I always find it interesting how ideas travel through society. Sometimes they are infectiously passed along like a virus; other times they spontaneously appear in multiple places at once, as an obvious and logical response to situations.
This has been on my mind this week. The second slowing of the US economy, the problems in Europe, the slowing (not slow down) in China, all trace their path to the overhang of the credit crisis.
Some of the policy conversations involve things we have discussed before: Tax-Free Repatriation for overseas corporate cash, Payroll Tax Holiday, Infrastructure rebuild, the 100% capex deduction.
We were willing to spend trillions on Iraq, and trillions on bailing out reckless bankers, and we are still spending $100s of billions of dollars in an ill advised back door bailout of banks bad mortgages by moving them at full value onto the taxpayers via Fannie/Freddie. Why not spend trillions on the national economic infrastructure instead?
If you were going to give me a 10 figures to stimulate the US economy so that the next expansion could proceed, here's what I would do:
1) Greencard for Buying a home: This idea has been floating for a while, and its time to give it serious consideration. The problem with the US housing market is simply to much supply relative to the outstanding demand. That can be brought into balance by finding more qualified buyers. Post 9/11, we tightened up immigration rules excessively. Its time to bring in more scholars, engineers and well educated people from the rest of the world.
2) Corporate Tax-Free Repatriation: US corporations are sitting on trillions of dollars of cash in their overseas divisions. A one year tax holiday to bring that back to the US. It can be structured in tiers (0%, 5%, 10%). The goal should be to bring to the US a trillion plus in overseas profits.
3) One Year Payroll Tax Holiday: The Bush admin overlooked this when they did their version of the accelerated depreciation bill, emphasizing cap ex over hiring. We can increase job creation by Taxing it less. A 12 month employer FICA holiday will encourage job creation.
4) Pure Science R&D Program for Alternative Energy: Gains in the basic science of solar energy conversion, battery storage, alternative biofuels, etc has been incremental. The private sector does not patience for multi-year or basic science R&D.
5) Roads, Bridges, Tunnels: Why does the US love big construction projects, but dislike basic maintenance? Much of the transportation grid in the US is falling apart, in need of a massive repair. Repave everything, and turn our roads into showcases.
6) Electrical Grid Refurbishment: This is both an economic and national security issue: The electrical grid is an unreliable mishmash of public and private ownership, vulnerable to both blackouts and cyber-attacks. It needs to be upgraded yesterday.
7) Airports, Ports: Many of the older US airports are simply awful compared with European and Asian facilities — some US airports look like they are from 3rd world countries. Issue bonds, split the costs with the Airline industry, and make US airports globally competitive.
If we are going to deficit spend on ill advised wars, unfunded tax cuts, new entitlement programs, why not spend money on programs that leave behind a viable infrastructure? Other than the Payroll tax holiday (which offsets the accelerated depreciation law), all of these items leave behind a valuable infrastructure that can be built upon. Even the Housing idea will allow the US construction business some measure of repair.
The focus on Deficits today is absurd, forcing us towards another 1938-type recession. The time to reduce the government's economic deficit and footprint is during a robust expansion, not during (or just after) major contractions.
During the de-leveraging following a credit crisis is the worst possible time to be deficit obsessed.
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Agree that we need additional long term stimulis but the tax free corporate tax free reparation was tried previously and it did not create jobs. The money was deployed to create jobs in the emerging markets. You can’t keep it here by legislation . Also wouldn’t the payroll tax holiday impact how long socil security and medicare are funded?
The last payroll holiday allowed dividend increases and share buybacks, the former had a minor stimulative effect, the latter none whatsoever.
Rules accompanying Repatriation should be more rigorous
Money is fungible if you restrict reparation funds they can allocate other funds, same effect as if reparation funds were exported.
“During the de-leveraging following a credit crisis is the worst possible time to be deficit obsessed.”
You’re assuming the economy should work for the greatest number of people.
Not if one is a billionaire nouveau riche whose only consideration in life is wealth preservation, perpetuation unto a dynasty and newly acquired belief that he/she’s got all this wealth because he/she’s so damn smarter than the rest, hence, the imperative necessity to preserve and reinforce the existing order. Deficit reduction will work wonders toward that goal since it’ll make peasants much more obedient due to work scarcity and generally depressed economy. Depressed for them of course, not for our wealthy f*&k…rent extraction and lobbying being his specialty.
