Ron Amundson’s Political Blog

I agree that the intent of this makes sense. “To get our economy back on track and to create jobs now, we must fundamentally shift power from politicians to small business, from lobbyists to entrepreneurs, and from bureaucrats to investors.” However, tax policy, while it plays a role, is not the root issue, demand is the problem, its collapsed, and as such, there exists huge overcapacity. Here are four ideas from American Solutions, they make for good politics talk and soundbites, but do little as far as the demand side, and some are counter productive. What worked in the 80’s was based upon the history leading up to it. Considering where we are on the Laffer Curve today, such policies just dont seem to add up.

1. Reducing payroll taxes… Fostering greater consumer liquidity through tax policy can help… but more likely, the first proposal would be used by the average Joe for paying bills, and safe investing for the wealthy class rather than fostering an increase in demand. The end result, government debt increases multifold, and the citizens receive very little bang for the buck. Shrinking govt to absorb the costs is not a option, as there are too many hands in the cookie jar.
2. Eliminating Capital gains… well it makes for a good soundbite, but a good accountant and tax lawyer already have this covered. If anything, it would serve to shift the largest tax burden even more to the middle class than it already is. The flat tax would serve as a much greater leveling agent.
3. Reducing the corporate tax rate....The corporate tax rate again is subject to having a good tax lawyer, and accountant. It makes for a good sound bite, but does little in the demand arena. Its a good thing in the finance world, but does little for production of tangible goods and services in the current economic situation. I think the finance sector has been bailed out enough.
4. Eliminating the death tax… The death tax needs reform, but not removal. Removing it, being inheritance serves to keep money from being productive, at least as shown by history, would be counterproductive. The paperwork burden needs to be addressed, as do the limits.

Realistically, only a black swan will make any difference. Short of such, a long term L shaped recovery with little change in employment is the likely outcome. Thus, the questions should be asked, what can govt change to increase the probability of black swans, and what can government do to foster employment in the short term.

Encourage, rather than discourage competition, and new market creation

Vast sums of policy and regulations are in place to protect the status quo from competition, and to limit new market creation. This has to end, keeping in mind, the citizen needs protection, not the status quo. Anti-trust legislation needs to be enforced with a much larger stick.

Encourage, rather than discourage hiring for small business and startups, defined as those with under 50 employees.

Having been down the hiring path a few times, soundbite folks would be astounded to realize the costs of hiring an employee. The total cost to an employer is at a minimum 1.5 X take home pay, and 2.5 multipliers are not unrealistic in some sectors. The paperwork burden can be substantial, and the pitfalls of mistakes are huge. Shifting workmans comp, and UI somewhat to the employee side would also work wonders, even if our net costs remain the same, being such would be visible. Addressing the healthcare issue, with the proposed 8% employer contribution limit, and access to insurance will do wonders in this regard.

Encourage, rather than discourage local hiring, do not encourage outsourcing.

Tax policy encourages outsourcing for the most part, rather than local hires. This has to end… but its an impossible sale. The flat tax model would level the playing field, but being it takes the ability to influence social policy via taxation away from govt, it would never fly.

Encourage, rather than discourage early stage investing, for all people.

Currently, SEC regulations limit early stage investing to qualified investors. Only those with a high net worth can play, subject to some minor exceptions. The idea was to protect the little guy, however, as history shows, the little guy was not protected from Wall Street greed… Also, the massive overhead involved in early stage fund raising, serves as a significant barrier to entry for many. Obviously balance is needed.

Encourage the creation of startups and small business, defined as those with under 20 employees.

SBIR overhead burdens are substantial, add in small business being defined as those firms with under 500 employees, proposed institutional investors, and venture capital allowances, and a small startup firm with an idea, and limited money is out in the cold. If the intent is to encourage small business innovation and competition, the SBIR can be pretty counterproductive with such policies.