However, a tax cut, that in the short term would decrease tax revenues would grow them later. The problem I see is not tax rates as much as compliance costs for business.

A simple tax code and a reasonable tax rate would dramatically increase tax revenues while lowering prices and increasing our buying power.

A cut in corporate tax rates is the best longer term solution IF combined with a tax reform package.

That will help the business community and even help with wages. What it won’t help with is people who borrow too much. We have to somehow, take advantage of any “boom” this government action creates and maintain, but not increase personal spending, pay down debt, invest so we have additional income from investing like foreign nations that loan us money are doing, and get our heads above water as individuals.

Government will have to be corrected at the city and state levels too. The Fed will have to almost totally reform. There are solutions. We just need leadership and voters who will use them.

“We’re so used to Democrats pushing tax hikes as the answer to all of America’s problems that we were taken aback to find the following words buried in Pelosi’s release on the stimulus deal: ‘Economists estimate that each dollar of broad tax cuts leads to $1.26 in economic growth.’ Gee, that sort of sounds familiar. It’s almost, though not quite, like what the much-reviled supply-side economists have been saying for, oh, 30 years or so. Pelosi, and other Democrats now suddenly touting tax cuts, may be on to something. We might demur on the notion that all tax cuts must be ‘broad’ to be effective. Evidence really lies more strongly with giving tax cuts to those who would start new businesses or expand old ones. But it’s refreshing to hear a Democrat admit the obvious—that tax cuts work. It’s no secret that high tax rates act as a deadweight on the economy by creating absolute losses from which no one gains. Martin Feldstein, head of the National Bureau of Economic Research, estimates that a $1 tax hike costs the economy 76 cents in output. That explains why the economy jumps each time there’s a tax cut.” —Investor’s Business Daily

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Backwards economics: “How do we stimulate the economy to prevent or shorten a recession? One way would be to repeal the Bush tax cuts two years early, in 2009.” —Len Burman, director of the Urban-Brookings Tax Policy Center, writing in The New York Times

Consumers are having trouble refinancing because the home is worth less than what they owe. Those who had equity borrowed it and now with dropping home prices they can’t get refinancing for what they owe. This is true on even “prime” loans with a fixed rate. They owe more than they own.

The government has another problem, inflation. There is no way to cut spending. Inflation causes mandatory spending increases every year even with underreporting of inflation. Defense? I doubt you will see much cut there even with a change in President. Education? Nope, both are calling for more, not less.

Pork? It is small in comparison to the budget and required to keep state economies going in many cases. States are in deep trouble now and are demanding much, much more federal aid in “pork” and designated spending on the decaying infrastructure.

There is nothing the Federal government can do to reduce spending without massive, unpopular reforms as long as voters are demanding more spending and more programs and more aid for their states.

But, I think the Government can “inflate” an illusion of growth and prosperity over the next few years with massive deficit spending and increasing debt. Both parties, right now, are admitting they have no intention of controlling the deficit or debt during this period of “stimulus.” Since the “stimulus” on infrastructure, if granted, will go on for years, you can forget about any hope of reducing national debt and none of them are really saying they can do anything for years. But, it may delay the recession for years if they haven’t already waited too long.

Jan Paul – In any endeavor where there are several issues working at one time, it is far better to tackle them one at a time. Even in personal finance issues.

I don’t know if you’ve ever heard of a debt reduction system called the “power payment” system so I’ll give you the short version;

A person lays out all credit debt excluding a mortgage; for example,

DEBT BALANCE MIN PAYMT INT%

CAR 20,000 400 5%
VISA 6,000 150 15%
MC 4,000 125 18%
Sears 5,000 75 20%

and so on……

The way this works is to eliminate one debt at a time based on interest rate. In the above example, the plan would be to pay off Sears, Master Card, Visa, and the car in that order by use of a “Power Payment.” The consumer continues to make MINIMUM payments on ALL other crdit, but doubles the payment on the highest interest item until it’s paid off. In this instance, the consumer would pay Sears $150 per month until the debt is paid. Next, the consumer adds the $150 he’s been paying to Sears to the minimum payment of the next highest interest rate (Master Card in the example) so now he’d be paying $275/mo (125+150) per month until that, too, is paid off. He’d repeat this until all debt is gone. At that point, the consumer has the option of continuing on with the mortgage if he so chooses, or save the money he’s been using on credit and interest.

I believe this is the way our Congress should be dealing with the debt issue. Granted, the numbers are far higher, but the principle is the same. Attempting to solve immigration, healthcare, entitlements, war funding, foreign aid, et. etc. all at once gets nothing paid off. The key to fiscal responsibility is judicious use of credit. Our Nation has become a Nation who relies on credit for everyday purchases. Your point about saving is right on. The key to this plan being successful relies on the discipline necessary to NOT use the credit cards or loans after you’ve paid them off. We get people re-finacing a home and using the proceeds to pay off other debt and six months later they have the debt right where it was before the re-fi.

