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How Would You Stimulate the Economy?

'Help us get it right,' says GOP Whip Eric Cantor

By: Robert Bluey (Diary)  |  January 9th, 2009 at 06:22 PM  | 

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House Republican Whip Eric Cantor wants you to have a seat at the table as Congress debates the best way to promote economic growth. The Virginia Republican opened his website to public comments and encouraged citizens to send video submissions via YouTube.

Cantor has made transparency an important factor in the economic stimulus debate. Earlier in the week, he challenged Obama to create a real-time online ledger of the stimulus spending.

For conservatives to successfully fight the bad ideas in Obama’s plan, they will need alternative ideas of their own. My colleagues at The Heritage Foundation have identified tax relief and budget reform as two places to start. Now Cantor wants to know what you have to say. Send him a comment or record your own video.

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  • http://www.fredmaidment.com Fred Maidment

    n/t

    • Aaron Gardner

      With the economy being 2/3′s consumer driven do you really believe that increasing the sales tax on products sold will stimulate the economy… especially when the Fair Tax would not get rid of the income tax????

      • http://beaglescout.wordpress.com LJ “Beaglescout” Miller

        For the Fair Tax to be implemented requires repeal of the 16th amendment. That would take care of your concern. Cheers!

        • Aaron Gardner
          • http://beaglescout.wordpress.com LJ “Beaglescout” Miller

            The guy who founded Fedex wrote up his business plan for b-school. The first step was to repeal the federal laws preventing private companies from competing with the US Postal Service. His professor gave him a bad grade on the b-plan saying that the repeal would never happen.

            FDR first won the Presidency on repealing Prohibition, which was almost as unpopular as the IRS. Give you any ideas?

        • mbecker908

          start a drive to repeal the 16th and when it’s repealed we’ll enact the FT, NOT the other way around.

      • http://www.fredmaidment.com Fred Maidment

        Remember that the FairTax only replaces the existing cost of taxes in the products you are already buying, and that it should not go into effect until the repeal of the 16th Amendment. It’s not a tax increase plan, it’s a tax replacement plan.

        “Increasing the sales tax” is not what the FairTax is about. It’s about changing where we collect the tax, in such a manner that it does not punish success nor act as a dis-incentive to investment, production and the generation of wealth.

        Your commentary speaks volumes about your ignorance of the how the FairTax would work. I was once in that situation, and then I educated myself. Not just reading about the FairTax, but also the many hours pouring over books on micro- and macroeconomics.

        Of course, if we don’t control government spending, no tax reform plan will ever work… No matter what else, on that point we can both agree.

        • Aaron Gardner

          If we replace the tax being collected by the income tax does that not increase how much sales tax is collected?

          If the current cost of products goes up do to the current sales tax being increased to replace the income tax do you really think that will drive more consumer spending?

          Look, I am not really opposed to the Fair Tax in theory, but to claim that it is the solution to all our economic woes, as you did, is sophomoric at best.

          • http://www.fredmaidment.com Fred Maidment

            Okay, yeah, you can say that the sales taxes go up. Sure.

            But that doesn’t mean the price must go up.

            Remember that you’re already paying taxes in everything you buy. The increased cost is already there. Do you think that businesses don’t account for taxes when they figure the price of their goods? I work in finance, mister, and I can tell you it’s on our mind in every analysis. And my company is a wholesaler.

            All the Fairtax does is put it on the front-end instead of the back-end. It shows you, every time you order a burger or buy a nifty new Wii game, how much government costs you.

            Further, it eliminates the ability of government to punish people for achieving (earning) and restricts (but does not eliminate) its ability to punish politically unpopular industries.

        • mbecker908

          The FairTax rate doesn’t “only replace[s] the existing cost of taxes in the products you are already buying”, it approximates the existing cost of taxes…

          It’s called the “Law of Unintended Consequences”. FairTax (and I’m not opposed out-of-hand to it), is not a major change in our tax system, it’s a monumental system change and NOBODY can really say with any level of confidence what will happen to consumer buying patterns/savings and hence, tax revenues. That’s only one major issue, there are probably about a dozen others. That said, I’m not necessarily saying that FT is a bad idea, it’s just NOT a straightforward “replacement tax” by any manner or means.

