Thursday, January 8, 2009

A Gem of Common Sense

Recently, Tom McClintock became a congressman from Northern California. He's well known in this state for his efforts to restore fiscal sanity to an out of control Legislature. As a State Senator in the permanent minority party in California, he didn't have a lot of power to do that.

As a junior congressman in the U.S. House of Representatives, he still doesn't have much power to change things, but he has kept his common sense.

This morning on the Armstrong and Getty Show he said, "Government can not inject a single dollar into the economy that it hasn't first taken out of the economy. And it takes productive use and puts it to less productive use and that doesn't help the matter, that hurts it. That's how the recession of 1929 became the chronic depression of the 1930s."

While Rep. McClintock was explaining this, President Obama was busy asserting, "We cannot depend on government alone to create jobs or long-term growth, but at this particular moment, only government can provide the short-term boost necessary to lift us from a recession this deep and severe. Only government can break the vicious cycles that are crippling our economy—where a lack of spending leads to lost jobs which leads to even less spending; where an inability to lend and borrow stops growth and leads to even less credit."

That is simply false. Let's take government assistance. Approximately 70% of all monies allocated for assistance to the underprivileged are consumed by the administrative structures designed to distribute them.

My faith engages in massive charitable efforts, and has an administrative cost of 0%. That's correct--the work is carried out by volunteers who see the money as a sacred trust. I'd like to see the average administrative cost for private charities--quick research for this post didn't turn up figures, but I'm willing to bet private charities are more efficient than government by a large margin. Anybody with actual figures, please comment, or I'll do more research as time permits.

Who's doing a better job?

Instead of taking money from the economy, there are some simple things government can do to help the economy right now. Save perhaps Japan only, the U.S. has the highest corporate tax rate of any industrialized nation. Drop it to 20% or lower to attract business back into the country. Temporarily drop the capital gains tax to a low percentage, perhaps 2%, and cap it at 10%. This will encourage investment, which will lead to more money available for entrepreneurial ventures, which generate the revenue required to make our economy healthy and provide a strong tax base for government.

While we're at it, we might scrap the current tax code and go with the lowest possible flat tax instead. That method of taxation created a robust economy from the ashes of Russia's prior systems, though recent drops in oil prices have done great damage to that economy.

When it comes to cash flow, we don't need a government filter between business, people and money, since the bureaucracies reduce the amount of money that makes it back out into the economy. The solution isn't more government intervention, it's less.


Andrew said...

Chatting with a friend I realized I have a very common sense way to illustrate the ineffectiveness of government trying to spend its way out of the economic crisis.

The very simplest way to explain the economic crisis is that money is not flowing. It's out there, it's just not moving.

So, we need to get a flow of money back into the economy.

Think of it as drought. If Colorado Springs, CO was having a water shortage, and Northern Californians wanted to help, we'd route water to them.

It would make no sense to route the water from Northern California through Los Angeles California to Colorado Springs and have Los Angeles use 70% of the water en route.

Big Jay said...

I'm in favor of throttling back on payroll taxes. It's a regressive tax so it's 'worse' than other taxes to begin with. It would assist in job creation where it makes sense, without the government mandating anything. Only people who are actually working will see the benefits, so the incentives are right that way. I read about the idea in national review. And I like the idea. Republicans should counter the Obama Stimulus idea with the stimulus via less payroll tax. It's simple enough to describe quickly and it makes intuitive sense