Monday, January 17, 2011

How To Fix America's Economy, Simple Really

Regardless of what caused the 2007-2009 US recession and its lingering effects, the fix is to spur the US economy and cause job growth. I'll discuss the cause of the recession at the end. It's not as immediately important as digging us out of the hole.

Outsourcing jobs to cheaper labor in other countries continues to be a cause of job loss, and some predict that companies are finding they can do just fine with less employees which means many of the jobs lost in the recession won't be coming back.

American economy cannot thrive if Americans don't have jobs or money. If Americans had more jobs and money, they would spend more causing business to boom and creating more jobs. It's a good cycle, but it's also a chicken and the egg question. So far, people have been saying chicken when they should have been saying egg.

The answer is give companies a tax break on the wages they pay to US workers. I suggest a tax break equal to 110% of the wages up to the value of an $80,000 yearly salary. A number of things will need to be done in addition which I will detail below, but the basic idea is that companies will hire more US workers and pay their US workers more in order to get tax breaks. Americans will then have more money to spend which will cause business to boom and require more jobs. It's true that at first some companies might just hire employees to watch paint dry in order to get the tax break, and there is nothing wrong with that.

To make this work, we need to first close the exploited corporate tax loopholes and tax shelters since some of the wealthiest companies pay very little in taxes. Possibly, eliminate many of the write-offs and deductions they use. They'll immediately be saving money by getting tax breaks on wages paid to US workers and can save more by hiring more and paying more.

We'll of course need to conduct a study of business in the US to determine the best numbers to use and see if any industries should be exempt. The 110% and the $80,000 I mentioned are just a starting point and are adjustable. It would mean the company would pay $88,000 less in taxes for each employee it paid $80,000. The numbers could very easily be 150% and $100,000 or 75% and 60,000. I'm just presenting the system here.

Another limit would be that a company will not get a tax break on wages paid to an individual who is already receiving the maximum amount. Someone will not be able create numerous shell companies to each pay him an $80,000 yearly salary and get a tax deduction for each one. Some might argue that nobody will get paid more than the highest amount that gets the tax break, but that won't be true for two reasons: 1) People get paid now without such a system in place, 2) Companies will pay more for the best workers.

The best part is that this system doesn't restrict free trade or outsourcing. I'm not talking tariffs. It just encourages making Americans wealthier. With that will come less government assistance programs and subsidies that the government has to pay which will be good because the government will likely be getting less money in taxes. It's not likely that if someone has a choice to get less than $10,000 a year on welfare and make $40,000 a year at McDonald's that they would choose to stay at home. I also predict this would reduce crime.

Unfortunately, none of our leaders (politicians) are doing anything as direct as this to improve the US economy. Cutting taxes can be great, but it doesn't dramatically increase job growth. Cutting taxes on the rich gives them the option of hiring more cheap labor overseas or buying another gold-plated Humvee upon which they can sniff crack out of a prostitute's navel. Though most likely, it will just be pocketed or invested.

Some claim that becoming more environmentally aware and going green creates jobs but not nearly enough. Fixing our health care system and providing subsidies to those who cannot afford it is great, but while will reduce health care costs in the long run, people will still be poor and the economy will not significantly improve.

So while the Republicans' idea of cutting taxes and reducing regulations so that companies can do whatever they want (outsource jobs, pay people less, make more money) isn't going to help much, the Democrats' idea isn't helping our economy either. Unfortunately, they're just going to be nitpicking at the details of each others' ideas in the foreseeable future.

If you like my idea, and I imagine you will if it's possible you'd like a sudden bump in your wages due to your employer getting a tax break on your wages, please write your Congressman about it. And if you're an employer, you may like being able to save money merely by paying employees. Alternatively, elect me President of the United States or give me mind control powers to give our politicians a sense of priority. However, spreading the word is easier.

And once we kick-start the economy, we'll still need to address the cause of the Great Recession as some call it. People don't agree on the cause. People are still debating the cause of the Great Depression.

One of the biggest reasons is the wealth gap in this country. The richest people have been increasing their wealth much faster than the rest of the country. You can't have much of an economy when 20% of the people have 85% of the wealth. Here's a link, though a search of “wealth gap” will likely turn up many different results.

There are other possible causes of the recession as well.

This says the cause was low wages. Well, my plan would fix this. 

I find the below one ridiculous. Nobody loses their house because they can't afford to drive to work. If gas went up, wouldn't you just buy less groceries or cancel your cable TV?

I find this an unbelievable idea. How can people afford cheap homes with no jobs?

Regardless of cause, it will need to be fixed so that after the economy improves with my plan, the bottom doesn't fall out again due to unsustainable borrowing, speculative lending, and bad gambles.

More Reading

I've received some comments on the above plan to fix America's economy. I respond to those comments here:

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