provides benefits without regard to whether the worker actually
needs higher income. Recipients can include children of the middle class
working in part time jobs.
A guaranteed wage system would have government subsidize the incomes
of those who actually need a higher wage to support themselves and their
families. Each recipient would be paid the difference between the hourly
pay from a job and the amount needed to support the number of dependents
the worker has.
Providing workers an adequate income is more than just a matter of “social
equality”. Our economic system is a mass consumption economy. It works
best when the masses have sufficient income to be afford to consume. A
job maximizing policy should encourage the most efficient distribution
of money in the economy.
The federal government needs to limit consumer credit interest rates.
The sectors of the economy that have been doing well during the past year
have been the housing and automotive sectors. Both feature low interest
loans. Reducing consumer interest rates would allow those who rely on consumer
credit to spend a portion of their income that they now spend on interest
on the purchase of goods and services. Rate reduction would also encourage
those who avoid consumer credit because of the high interest to use it
for big ticket items like new computers and other electronic equipment.
High interest rates of 20% or more not only discourage consumption,
they are self defeating in the long run. The difficulty in repaying the
loans increases the likelihood that debtors will eventually reach a situation
in which loans cannot be repaid and they must file for bankruptcy. One
problem is that even creditors charging reasonable rates may lose of debtors
have some high interest loans.
At the very least bankruptcy law should be changed so that if repayment
is ordered low interest creditors are paid first. Judges might be able
to request creditors to provide a record of money loaned for actual purchases
of goods or services(insurance or special programs by the creditor would
not be considered purchases under this provision) and what the debtor has
paid to the creditor. The actual amount of debt owed would be any difference
between the amount loaned and the amount paid.
The federal government should change the way it pays for new equipment
for the military and the space program. Instead of simply paying companies,
it would purchase an amount of stock equal to the amount needed for research
and development costs. That stock would then be allocated to the
Social Security Fund.
The federal government needs to improve the nation’s internal transportation
infrastructure. The current Interstate
Highway systemwas designed 50 years ago and is no longer close to being
adequate. It needs to be expanded. Current highway spending leaves decisions
up to state governments most of whose leaders seem incapable of understanding
the broader transportation needs of their populations. They waste the money
on minor projects to benefit the few rather than coordinating their actions
with neighboring states to construct freeways to connect major cities.
The Interstate System has provided substantial benefits to the cities along
Expanding it would create jobs in many other cities while reducing transportation
costs. Constructing new routes would reduce distances between some cities
reducing fuel and labor costs for transporting goods between these cities.
Expansion would reduce congestion on existing routes allowing a reduction
in the wear and tear on such routes.
Highway construction provides jobs in the construction companies as
well as in companies that produce the equipment and materials used. Beneficiaries
include the depressed steel industry. See essay for more.
The federal government should change the rail transportation system
unified ownership of the rails. The current practice of having
individual companies owning the rails they use is outdated and discourages
the most efficient use of the rails. Transportation companies often can
operate most efficiently by emphasizing either freight or passengers instead
of attempting to transport both. UPS and FedEx are examples of companies
that specialize in transporting freight and leave the transportation of
people to other companies.
Both use many of the same facilities as the air passenger companies,
but don’t have to pay the full cost of such operations like rail freight
companies do. Highway freight companies also get to share the cost of financing
their “facilities’(highways) with passenger vehicles. Rail companies
have to pay taxes on their facilities, airplanes and trucks generally don’t
because the facilities are owner by government.
Unified ownership of the rails under a quasi government corporation
would eliminate taxes on rails and allow cost sharing with other companies.
Private rail passenger companies could be established to replace Amtrak.
Federal government operation of Amtrak is currently necessary because the
freight companies that own the rails don’t want to handle passengers.
See essay on unified ownership essay for more information. See essay for
Reducing ground transportation costs would improve the ability of manufacturers
in the interior of the country to better compete against foreign companies.
The lower costs would help offset the lower labor costs in other countries.
The federal government should establish a program of aiding airline
companies to purchase new aircraft. The federal government would help companies
purchase aircraft by paying in advance for a preemptive lease of such aircraft
for transportation of military personnel should it be necessary to transport
large numbers of troops to deal with a foreign crisis. The payment would
also cover reduced air fares for military personnel on leave, etc. without
requiring them to fly standby. This program would help the currently depressed
airplane construction industry.
Environmentalists complain that we are running out of fresh water. Actually
the United States requires more than enough rain, snow, etc. Unfortunately,
the distribution isn’t very reliable. Most areas of the country have
either too much or too little. The federal government should finance water
pipelines, canals, etc. to move fresh water from areas where there is a
surplus to areas with a shortage. Water storage capacity should also be
increased, including recharging underground aquifers and developing new
underground storage using old mines lined so that materials in the mines
aren’t leached into the water.
Economic growth over the long term requires periodic introduction of
new industries. The dot.com boom of the 90's provided temporary jobs. It
would have and still could provide large numbers of jobs if Internet Service
Providers were required to share some of the revenue they receive to those
companies/individuals that attempt to operate content sites that don’t
sell physical goods. The idea of a free Internet is a myth because users
must pay to have access. Unfortunately, the federal government in the 90's
didn’t establish a system that insured those providing services with
a source of funds. The result was creation of many companies with little
or no chance of generating revenue.
The federal government has been encouraging development of companies
that establish wind farms to generate electricity. A potential new industry
would provide residential and commercial buildings with the ability to
generate a portion of their own electricity. Some new commercial buildings
are already adding fuel cell technology for this purpose.
Solar cells provide a potential source for residential electricity generation.
Companies that produce and install such systems are a potential growth
industry. Home solar cells might not provide a year round source of reliable
electricity, but they could take advantage of the fact that solar energy
is most available during the summer when it is most needed for the added
demand for electricity for air conditioning.
Many manufacturing and service industries could reduce unnecessary costs
if the federal government established administrative procedures for an
insurance program to replace expensive liability
lawsuits. Individuals who suffer some loss, including injury, would
be compensated without the requirement of filing lawsuits and waiting years
for compensation. They wouldn’t have to prove negligence to receive compensation.
No product is perfect. There is always some potential for injury even if
the potential is slight. Most times the potential can be determined and
assigned a value that could be apportioned as the cost per item and included
in the price of the product.
This system would include medical problems. Most medical procedures
have established statistics for how often something goes wrong either because
of a mistake or because some patients simply don’t respond as well as
others. Patients currently pay for insurance for doctors in case of
malpractice. Under the new system, patients would essentially be buying
insurance for themselves and would be compensated if some complication
occurred even if it wasn’t the doctor’s fault.
Republicans assume the economy needs more investment to create jobs
even when businesses have reduced employment because they cannot sell what
they have. They may be unwilling to invest in producing more goods they
may be unable to sell. Democrats assume job problems result from inability
to consume. If people have more money they can spend more. This approach
ignores the fact that many consumer goods are produced outside the United
States and any jobs would be created in other countries.
Both approaches have merits, but they ignore the complexity of the economy.
The best approach to increasing jobs should help reduce business costs
rather than just increase production or consumption. It should reduce waste
associated with the tax system. New industries should be encouraged as
old ones become less important to the economy.
I also write at Mediard
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