Saturday, October 17, 2009

stimulative taxes?

The US has a tough economic problem here in late 2009. Growth is extremely sluggish and expected to stay that way for at least a year. And the budget deficit and debt situation strikes many people - including currency markets, who are driving the dollar down - as so serious that significant fiscal stimulus, in the form of new spending or tax cuts may not be possilble.

What's the answer?

Stimulative taxes. We have to identify fiscal initiatives that will lower the deficit while not further depressing the economy, and if such a thing is possible, find taxes that can actually stimulate investment.

One way to do this would be to pass laws today that have taxes rise gradually over time. This helps with long-term fiscal imbalance while not dragging dollars out of a bad economy. Also, businesses will have a chance to respond to the coming tax hikes, potentially in stimulative ways. If we're going to impose a gas tax that will gradually rise to $2.00 a gallon, we need to start designing more efficient cars. If electricity from coal is going to go up with excise taxes, we need more windmills and solar panels.

1 comment:

Bob Z. said...

Interesting idea. Similar to "sin taxes" which are popular revenue raisers at the state level and are designed to both increase revenue and change behavior. Of course, if you succeed in the latter, you fail in the former.

I could see a policy that is revenue neutral in the short-run, and a revenue raiser in the long-run. In the sort run, re-investment the gas tax revenue in incentives to encourage investment in new technology. After 5 or 10 years, you could have an economy with stronger GDP growth (which will help with the long-run budget problem) and a healthier environment.