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Discussion: (9 comments)

  1. If, as you do, one fails to understand what creates growth, then your suggestions to create growth are no likely to be successful than a doctor who doesn’t know why a patient is sick would be in curing that patient.

    Growth, or the absence of it, is not a function of the tax code. Growth is the result of business and consumer confidence, and in particular, those businesses and consumers who have money to spend/invest. Confident businesses invest in new staff, products and equipment. Confident consumers spend their money rather than stockpiling it for future emergencies.

    Tweaking the tax code can not create confidence. Nervous businesses are not going to buy equipment, regardless of the tax rate, if they don’t think they’re going to get a positive return on their investment. (there might be a few cases where a lower tax might shift the short term ROI on a particular project from unprofitable to profitable, but in most cases, a lower tax would only reduce the loss).

    Furthermore, since economic growth is a function of the amount of money in play, tweaking the tax code in a supposedly revenue neutral way only shifts money between segments, it doesn’t lead to an increase in the money being circulated. Taking away a deduction from one group would, all other things being equal, result in a contraction of spending and confidence in that group. Giving that dollar amount of deductions to another group creates growth only to the amount of the contraction in the now-disfavored group (to illustrate, taking away $20,000 in deductions from me to give $20,000 in rate reductions to another group only shifts money from one pocket to another, it doesn’t result in any more money being invested or spent).

    If you want to create growth, you have to look at what creates confidence and, in these times, what saps confidence. Tweaking the tax code won’t increase overall confidence. Eliminating the fear of higher taxes, regulations, gas and food prices, and the frustration over stagnant house prices would do far more to boost confidence than any revenue neutral tax reform.

  2. Max Planck

    “Tweaking the tax code can not create confidence. Nervous businesses are not going to buy equipment, regardless of the tax rate, if they don’t think they’re going to get a positive return on their investment. (there might be a few cases where a lower tax might shift the short term ROI on a particular project from unprofitable to profitable, but in most cases, a lower tax would only reduce the loss).”

    Bingo. Someone else gets it. While Mr. Pethokoukis plays with his tax bracket thermostat, moving it up and down by a degree to see if can cop himself a chill, he indulges the fantasy, for him and his readers, that this is all that makes an economy.

    Of course it doesn’t. And naturally, he skirts the issue of corporate taxes, even as firms like General Electric pay less than 10%, while someone who cleans toilets pays more.

    At this point, if you don’t think Mr. Pethokoukis is anything more than a sock puppet who is given a salary at this (cough) “think tank” to push the agenda of those who would benefit most by it while punishing the rest of the country, you have serious comprehension and cognitive difficulties.

    You play with those marginal rates, Jim. Like a kid building his little castle with wooden blocks.

  3. vipertrunk

    How about this: don’t have a child unless you can afford it. Stop paying people to have children they can’t afford. Stop taxing me to pay for your children that you can’t afford. Stop giving preferential tax treatment to people who have children they can’t afford (AND people who have children they CAN afford.) Stop taxing me to pay for the schooling of other people’s children. You pay property tax forever yet your kids are in school for only about 13 years. Based on the state of our educational system, you are getting ripped-off even for the 13-years your children are in school. Sending your children to public schools should be classified as child abuse in most locales. Why am I paying to abuse your children? Pregnancy is a 100% preventable condition. If you can’t afford to feed, clothe and educate a child: don’t have one.

    1. Difference is vipertrunk is that majority of Americans look at education system as part of infrastructure not as a privilege.
      Even when my kids are out of school and long since grown and having children of their own, yes I will stay pay taxes for a public education system. Why because the next generation will be needed to continue in development, innovation and leadership for future.
      What welfare laws pay people to have children? FInd me a state that has incentives to have more children. Perhaps you should research your facts first.

    2. Wow, you really don’t get Stein’s point one bit do you?

      The issue Stein is tackling is not “people are having children they can’t afford.” Rather, our entitlement system is biased against those with children, and we have a serious demographic problem.

      Yet, thanks to a lot of distortions in the tax code and other government spending, having a child is an act punished by the government, when we desperately need more children.

      The Stein plan simply reduces taxes for those with children (one can only eliminate their liability, they can’t turn it into positive income from the government) since they are the ones who really need the relief.

      As far as education being funded, let’s remember, Adam Smith was a strong advocate of a national education system, and compulsory public schooling for children. He viewed the benefits as far outweighing the costs. And if you can add innovative charter schools and religious schools to the mix, more power to it.

      You really might want to read up on these various plans before attacking them.

  4. dwinfield10

    Ahh, Steve and Max, getting the confidence genie and the other fairy-tale keepers of the “animal spirits” to give us a good start is all that is needed to simply get the economy going. Some ethereal entity to wave a magic wand over the country, as it were. What are you two waiting for? Just call up Geithner and Bernanke and tell them to ratchet up the confidence… Perhaps they’ll say something lucid, in response to you two, like tax policy fundamentals (pro-growth, pro-business, pro-investment tax policy) actually matter for long-term growth (we can wish). Confidence is derived as a result from one’s estimation of more tangible facts “on the ground”. Having an administration, such as this one over the last 4 years, that is just brutally anti-business coupled with a overly oppressive tax policy are tangible things that when improved upon will serve to increase overall confidence.

  5. There is no confidence genie, but that doesn’t mean the single biggest factor in economic growth is confidence. Growth only happens when production and consumption increase, and that doesn’t happen if people are excessively worried.

    As to what a confidence genie, if there were such a thing, could do? Remove the threat of tax hikes (the fear of billions of dollars getting sucked out of the private sector is definitely fear inducing). Roll back poorly written regulations that create confusion as to what is and what isn’t legal. Remove the threat of company busting litigation if a company were to so much as have a hiccup. Get a President who not only doesn’t threaten to stomp on the neck of businesses he doesn’t like, but who celebrates those who take risks to start and grow their businesses. Remove the artificial props to underwater and delinquent homeowners which only delay the uncertainty in the housing markets. Get an energy policy that promotes cheap energy regardless of the source.

  6. Interesting article. Just read a whitepaper on the new tangible asset regulations, it offers very good information readers will find it very informative @ bit.ly/T31Yxi

  7. Joshua Grass

    While I like this plan I see two issues:
    1) This is going to increase the number of people paying no income taxes and they will be labeled as freeloaders and deadbeats
    2) You’re going to be massively increasing the taxes on people at a time when they are expending a huge amount of money on college for their children (they will no longer receive the child credit and they will be deducting large amounts of money from savings – both of which trigger large increasing in the amount of taxes they pay). While the intent might not be to reduce the number of people going to college, I think that will be the effect.

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