Earlier, I wrote about how the policies of president Obama have been increasing the income inequality in America despite all the speeches that he has given to the contrary. Today, I want to set forth just a few steps that could go a long way towards reducing inequality.
First, let's talk about methodology. Most of Obama's plans rely on taking money from the rich to even things out. That does nothing to help the rest of the folks who are being squeezed from years of declining real incomes under Obama. It is much better to reduce inequality by focusing on raising the incomes of the vast middle. That means that we need to focus on economic growth. Only that growth will produce jobs that will support more families. Only that growth will lead to a broad based economic renaissance that will mean higher salaries/wages and higher incomes for the middle income groups. The growth that is needed cannot be achieved by making the government larger and taking more and more money out of the private sector. That growth has to come from a rising private sector which will create more and more wealth to be spread across the land.
So here are just a few suggestions for increasing economic growth and reducing inequality.
1. Let's have a one year tax holiday on funds that are brought back into the USA by American corporations. Right now, there is about 1.5 to 2 trillion dollars held abroad by American corporations because there would be a 35% tax on the funds if they were brought back to the USA. That is over a trillion dollars that could have been invested in the US economy with the resulting creation of millions of jobs that won't happen because the tax law prevents it. Congress could pass a law that would reduce that tax rate to 5% for fund brought back during a one year period so long as the funds were used for new investments or for the payment of increased dividends. If that tax holiday resulted in the return of one trillion dollars to America, it would have major impact. First, the federal government would get $50 billion dollars in additional tax revenues, a major plus in these years of endless deficits. Second, if half of the funds were invested in accordance with the law, we would see something like an additional million jobs created (with the possibility of a much higher figure.) Third, by having these additional million people employed, the federal outlays would be reduced and the federal revenue would be increased, yet another deficit reduction move. Fourth, if the other half of the money were paid out in dividends, there would be an immediate boost of funds across the country. There would probably be another $50 billion dollars in revenue to the federal government from the taxes on these dividends. Remember, this is a move that would increase economic growth by probably 1.5% for the year and it would not cost the government a cent. Instead, there would be growth, increased income for working Americans and the government would probably take in something like 125 billion dollars to boot.
2. Let's open federal land to drilling for oil and gas. Yes, I know that these lands are supposedly already open, but I am talking about reality not just what gets said in speeches. Since Obama took office, America oil and gas production has moved up by close to 20%, but on federal land (the only place where Obama can control things), the oil and gas production is down 13%. What we have seen is all sorts of regulations and bureaucratic slowdowns put in place that have prevented the shale boom from making its way onto federal land. Opening up federal land would surely lead to the creation of huge numbers of jobs. Even better, more drilling would mean lower prices for oil and gas, something that would benefit every American. The energy cost advantage that the USA now has would be improved. That would mean more foreign investment here with more jobs created. And this is a second step that would not cost taxpayers anything. The federal government would gain revenue from the new jobs and the new business. Over time, this could increase growth substantially.
3. Let's revise the corporate tax code. There is no reason why corporations like GE should make billions but pay no taxes while the local hardware store pays 35% of its income in taxes. America has the highest corporate tax rates in the world, but then there are so many special rules that give benefits to particular industries or companies that have the best lobbyists that only at most half of the companies pay full taxes. We need to get rid of all the special interest rules. We need to get rid of all the loopholes. We need to lower the tax rates. Everyone should pay the same rate whether or not they are big enough for K Street lobbyists. Such a move could be done with the aim of keeping revenue the same while lowering the tax rate and making the system fair. This would have the benefit of allowing foreign investment in the USA without there being this unbelievably high tax rate scaring off investors. No one knows for sure what the effect of this change would be; obviously, it would depend on the exact details of the plan. Nevertheless, experts have estimated that this sort of change would add between 0.7 and 1.0% to the annual growth rate of the economy. And this is the third step which would not cost the taxpayers anything.
There are many other things that could be done to increase the rate of growth of the economy. These few, however, should make clear that there are policy choices that would actually reduce income inequality. Unfortunately, the choices that work are not the ones that fit Obama's ideology, so we are probably going to be stuck with increasing inequality for the next three years.