The same principle applies to government. We need to prioritize what we owe, and use a power payment to pay off the debt. In my view, that’s the road to fiscal responsibility.

Not only do we have the borders too open but, we have 1/2 those that are here illegally that came here legally. Securing the border will not stop the problem, just slow it. They come as visitors and students and legal temporary workers and then stay.

Also, international bodies now rule many of our trade practices. We are no longer sovereign in our ability to decide what tariffs or restrictions or other things we can or can’t do in many situations. WTO, NAFTA, CAFTA are more “treaties” than trade agreements. The reason was a Treaty requires a super-majority to approve while a trade agreement only requires a simple majority.

Then add the debt. We now are borrowers from China, Russia, Korea, OEPC, Japan who can make demands on us to get us to keep loaning us money, when it comes to trade. That is why, when Paulson and others have gone to China, they have gone “begging” and found that China basically tells them that they will do what is good for them and we need to solve our own problems.

They are right, but, we have so screwed up or economy with debt, that we have to beg our “bankers” for help.

The biggest issue is we are spending money we do not have!

I don’t disagree that there’s some “bait and switch” stuff going on here. In fact, I think there probably is.

It’s important to remember that this is an election year and, as such, it’s normal to expect the incumbents to try and make things as rosey as possible. I’m not saying things are rosey, but I don’t think they’re as bad as many think. Remember, the traders and hawkers on Wall Street are not CEOs or CFOs. They’re regular people working to make a living.

I still believe the average person will see the light and make the corrections necessary to keep the Nation on form footing. I suppose we shall see.

I still believe the most important issue facing the Nation is sovereignty and all the smoke, mirrors, bait, switch, main stream media tripe, etc. simply won’t change that view.

Then after the election, this Congress that has nothing to lose and won’t face reelection for two years if at all for those not returning, will pass whatever they want and Bush has already indicated he will sign it as long as they “say” they will secure the border.

Try this one.

Nobody likes “recessions,” but, if we are prepared for it, it may not be so bad. You can’t be prepared for it if you have no savings.

quote:
Debt Saturation Is the Problem

This then is what is different this time, and it is what the Fed fears. In the early stages of all credit expansions, businesses flourish, and the Fed is able to manipulate the expansion’s boom-bust nature in a tolerable way. But once an economy becomes “debt saturated” from the massive injections of credit over time, borrowing and confidence drop off. This causes the rate of money supply growth to decline by negating the central bank’s power to pyramid credit, which brings severe disinflationary pressures no matter what the Fed does with interest rates. If the preceding build-up of debt is severe and the resultant decrease of confidence widespread, such pressures then morph into a far more serious crisis.

Down deep, the Fed and its circle of monetary bureaucrats fear that this time the fundamental buoys of the economy could indeed collapse and usher in a dreadful credit deflation that would suck America and the world into the vortex of Depression. It is this dread that is undoubtedly keeping Bernanke awake at night.

In all the recessions since World War II, the Fed has been able to maneuver economic forces in America to induce recovery. The prior inflationary booms were not outrageous, the nation was a solid creditor in the world, there was a substantial cache of savings among the people, etc. It was a matter only of squeezing the speculative excesses out of the system. Some prolonged pain was required, but nothing that could not be endured by men and women who had a “life is tough” philosophy instilled into them in their youth.

This time it is all very different….
KEYNESIAN CHICKENS COMING HOME
by Nelson Hultberg

What makes it so obvious it is different in this last decade is the “bubbles” are getting bigger and more unmanageable. This housing bubble is undermining the entire financial system of not just the U.S. but much of Europe and is even being felt in Chinese banks.

When you have a currency that only has value due to demand for it and the nation owes more than it owns, it doesn’t take much to cause panic in the Fed and Congress.

When have you seen Congress when we have an almost 4% GDP growth in panic mode to avoid a recession? Not even one quarter of negative growth and it takes two for there to be a recession. When have you seen the Fed cut rates during economic expansion? When have you seen the Fed do an emergency rate cut of 75 basis points between meetings when the economy is expanding and the only major news is a dropping stock market in other nations since ours wasn’t even open.

You have never seen panic like this and while quick action may avoid this current crisis from creating a recession, all the better economist say they can’t avoid it, only delay it.

We have to prepare people for it. We have to let them know they will need to have the skills needed during a recession and enough savings to pay the bills for a few months if laid off. If it doesn’t happen for a decade, great. That means they have a decade to save and prepare.