Monday, March 4, 2013

Fixing the Ecomony

This government has been doing things wrong.  They are keeping with political considerations that tend to exclude the needs of the people while ensuring their own power and standing... along with their friends with deep pockets.  If they really wanted to re-start the US (and world) economy they would have done some very different things.

My best guess to fix the recession problem in 2009 would include:

1. Breaking up the "too big to fail" banks as they did with Atlantic Telephone and Telegraph (ATT).
2. Re-write the mortgages of families to the new lower value: with credit for principle paid.
3. Instituted a flat tax rate with no loopholes beginning at an income of $40K per family.
4. Cut corporate taxes to 20% with only legitimate expense deductions.
5. Keep dividend taxes at 20%.

Here's why.

Too big to fail

The "too big to fail" scenario doesn't allow for failure without costing the American people too too much.  Simply look at what did happen when the too big to fail corporations failed.  Here is a short list of what happened.

1. Many families lost their homes, their jobs, their savings, their equity in their homes and had their credit rating smashed.

2. The banks received taxpayer dollars, real and borrowed, to bail them out.  They did not loose their jobs, savings, homes or even their credit rating. And, to add insult to injury, the grab the real estate for resale and return none of the money families paid to them.  It was and is a win win for bankers.

3.  With all of the real estate being readied for re-sale, the housing market took a steep plunge.  New homes in my area stopped being built for at least 2 years.  No need.  Real estate agents had thousands of empty homes in their areas just sitting and waiting for buyers.

4.  The bankers then saw, by their own standards  that the economic conditions were not very good for investment, so they curtailed their investments.  Look around.  Are they wrong? (no)

Re-writing mortgages of families

It would be only fair, in my mind, if the mortgages were rewritten to reflect the actual current value of the home and insist that the buyers continue to own their homes.  The mortgage holders had already claimed they lost on third to on half of their investments.  So why not adjust the mortgage itself?  I would add a moratorium on home payments until people were receiving paychecks again.  The mortgage holders had already wrote off one third to one half of the value of those investments, so how would keeping the homeowners in the home with the prospect of receiving their mortgage payments at some time soon. This most likely would have the following affects.

1. There would not be a flood of empty homes on the market that would depress the housing market. home values would have stabilized much quicker.

2.  Homes would not stand empty; furthering their loss of value.

3. People would not be homeless and dependent on government for housing, along with food and other necessities.

4.  People who work hard to achieve some success, including the dream of home ownership would not have had the rug pulled out from under them by their government and lean holders.

5.  The economy would have picked up much faster without a depressed housing market.

6.  People would be motivated to find a job in order to continue to keep their homes. The 99 weeks of unemployment benefits would not be necessary.

The current income tax situation

The government, under plans that were demanded by DC politicians started debating the expiration of Bush era tax rates and taking the country to the brink of shutting down the government in 2010 and 2012 (election years), and keeping an air of uncertainty in corporate, along with personal, financial planning.  It was and is yet another good reason for bankers not to loan money to business or to individuals who are able to buy homes or invest in their companies.

Politicians insist on raising the taxes on the wealthier Americans to make up for their overspending and borrowing. As bad as it is, they would continue using their progressive tax system.  

Frankly, I see nothing progressive about it other than the progressively higher rates that punish success and reward mediocrity and failure.  Why do we punish success?  That makes no sense to me.  The successful took nothing from me or my family, so why should I care how much they earn?

Here is why I would dump the entire income tax system and replace it with a Flat and Fair Income Tax

1. It is unfair and unconstitutional.  Equal treatment under the law is one of the concepts and practices that makes this country greater than all the rest.  A people cannot be free when the government picks life's winners and  The idea of equal treatment under the law and that was made clear when the Fourteenth Amendment was ratified. The current tax system classifies Americans by level of earnings and then taxes us at a different rate depending on what class our earnings place us in.  These classes are entirely arbitrary: decided on through compromise by people who exclude themselves from many laws they impose on us. It is unfair and therefore unconstitutional.

