April 10th, 2015
The employment numbers are up and then down. Consumer spending is strong and then weak. Student loans are up, and they never go down. What does this mean for the prospects for economic growth in the U.S.?
One thing is for sure — without vibrant consumers, our economy will not grow at a robust rate. And without a decent level of earnings and rising wages, there will not be vibrant consumers.
So what to do? Here’s one suggestion — cut income taxes for the middle class! They’re the ones who are responsible for the vast majority of the day-to-day consumer spending in the country. They’re the ones who need to save month in and month out for their own retirement. They’re the ones who are burdened by the albatross of educational loans.
All we seem to hear about is how the tax rate for corporations is too high, and capital gains tax rates need to be cut. Nonsense!
Let’s look at the economy in three parts: the corporations, the 1% and all the rest.
During the Great Recession, Congress, as part of its enactment of the stimulus package, gave a special tax break to the corporate sector, in the form of what was called “bonus depreciation.” It was meant to entice companies to engage in capital spending projects that they might not otherwise have made. Frankly, that was a bit of a silly notion. Companies do not (and should not) make long-term investments based on depreciation schedules.
Furthermore, if it was meant to help an economy in dire straits, why is that tax break still in effect seven years later, when corporate profits are at an all-time high? For each of the last several years, Congress has deliberately allowed this benefit (call it “corporate welfare”) to stay on the books, enabling many giant and highly profitable companies to reduce their federal income taxes. It was an ill-fated idea that has been a boon to corporate cash flows and a bane to the coffers of the U.S. Treasury.
Quantitative easing by the Federal Reserve has been a stimulus to the stock market, allowing the already well-to-do (call them the 1%) to become even wealthier. But relative to the vast population as a whole, the uber wealthy can’t spend enough money to impact the economy. Sure they can buy $100 million pieces of art and more private planes and make worthwhile contributions of appreciated stock to good causes, but most of their wealth is invested and turns into even more wealth. I’m not saying that this is evil, but it certainly lacks as a meaningful stimulus to the economy.
Since the Great Recession, the vast middle-class population of this country has found itself squeezed between meager salary increases and rising costs for a wide array of items that somehow don’t seem to be reflected in the CPI — rising co-pays for doctors and medicines, insurance premiums, real estate taxes (based on the increasing value of a house they have no intention of selling), sales taxes, airfares, water and on and on. The one bright spot has been the fall in the price of energy, but who knows how long that will last?
So let’s get to the point. How about a massive income tax cut for the middle class? Something that would hit their pocketbooks in a real and positive way right now? Let’s start with eliminating all federal income taxes on the first $30,000 of wages. According to the tax form calculator (www.taxformcalculator.com), that would provide an additional $2,493 of spending money each year to every wage earner.
Given that there are about 77 million wage earners in this country, that would put an additional $200 billion in consumers’ pockets, or 1.2% of our nearly $17 trillion GDP.
If someone complains that the government can’t afford to lose that $200 billion transfer from its coffers into the hands of consumers, my advice would be to end the bonus depreciation for capital spending; then the spigot from corporate taxes will start to flow once again into the U.S. Treasury.
We are entering the silly season — political gamesmanship for the throngs who think they want to become president in 2016. Let’s see if any one of them addresses this issue of such economic and social importance. If one candidate is bold enough to tackle this issue in a constructive and comprehensive way, I’ll vote for him or her.