BTW, there is no way this economy will jump start as long as control fraud isn’t wrestled out of the system. See the Harry Shearer’s interview with Prof. Bill Black at Le Show on NPR 01-May-2011.
Furthermore, the infinitely stupid and quasi-criminal SCOTUS decision in Janus Capital will need to be reversed by an Act of Congress.
http://www.interfluidity.com/v2/1923.html
Schooling the SCOTUS on how the mutual fund industry works would be a good thing too, because these asshats are obviously beyond clueless.
Forgot to mention the toxic role of the non-regulators in the US. I mean, for a usually very self-controlled lady like Yves Smith to title her last post on the OCC this way:
OCC Gives Banks Another Blow Job
http://www.nakedcapitalism.com/2011/06/occ-gives-banks-another-blow-job.html
How fed up does one has to be?
“During the de-leveraging following a credit crisis is the worst possible time to be deficit obsessed.”
But it gets votes from the ignorant. It wins elections. How do you fight against that?
All good ideas except #1. And no, it would not stimulate the construction industry, because the massive overhang home inventory would preclude any appreciable amount of new construction.
The Green Card idea is interesting. I think the current immigration system is a joke, I have a Green Card and went through all sorts of ridiculous steps to get one while I could have saved a lot of time and money just not bothering; I encounter many illegal immigrants with driving licenses and bank accounts, so what’s my gain, the chance of being deported next time I punch an asshole in the face?
Not giving up on the Green Card but making it easier to obtain and have a system of – pay as you go – for other immigrants; you could purchase a 6 months working permit rather than pay a crook at the Mexican border to smuggle you through. It would also make a difference in average wages, dragged down by a cheaper illegal workforce.
You can offset every $ of infrastructure with a $ of defense savings. Why in the world do we still have troops in Europe and Japan?
I’d also look at some sort of war-bond type selling effort for infrastructure bonds. Offer a slightly higher rate (limit holdings in $ and to individuals only). Would create an ownership interest in the projects (and help sell some bonds!).
>>During the de-leveraging following a credit crisis is the worst possible time to be deficit obsessed.>>
Worst for whom? If you’re a Republican trying to make sure Obama is a one-term president (Mitch McConnell says this is their #1 priority), and you want to slash the social safety net, this is a great time to be deficit obsessed.
If profits are repatriated and immediately spent on capex or hiring people, isn’t it a net wash? i.e. no net taxable income?
It seems to me that this “companies can’t hire because they can’t repatriate their profits” is just BS.
What can’t happen is profits can’t get repatriated and paid out as dividends or share buybacks without creating a taxable event. So the real argument is “corporations can’t pay shareholders profits without taxation.” Admittedly, there is a minor stimulative effect based on the idea that shareholders might spend some of the profits, but there is no guarantee of how much of that would be spent in the US or on activities that create US jobs.
“We were willing to spend trillions” “We”???? No, not true.
Items 2 and 3 are basically disguised continuations of corporate giveaways.
5, 6, 7 I think are good ideas with the caveat that much of the US infrastructure is really headed in a bad direction, log-term. It is set up to encourage – to require – private auto use, long distance commutes, suburban housing patterns and other things that bite us when oil cost rises.
4 is interesting, but I’m pretty sure there is less there than hope suggests. This is not a neglected area, just an area where we are up against the realities of chemistry and physics and they do not bestow free lunches.
Why not start taxing corporations on their overseas earnings just like individuals? After all if corporations now have the same free speech rights as people…With equal tax treatment we will remove the incentive to keep cash overseas. On second thoughts we could go further and penalize corporations for “sheltering” the cash overseas. Point is why do we tend to treat corporations with kid gloves as if they are so sensitive?
Mark Wolfinger: It doesn’t. People want jobs. It is Versailles that is debt obsessed. They are being paid by their corporate masters to be.
JevonsParadox Says:
"Why not start taxing corporations on their overseas earnings just like individuals? After all if corporations now have the same free speech rights as people"¦"
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