First, let's talk about methodology. Most of Obama's plans rely on taking money from the rich to even things out. That does nothing to help the rest of the folks who are being squeezed from years of declining real incomes under Obama. It is much better to reduce inequality by focusing on raising the incomes of the vast middle. That means that we need to focus on economic growth. Only that growth will produce jobs that will support more families. Only that growth will lead to a broad based economic renaissance that will mean higher salaries/wages and higher incomes for the middle income groups. The growth that is needed cannot be achieved by making the government larger and taking more and more money out of the private sector. That growth has to come from a rising private sector which will create more and more wealth to be spread across the land.
So here are just a few suggestions for increasing economic growth and reducing inequality.
1. Let's have a one year tax holiday on funds that are brought back into the USA by American corporations. Right now, there is about 1.5 to 2 trillion dollars held abroad by American corporations because there would be a 35% tax on the funds if they were brought back to the USA. That is over a trillion dollars that could have been invested in the US economy with the resulting creation of millions of jobs that won't happen because the tax law prevents it. Congress could pass a law that would reduce that tax rate to 5% for fund brought back during a one year period so long as the funds were used for new investments or for the payment of increased dividends. If that tax holiday resulted in the return of one trillion dollars to America, it would have major impact. First, the federal government would get $50 billion dollars in additional tax revenues, a major plus in these years of endless deficits. Second, if half of the funds were invested in accordance with the law, we would see something like an additional million jobs created (with the possibility of a much higher figure.) Third, by having these additional million people employed, the federal outlays would be reduced and the federal revenue would be increased, yet another deficit reduction move. Fourth, if the other half of the money were paid out in dividends, there would be an immediate boost of funds across the country. There would probably be another $50 billion dollars in revenue to the federal government from the taxes on these dividends. Remember, this is a move that would increase economic growth by probably 1.5% for the year and it would not cost the government a cent. Instead, there would be growth, increased income for working Americans and the government would probably take in something like 125 billion dollars to boot.
2. Let's open federal land to drilling for oil and gas. Yes, I know that these lands are supposedly already open, but I am talking about reality not just what gets said in speeches. Since Obama took office, America oil and gas production has moved up by close to 20%, but on federal land (the only place where Obama can control things), the oil and gas production is down 13%. What we have seen is all sorts of regulations and bureaucratic slowdowns put in place that have prevented the shale boom from making its way onto federal land. Opening up federal land would surely lead to the creation of huge numbers of jobs. Even better, more drilling would mean lower prices for oil and gas, something that would benefit every American. The energy cost advantage that the USA now has would be improved. That would mean more foreign investment here with more jobs created. And this is a second step that would not cost taxpayers anything. The federal government would gain revenue from the new jobs and the new business. Over time, this could increase growth substantially.
3. Let's revise the corporate tax code. There is no reason why corporations like GE should make billions but pay no taxes while the local hardware store pays 35% of its income in taxes. America has the highest corporate tax rates in the world, but then there are so many special rules that give benefits to particular industries or companies that have the best lobbyists that only at most half of the companies pay full taxes. We need to get rid of all the special interest rules. We need to get rid of all the loopholes. We need to lower the tax rates. Everyone should pay the same rate whether or not they are big enough for K Street lobbyists. Such a move could be done with the aim of keeping revenue the same while lowering the tax rate and making the system fair. This would have the benefit of allowing foreign investment in the USA without there being this unbelievably high tax rate scaring off investors. No one knows for sure what the effect of this change would be; obviously, it would depend on the exact details of the plan. Nevertheless, experts have estimated that this sort of change would add between 0.7 and 1.0% to the annual growth rate of the economy. And this is the third step which would not cost the taxpayers anything.
There are many other things that could be done to increase the rate of growth of the economy. These few, however, should make clear that there are policy choices that would actually reduce income inequality. Unfortunately, the choices that work are not the ones that fit Obama's ideology, so we are probably going to be stuck with increasing inequality for the next three years.
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