Monday, January 19, 2009

Solving the Economic Crisis In One Easy Step

I’ve been meaning to write this for about a month. I waited long enough and the Wall Street Journal wrote it for me.

Those of you who have kept up with this blog know that I’m no fan of corporate taxes, so my solution should come as no surprise.

Immediately cut the corporate tax rate to zero. Do whatever steps necessary to attempt to guarantee that they won’t be raised again. Ever.

This is far better than any bailout or any “stimulus plan”.

The only thing that’s going to stimulate the economy and keep it moving forward is job growth. The only way to guarantee job growth is to guarantee more money in the pockets of employers. The simplest and most effective way to do this is to stop taxing them.

Then they can hire more people, stay in business, give raises, produce more widgets, cut prices on their widgets, and in general become more healthy.

The WSJ says it better:

The positive impact on corporate-credit markets, the stock market, the attractiveness of the U.S. to foreign investors, and the willingness to take business risk and create new jobs would be immediate. Capital-gains tax collections would rise. Capital flows would be in the hands of those who are driven to build businesses and permanent jobs efficiently instead of pushing that capital through a government pipeline with endless amounts of friction. If the U.S. is to lead the international economic community out of this crisis, this is the place to start.

Yes, I realize there are some problems with this. Everyone in the country would immediately attempt to incorporate themselves. You’d have to make rules on incorporation more stringent, and you might even have to put some kind of a temporary moratorium on new incorporations (I’d hope not). And this is a problem in itself. Who would it hurt most? People trying to start up new businesses. So, there’s definitely a fine line to be walked here.

As the WSJ points out though, it’s not just jobs. It would create foreign investment, and reduce the oversea capital drain.

The AP is reporting today that 83 of the U.S.’s top 100 corporations have oversea tax havens. Frankly, I’m surprised it’s not 100 out of 100. If these companies didn’t have a need to bury their capital overseas, they could reinvest it here locally. And how would they reinvest it? Again, jobs, higher production, lower end costs, more purchases from other companies, etc. All the things that a growing economy needs.

When Daimler-Benz and Chrysler merged, there was considerable debate as to whether the new company would be headquartered in Michigan or Germany. We know the end result. Daimler-Chrysler moved to Germany. The reason? The unbearable corporate tax burden in the United States. If not for that, the company would’ve been Chrysler-Daimler, and might still be a growing concern.

As the WSJ correctly notes above, the corporate tax rate in the U.S. is the highest in the world. This is why companies keep moving overseas. This is why companies don’t want to move here. We have to do whatever is necessary to make the U.S. attractive to businesses again not only to get out of the current economic crisis, but to continue to stay a world leader and to have a high standard of living.

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