Congress is debating spending another $100,000,000,000 that we don’t have on a so-called “jobs bill.” The bill is over 300 pages and gives subsidies to various services and industries; many states and congressional districts will receive this federal cash. What should we think about it?
We should hold our noses, and say, “It stinks.” No society can use deficit spending to spend its way to prosperity. If that could happen, all societies would be prosperous. They would simply tax their citizens, print paper money, or sell debt to the Chinese–and then watch their countries flourish economically. That never has happened before, and never will.
Why would anybody ever believe such silliness? In part, because such economic thinking became fashionable in the 1930s (Keynesian economics). It didn’t work at the time (unemployment was almost 20 percent in 1939, toward the end of FDR’s second term), and it didn’t work for Jimmy Carter, George W. Bush, or, most recently, Barack Obama.
If spending our way deeper into debt doesn’t work, what does? Answer: Increase incentives to invest. For example, if we lower tax rates, we tell investors they can keep more of what they earn. That gives them incentives to expand, hire new workers, and try to create new products–or better existing products–that consumers will want to buy. Since freer consumers have more money, because it hasn’t been taxed away, they will then choose the products they want to buy and those entrepreneurs will be the corporate leaders of the future. The U. S. tried this strategy of across the board tax cuts in the 1920s and 1980s, and those two decades were among the most prosperous decades in U. S. history. Air conditioning and VCRs were among the new investments of those decades.
Right now the U. S. corporate tax rate is 35 percent, one of the highest in the world. We also have a capital gains tax on top of the corporate tax. If we would cut both rates (to 25 percent on corporate tax rates and 5 percent on the dividend tax) we would not only turn American entrepreneurship loose–and slash the unemployment rate–but we might, if history repeats itself, increase the actual revenue coming into the federal government.
The U. S. went astray during the New Deal years of the 1930s, but many Americans today are coming to their senses. Let’s urge our politicians to take less from us, balance our budgets, and give investors more incentive to invest.
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