          If you think the math is straight forward, you should apply for a job with the CBO and model their one-dimensional revenue curves v tax rates that are ALWAYS wrong by roughly 100%.

          • http://www.fredmaidment.com Fred Maidment

            …but the economics is. It’s the very simple idea in microeconomics of incentives: Give people an incentive to create wealth, and they will do so. Removing all corporate and personal income taxes so that all earned income is kept creates a HUGE incentive to invest and create.

            Since we must consume to survive, we must always spend. There is no such absolute compulsion to invest or create.

          • NightTwister

            Have you been paying attention to the price of oil lately? The high price reduced consumption, which then lowered the price. That means they’re drilling less of it, and some of those people in the industry are out of work so the companies can reduce their costs.

            You can’t create wealth if nobody will buy your products, or will only buy necessities at the lowest possible price to reduce their spending. This in turn will cause companies to eliminate jobs, etc., etc.

            The FairTax simply isn’t a method to eliminate normal business cycles, and as you already agreed, it’s not guarantee that congress critters won’t continue to spend money like my ex-wife.

          • http://www.fredmaidment.com Fred Maidment

            …because it’s a non-issue.

            It’s basic economics, and your oil comparison is a perfect example.

            The price of a barrel of oil dropped from $147 per barrel to about $40 per barrel. Now, the oil companies could have simply kept all the prices up and made much larger profit margins on far-less expensive raw materials.

            But they didn’t.

            Why?

            Competition.

            Exxon-Mobil could have kept selling gas at $4.00 per gallon, but when Shell and BP drop their price, Exxon can hardly sell a drop.

            The same thing happens with the FairTax.

            You remove the cost of all embedded taxes in a product (approximately 22% of all products and services right now) and these same competitive forces drive prices down. The FairTax replaces the taxes on the expense end instead of the income end. Prices will change, sure, but that doesn’t mean that we’ll be spending more for what we buy. Some prices will go up. Others will drop. Still more prices will stay just the same, but in the end, we’ll be spending the same amount of money.

            Now, we’ve covered how the FairTax does not increase overall prices, and I’ve already covered how it creates a huge incentive to invest.

            And let’s be clear: Spending is nice, but it only leads to economic growth because it allows for more investment. Spending on its own is just consumption. If government does nothing else, it exemplifies how we can spend-spend-spend without creating wealth…

            “…it?s not guarantee that congress critters won?t continue to spend money like my ex-wife.”

            Very true, and no one who knows anything about the FairTax ever claims that it would. That’s the responsibility of an educated, well-informed (and well armed) electorate…

          • mbecker908

            look at price elasticity. Plus, not all corporations pay a relatively fixed rate of income tax that the FT model is built on. For instance, GM, Chrysler and Ford won’t be paying a big tax bill for 2008 & didn’t for 2007. So by netting a fixed corporate income tax rate against the FT purchase of a new Tahoe, you are going to end up with nothing more than a more expensive car that nobody wants.

            Bottom line, 22% may be an OK number for “embedded taxes” across the board (I have absolutely no idea), but on an industry by industry basis it is not. And that’s where Congress will step in (well one of the opportunities anyway) and mess with the end tax rate by industry category. Congress wants to incent automobile sales they will simply modify the FT by reducing it by 5% for the automobile industry.

            As long as there is power to throw around and money to spread around, Congress will do it. And if you want to include language in the legislation that bars them from doing the above, the bill won’t get 20 votes in the House and will have 90+ holds on it in the Senate.

            Oh, and if you’re needing an educated, well-informed and well armed electorate, the Fair Tax is dead meat from the get-go.

            If you want to have a point that pretty much nobody will argue with, try eliminating the cost of compliance. It’s a big number and it absolutely will go away virtually 100% with relatively insignificant offsets.

          • http://www.fredmaidment.com Fred Maidment

            “For instance, GM, Chrysler and Ford won?t be paying a big tax bill for 2008 & didn?t for 2007.”

