The U.S. Federal Government is printing mountains of money and will continue to do so as more "stimuli" are adopted to combat the recession. Some stimulus is well-warranted, especially in regard to neglected public works projects. To qualify for infrastructure grants, local and state government have been told to come up with proposals that are "shovel ready." That will accelerate certain road and bridge projects, for example. Recall, however, that not two years ago the Congress was being attacked for such "pork" spending. Actually, much of it was sound investment in decaying transportation and communications systems. Too bad more of that pork hadn't been approved; it would have been helpful to have more work underway right now.
Sadly, the longer term infrastructure we need, such as a 21st century national passenger rail system, is unlikely to get funded.
Regardless, public works projects that can turn dirt in 90-120 days undoubtedly will help get people hired and does meet a real public need.
The trouble is that the Obama Administration apparently also is thinking of giving stimulus money out directly in the form of so called tax rebates of the kind the Bush Administration reluctantly approved last summer. That "stimulus" was mostly a waste of federal credit and certainly didn't stop the onset of recession. Now, when prices are stable or even declining (gasoline, retail products, housing), people with jobs are not needy. Post-Christmas present bonuses for them will do the economy little good, but printing the money to cover the costs will help attract the notice of the Demon Inflation that is prowling just over the horizon.
Keep using up the credit of the U.S. Government and eventually people will stop investing in our investment instruments (T-bills, and the like). When that happens, the dollar will go down again, the relative cost of fuel and other imports will go up, and we will have a bad recession and bad inflation simultaneously. That would be ruinous.
So what, in addition to short term public works projects, might help the economy and not boost inflation? Pro-growth investment policies. It is growth we need--the kind that comes from individuals and businesses making prudent decisions that are beyond the competence of Congress or regulators. Government bailouts become addictive. Then they become disastrous.
It is because we cannot spend beyond our means for much longer that we need policies that spur investment and growth. One idea I'd like to offer now: Give people with regular 401(K) plans relief from the current requirement that any sales from IRAs will be taxed at the rates applied to regular income. As it is, many (most?) people who over the years put, say, $100,000 into their IRA or SEP-IRA are now finding that their stock investments there have shrunk, not grown, in value. Yet the government insists on taxing any sales as regular income.
It was one thing to state that $100,000 that grew to $200,000 should have, say, a 33% tax on it when sold. That was meant to deal with both the original (untaxed) money invested and the gain on that investment. But now people who have seen their $100K shrink to, say, $50K are totally disinclined to sell because their depreciated value is taxed as if it were all gain. In other words, unlike regular stock accounts where one can accumulate losses to help offset gains for tax purposes, the government seems to regard gains in IRAs as their business and losses as your business. That is a deterrent for people who need to sell in this market or to use IRA money for investments of other kinds, say, real estate. Some are finding that they have to sell from their IRAs to pay their taxes.
Hard cheese for them, you say. Well, sure, but it also is bad for an economy that needs investors--people who sell and then buy other stocks, real estate and make other investments that will stir market forces and create jobs. A huge number of ordinary people have those IRAs. Right now, some are having to sell in desperation out of their IRAs in order to pay taxes. That also acts as a damper on the stock market's recovery by depressing prices. Give IRA holders relief.
Another idea: stop forcing elderly workers who already have completely vested in Social Security to keep paying into the Social Security system at the full rate and on all their salary income. Isn't it enough that they have to pay tax on the benefits they receive from Social Security?
Effectively, the current system is a disincentive for older people to keep working. When they stop working--and paying Social Security taxes, they also stop paying income taxes, of course and the Treasury loses revenue. It would be one thing if the older workers were in jobs that unemployed young workers were seeking, but that is seldom the case.
Moreover, older workers are likely to use unspent funds for investments that will create growth. Why double tax them on Social Security? Why not derive even greater benefit from the productivity of hard working older people by exempting them from continued payments into Social Security after they are already vested? By the way, with the market downturn, more older people have to work now. For them the double tax is an equity question as well as an economic one.
In the campaign, Sen. Obama pledged tax cuts for 95% of Americans. If that means one-time rebates (or handouts), it does almost nothing for the economy. But relieving people from tax policies that punish investment and working past the supposed retirement age would be the kinds of real tax cuts that would build a more productive, job-creating economy.
These are just a couple of examples. We need other ideas now that will spur growth in the economy, not just growth in the money supply.
