Simple and Clear

The current government-sponsored bailouts disappoint to such a degree they are becoming self parodies.  Among the disappointments:

  • Very expensive.  Not billions, but trillions of taxpayer dollars are on the line.
  • Opaque.  Which companies have how much?  For what?  Under what terms?
  • Only marginally effective so far.  LIBOR is down somewhat, but is much lending really reviving?
  • Tops-down.   Rewarding failure, mismanagement, even incompetence and neglect of duty.

Rather than ladling trillions more into the same troughs, maybe we should consider a different approach that has the following properties:

  • Relatively inexpensive (billions not trillions).
  • Transparent, simple, and clear.  Can be explained in few sentences.
  • Bottoms-up.  Rewarding ordinary Americans who save and invest.

While there likely many ideas that meet these properties, here’s my stab at a legislative solution.

  1. Make the first $2500 of interest earned in FDIC-insured vehicles (e.g. savings accounts) in 2009 exempt from federal tax.
  2. The deductibility of investment losses against earned income would be doubled to $6000.
  3. U.S. Stocks (including ETFs) purchased in 2009 and held for over 18 months would be exempt from capital gains up to $20,000.  Additionally, after 12 months, dividends on such stocks would be tax-free up to $2500 per year… indefinitely.
  4. A simple $1000 stimulus rebate to everyone who paid taxes in 2008.

These measures would be retroactive to Jan 1, 2009 if the legislation passes after that date.  I believe these measures would be simple and effective.  They would result in more money for lending and turbo-charge the stock market.  The wealth-effect from increased stock market prices would spur capital investment.    A psychological boost would likely ensue as everyday Americans realize that the “bottoms-up bailout” is going primarily to themselves and their neighbors, rather than wall street and corporate board rooms.

Well, this is likely just some wishful thinking.  I hope it stimulates some different thinking.  I am ever hopeful for the USA, based on the character of our people and our tradition of creativity and entreprenurial action.

3 thoughts on “Simple and Clear”

  1. I won’t disagree with Mr Balhiser’s criticisms of the current bailout proposals, but beyond that his solution seems to be meandering nonsense.

    His first three proposals appear mainly to encourage long term investment and savings. While that is good, it does little or nothing to quickly stimulate the economy out of it’s current state. The changes listed here would really just be a tax break to the top 10% of the population who can afford to invest above and beyond thier pension/401 programs. These people are already searching for ways to make their money work for them, and I doubt that listed proposals would significantly alter their financial decisions. Although I can see that it might cause them to keep more investment money out of 401k/IRA’s and simply invest it from regular accounts. But this provides no stimulation.

    The fourth proposal is the ever popular “lets stimulate the economy by giving everyone money”. I object to this silliness on several levels. First off, I don’t think its very effective. A large percentage of consumer spending is on foreign made goods. If your trying to stimulate China, its a good program, otherwise it’s a waste of money. My second objection is that US debt is really the people’s debt. Increased debt now will result in higher taxes (or inflation) in the future. So effectively the US is forcing money on us and hiding the fact that we will have to pay it back later. I get a lot of credit offers that look very similiar. My third disagreement is that it is a really a transfer of wealth from the future rich to the masses. 80-90% of Government income comes from the wealthiest 10%, they are the ones who will really have to pay for the money given away.

    If you want to provide stimulus to the economy, I think the US would be much better spending it themselves on things that create jobs and provide some real value. Such as
    – Helping the housing industry by rebuilding homes destroyed by Katrina and other Hurricanes. This specifically targets housing industry workers and suppliers.
    – Rebuilding infrastructure, bridges roads and the like.
    – Building out our energy infrastructure to support a bigger use of reusable sources.


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