Selected in the top 100 Economics Sites

Follow me on Twitter

Monday, July 30, 2012

I said this a year ago...and here we sit caught in the frozen years.

Tax reform is the one sure fire thing that could release us from this fettered and festering sewer we are in economically. John Kennedy did it and we had the second longest expansion ever. Ronald Reagan did it and we had the third longest expansion ever. The president assigned a commission, his commission, that told him he should do it too. What did he do? He appointed another commission. Throw in what the NLRB is doing to Boeing and you should not wonder why we are where we are.

I think we should get out the ax and hack to death every deduction you can think of, and I mean every one of them. Corporate jets, sky boxes at the Bears game, three martini lunches, home interest, charitable deductions, and on and on. Then slam the marginal rate as low as we can on both corporate and personal income. Doing something to increase the efficiency of the allocation of resources and the incentive to work and invest on the margin is the best thing we could possibly do at the moment. Instead I hear about temporary tax cuts which are economic nonsense for thinking they will help growth. More targeted spending and unemployment benefits. Why not let people decide for themselves instead of picking winners and losers?

Not interested. And that's why we will be here, same spot, one year from now.

I said in 2008 that I was in for a "lost half decade" of economic growth. I am ready to make my bet for a "lost decade" just like the Japanese. God help us.


Stephen said...

But isn't the whole notion of corporate tax a fallacy since no one ever rates the stated rate, and most of the top level companies park their money overseas?

Also the levels from which Kennedy had tax cuts were much much much higher than current levels. Companies aren't hurting. They are sitting on over $2 trillion in cash reserves. Changing the tax rate won't make them invest it.

Should we use more tax incentives for expansion?

FedWatcher said...

Based on your reasoning, we should keep rates (and other all other policy) @ Clinton levels b/c that followed the longest expansion ever. I would think Longest expansion > second longest expansion > third longest expansion....... what am I missing?

I feel as if this post implies that the only factors leading to the mentioned periods of economic expansion were due tax reform. Let's not forget the efforts of the Fed to end the inflation of the late 70's/early 80's. As a central bank takes a firm and effective stance on rampant inflation, it is highly likely that expansion is to follow.

Additionally, as Stephen said, the top marginal rates that Kennedy slashed were around 90%. For Reagan, they were around 50%. Also, there isn't nearly enough focus on the tax rates that really matter - the non-affluent. I recommend reading Taleb and realize that history is not (necessarily) a very good indicator of the future.

In reference to the "lost decade", I'm thinking if the Fed would focus on a meaningful macrovariable, maybe we wouldn't experience a Japan-scenario. (I'm hearing chants of: NGDP! NGDP! NGDP! NGDP! in my head)

ArmChairEconomist said...

Parker Critique <<<<<<<<< Lucas Critique

Anonymous said...

Looks like FedWatcher hit the nail on the head.