2. Our politicians use the tax code, not only to fund their pet projects, but to influence how we act as individuals.  The income tax code gives a monetary break if you conform.  Save for retirement: Discount. Get married: discount, have children: discount. Buy a home: discount. Have more children than you can afford, Refund!

Don't get me wrong, if the government were lawfully permitted to categorize individuals and treat them differently, then these rewards for doing something you were probably going to do anyway would be a wonderful thing (we could all use more of our own money).  But, as it is now, these are just misguided talking points the politicians use to sell themselves to you during election time.  The proof is this: Knowing what I think about the tax code, would elect me to be your representative in congress?  Probably not, so don't get any ideas about that!

Recently, we've had an emphasis on procuring health care insurance   So why is it such a non-priority in the tax codes discount and exemption scheme?  I do not have the answer to that question.  But it just seems a little fishy that we are only allowed to deduct the amount we spend on health care that is over 7.5% of our taxable income.  And the Affordable Health Care Act will raise the cut off to 10% in a few years. (Forbes- Tax Breaks For Medical Expenses Under ObamaCare, 11/26/2012)

Flat and Fair Tax

1.  A Flat and Fair Income Tax would still extract much more from "the rich" than it takes from Middle Class and poorer Americans.  if a flat tax were set at 15% it would work like this.

Earnings                    tax

$50,000.00             $7500.00
$500,000.00          $75,000.00
$1,000,000.00       $150,000.00
$500,000,000.00 $750,000.00

2.  While the comparison above is made to be easier to understand, I believe that people who do not earn enough to support themselves and their families should not have the additional financial burden of paying income taxes to the government.  An equitable number, say $40,000.00 for a family of three (two parents and a child) , would be the lower limit on taxable income. Of course the starting point would be negotiable.

3. It would remove all of the document hoarding, jumping through hoops to find deductions, credits and loopholes in the tax code, that currently have Americans scrambling to act and spend in a way approved by the political class and their bureaucrats.  There would be no one paying zero income taxes, except those who do not make enough to support their families.  Off shore accounts to hide earnings would be largely unnecessary.

Cut corporate taxes

Let's fact the facts of the modern economic playing field: US Corporate tax rates are among the highest in the world at 35%.  President Obama has said he would lower it to 28%, but has yet to implement that reduction.

US companies are moving overseas, according to the Wall Street Journal  These companies have an obligation to their stockholders and owners to Stay in business and to be profitable.

When the government burdens them with higher taxes (among other inhibitors) they will rightfully find a way to minimize the impact.

Keep dividend taxes at 20%

When new businesses start up they need capital to operate long enough to become profitable and self sustaining... or fail.  This capital comes from investors.  Investors invest to make a profit on their loans.  The more money they have to invest, then more capital is available to invest. The companies and businesses that have access to those investors the more jobs are created.  More jobs equals more income taxes being paid and fewer people needing assistance from the taxpayers.

For those who are concerned that a relatively low tax rate would reduce tax revenue, it's rather simple.  The revenue will be made up from more jobs and less spending.  That's how Reagan, Clinton and Bush did it. Before the crash, President Bush added over 7 million jobs to the economy.

Too Bad

Too bad these kinds of ideas weren't implemented in 2008 when the economy came crashing down.  If they had, I believe that by this time (2013), the economy would be buzzing along at double or triple the current anemic growth rate of around one percent. The unemployment rate would back down to around 5% (without numbers games the government plays on this), wages would be up, deficits would be down and there would have been no fiscal cliff drama, no Bush tax cuts battles (twice) and no manufactured "sequestration" crisis.

It could still be implemented... some of it anyway.  But, even though I am an optimist in most things, this one doesn't look so good.  Too many are enjoying the receiving better then the giving and too many are are looking out for number one.  And I do not mean the people.  The people are too busy scrambling to to keep their heads above water to pay much attention to Washington DC's machinations and that's too bad. 

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