            No, but a lot of their suppliers will, from US Steel to Firestone to the hundreds of other companies that are supplying parts, outsourced labor and other services. The embedded cost taxes for those companies is part of that 22% figure. Besides as I said, not every industry, not even every company is going to change its prices equally. That’s not the point. The point is that, net-net, we won’t have higher prices.

            “Congress wants to incent[ivize] automobile sales they will simply modify the FT by reducing it by 5% for the automobile industry.”

            They already do this when they give tax credits for things like tankless water heaters and high-efficiency ceiling fans. Again, at least with the FairTax, we see it on the front end.

            “If you want to have a point that pretty much nobody will argue with, try eliminating the cost of compliance. It?s a big number and it absolutely will go away virtually 100% with relatively insignificant offsets.”

            Now THAT is something I can agree with. Unfortunately, income taxes are just susceptible to the forces you describe (if not more so) as the FairTax.

            Again, the point of the FT is to remove dis-incentives to investment, not create Utopia.

          • mbecker908

            I know. And my fundamental point is that the Congress has the power – and WILL NOT give it up – to mess with the FT percentages in precisely the same manner they mess with the current code.

            If you want to remove disincentives to investment there’s an easier way.
            1. Dramatically reduce or eliminate tax on business.
            2. Eliminate the capital gains tax.
            3. Eliminate the death tax.

          • Old_Crow

            economy. I saw it in Iceland in the ’90′s locals didn’t buy goods and services in the store, but at the back door. Businesses worked the same way to avoid taxes. I like the idea of the fair tax, but believe me it won’t work with resourceful human nature. As soon as sales taxe becomes ‘painful’, behavior changes, and it is worth the effort to find a way around the tax.

          • http://www.fredmaidment.com Fred Maidment

            As soon as the tax becomes painful, it encourages cheating.

            The FairTax reduces the number of possible failure points from about 145 million (number of taxpayers) to about 1.11 million retail locations.

            It’s one helluva lot easier (and cheaper) to monitor 1.11 million stores than 145 million people.

            Besides, I have no problem with barter. Accepting money is simply a barter for unspecified goods and services, anyway…

  • jimmuy8

    0% Cap Gains for 1 to 4 quarters.

    0% SS withholding for 1-4 quarters

    0% Fed Gas tax for 1-4 Qs

    0% Income tax for 1-4Qs

    Call it what it is: The Keep Your Own Money Stimulus–You earned it, you spend it.

    • bs
    • http://www.fredmaidment.com Fred Maidment

      …how do we pay for the legitimate functions of government, such as our military, public roads and courts? More deficit spending?

      Hardly an encouraging prospect…

      • jimmuy8

        Same way we are proposing to “pay” for the other “stimulus” plans–both will end up with massive deficits.

        Only one will guarantee massive growth.

        Easy choice.

        I’d rather the government borrow to pay for essential programs and free the tax shackles from the American economic engine than to have the government borrow to pay for non-essential, make-work, pork programs which only turn the screws tighter as government takes an ever more increasing role in everyday life.

        • http://www.fredmaidment.com Fred Maidment

          …but I’d rather the government not mortgage our future economic security to stabilize an economic ripple today.

      • Scope

        You haven’t paid your dues yet to be credible, sir.

        • http://www.fredmaidment.com Fred Maidment

          I was posting on Red State long before you were here, Bucko… I was in absence for awhile and was forced to create a new account. Look here.

          Unfortunately, it seems many of my old posts were lost in the prolonged inactivity…

        • http://www.fredmaidment.com Fred Maidment

          http://web.archive.org/web/20061210004144/http://www.redstate.com/

          Look about one-third of the way down the page… One of my posts from ’06…

    • merkurfan

      It would cause the people to wake up and realize just how much of their hard earned money the government sucks off the top so our elected idiots will NEVER go for it as the resulting tax revolt would be uncontrolable.

      not that i think that is a bad thing ;)

  • Princeliberty

    In the short run there is nothing you can do that help the economy.
    What will help, is reduce spending and taxes so both more income and borrowing is freed up for the private sector.

