Tax Holiday: A Real Stimulus
The “pork-a-polooza” stimulus bill has all the hallmarks of being yet another moribund government attempt to substitute coagulated pet projects, congealing now only under cover of a “crisis”, for true economic stimulus.
Some have suggested that checks from the government would work better to stimulate the economy quickly, but our recent history shows that people just save the money. Last summer’s stimulus checks did not achieve a stimulative effect. People saved the money.
I also have my doubts about reducing income tax rates from 10% to 5% for the lowest wage earners as the Republicans proposed. When withholding rates are adjusted, the difference is $20 to $40 extra per week. While nice, it isn’t enough to truly stimulate the economy in the short term.
A better idea is a tax holiday. Issue an immediate cut of 25% across the board in corporate, income, payroll and every other tax the federal government collects. Pass a law reducing the tax liability by that amount when taxes are filed, and suspend withholding any taxes from income for three full months, including the payroll tax that saps nearly 8% of every worker’s paycheck (and must be matched by the employer).
This can be done quickly, and the average worker would see about a 30% increase in their weekly wages. Unlike a check that can be endorsed to a savings account, the increase in weekly wages would find its way into the taxpayer’s daily life, the very thing an economic stimulus needs to do. And it would happen quickly.
The 25% reduction for businesses, the self employed, corporations, etc. could be shifted to accelerated capital depreciation that can be rolled forward if the business is taking a loss … and therefore owes no taxes this year. The assurance that their capital expenditures can be taken as a tax credit against any future taxes as soon as they are incurred would spur business spending.
Rep. Louie Gohmert suggested a similar plan in Human Events. His plan called for a two month suspension of taxes, but a full quarter is better; three months is a long time to a consumer, enough time work up a down payment for a car or home.
Of course, Gohmert’s plan didn’t gain any traction because it doesn’t have the cynical goal of rewarding your campaign contributors.
