We are now experiencing a financial crisis that was caused by too much debt, as a result of too much spending and too much borrowing. Due to our loose monetary policy that discourages saving and encourages speculating, we are now one of the most indebted nation in the world. What are our trusted politicians doing to handle all of this? Let’s spend and borrow our way out of the recession! Let’s open the credit lines so that citizens can borrow more money to spend! Let’s have a few hundred people on Capital Hill allocate hundreds of billions of dollars of capital rather than letting the private market of 300 million people decide how to use it. Obviously, if a family is in trouble for too much debt, the best solution is to have them take out credit card loans to remodel their house. Duh?
Ok, enough of the Keynesian hogwash. Here’s a real stimulus plan that would work: how about we suspend the income tax for a year? Instead of helping some people out (especially those with the DC connections), this would stimulate EVERYONE by giving all workers an instant pay raise in their wages. Imagine that instead of working for the government for 4 months out of the year, you got to work for yourself the entire year and keep most of your paychecks? The economy would start improving immediately. Best of all, it would be a simple plan instead of some 1000 page omnibus bill that hardly any politician has completely read or understood.
Unbeknownst to most people, cutting the government revenue by about 40% (the amount income taxes brings in) would mean going back to federal revenue levels of 1999. Obviously, this would mean that a lot of government programs would have to be cut and defunded, and the IRS would have to be told to go on vacation. But after a year, I think most people would realize that most of the government programs forced to be cut were never needed in the first place, and that the IRS should be told to never come back from their vacation. Once the economy is booming again, why would we ever want to slow it down by adding the income tax back? Would it be because all the poor are no longer being taken care of ? Currently, the US is one of the most generous nations as far as charitable donations. Therefore, with no income tax can you imagine how generous people would be? In addition, people would have the extra freedom to spend their money how they want, and could opt to give to local charities of their choice and actually see how their money is being used instead of having it flushed away to Washington where it goes into a black hole, never to be seen again. Charities, churches, and other non-profit organizations already can take care of the poor and needy much better than any public service, and they do it much more efficiently. They also help build stronger communities, giving people the chance to help their fellow neighbors and local families directly instead of having Washington do it indirectly.
According to Milton Friedman’s theory of Permanent Income Hypothesis, people base their consumption patterns not by current income but by their longer-term income expectations. This is why any government stimulus checks in the past have always failed, and why this stimulus plan would work. A one time government check just gives a short term increase to your income, but a suspended income tax gives long term increases to your income. This is similar to the adage of giving a man a fish will feed him for a day, but teaching him how to fish will feed him for life. Since people will expect more money each paycheck, their spending habits will be readjusted due to this information. Consider this free market stimulus package and the one we currently have. One rewards workers, creates more jobs, and gives people more freedom. One punishes workers (by increasing taxes and inflation), makes more people reliant on the government, and limits freedom (by giving more power to politicians). Seems like an easy and obvious pick to me which stimulus to choose.