    Good place to start repeal that horrible bailout bill and don’t spend another cent on any bailout,

    I doubt empty suit Cantor will be too keen on that since he helped pass the bankers bailout.

    If Cantor is future of the Republican party then the Republican party’s future is graveyard.

    • usrbinperl

      Cantor is less combative than I would like, but he’s the best we’ve got so let’s give it a shot.

      Rep. Cantor, let’s not let anyone forget that we’re in this current mess because of BAD regulation. Specifically, the overreaction to Enron that gave us Fair Value or “mark-to-market” accounting rules. Look at three major shocks to the economy over the past year – Bear, Fan and Fred, and Lehman. In each case, the collapse was caused by an arcane accounting rule which required them to artificially de-value their book assets based on the perceived “market” for illiquid assets. I mean, let’s face it – CDS and mortgage backed CDOs aren’t bought and sold on a daily basis, so how can you establish a “market value?”

      Add that with no transparency to CDS and the lack of an uptick rule and you’ve got a recipe for a bear raid. By the way, both BS and LB were cash-flow positive when they went down (same with AIG). What does that tell you?

      My point: before you spend however many Trillions of our money you plan to spend why don’t you get rid of dumb regulations that don’t make sense and see if that helps the situation?

  • birdmojo

    Apply liberally.

    • http://www.fredmaidment.com Fred Maidment

      But double the amount and apply it equally among every elected and appointed member of both the legislative and executive branches. They all share in the blame…

  • Kenny Solomon
  • izoneguy

    • E Pluribus Unum

      Nothing quite says “you suck” like Graham Chapman.

  • 10ksnooker

    The American entrepreneur is the key to the economy, runs the economy, creates the jobs. And yes that includes corporations.

    Cut taxes for these entities and stand back. What Bush did after 9/11 what Reagan did to recover from the Carter disaster years.

    I sent in my comments to Rep Cantor.

    • Kenny Solomon

      That’s the ticket……. yeah. Do it the Tommy Flanagan way !

      ;)

      Here’s why evoking the name of Ronaldus Maximus affords our friends on the left an instantaneous attack response or the need to cower in the corner: They are absolutely wrong in their ideas for everything economic, national defense and other matters.

      • izoneguy

        Cut the red tape also. The entrepreneur is just strangled to death with red tape. They should call it blue tape. Most of the small business’s I know would probably be making a profit and paying MORE taxes if they were unleashed. Business people are afraid to hire and move forward because of the Hot Air of unreason billowing from Barack Obama & his democratic lunes.

  • char

    And make this the permanent rule. This would greatly help with modernizing equipment and would spur economic growth (and would be better than the hodge podge of depreciation curves). Reselling any equipment (as used) should be counted as income.

    • char

      n/t

  • http://brockwayfamily.spaces.live.com/ Erick Brockway

    Storing this here for when their site is fixed;

    I’m not advocating increased partisanship, or kneejerk naysaying as the Democrats have done for 8 years, HOWEVER; I won’t stand for expecting that side of the isle to “play nice” and us rolling over or bending over for them on issues you KNOW we care about.
    And one for me is being allowed to partcicpate in the process. House or Senate rules that preclude GOP debate on anything will not be tolerated, especially after deliberate efforts were made by the GOP to include them at all costs in the past.
    You folks have to fight. We’ll put the word out where you need it, bypass the MSM.
    @erickbrockway

  • dvdmsr

    Simply eliminate capital gains tax forever, nothing more need be done, or should be done to stimulate the economy.

    As for the fair tax, it like our existing tax system will be a lobbyist’s dream as they all will soo realize that exemptions on certain commodities and special prebates-rebate-credits are still possible for the right price.

    It matters not which tax system we have until our representatives do more than simply take a pledges to not raise taxes.

    We need to vote for only those representatives who not only pledge not to raise taxes, but who also pledge never to vote for a bill that would deny any person, regardless of status, equal taxation under the law by varying rates, providing rebates, or credits, or by any other means, except that taxation may be suspended for persons who have no means of support whatsoever.

    • dvdmsr

      …that the best way to ensure that taxes stay low, is to ensure that all people have stake in keeping them so.