February 7, 2008

My Economy Stimulus plan

So the government is looking for some fiscal stimulus and of course they'll turn to spending and tax cuts, two devices that have shown to be very weakly related to the growth sector of the economy. One problem is that tax cuts and spending plans are largely retroactive and by the time they are put in place and concrete work is done the economy has moved onto into a different state. Another reason this doesn't work is when you are working with a 13 trillion dollar economy it takes massive shifts in spending or directional cash flow to really effect the health of the whole system.

Any economic stimulus plan that I will support will meet three criteria: 1) the budget deficit will not increase, 2) taxpayers funds will not be wasted, and 3) the plan increases the incentive to produce output. So what do we do? how about this...

The IRS knows how much income each taxpayer reported last year. Why don't we cut everyone's marginal tax rate based on last year's income. So lets say Shivas made $61,500 last year and his tax bracket was 25%. Shivas' tax schedule this year will be exactly the same as last year but for every dollar he makes over $61,500 the tax rate drops to 15%. Every taxpayer will have their own tax schedule and everyone will have a decreasing marginal tax rate above their average income for last year (or the past 3 years, or the past 3 years plus 3% growth credit).

This plan increases the incentive to work and at the same time does not increase the deficit. This in fact will increase tax revenues. The key is a marginal tax cut with a different margin for every taxpayer based upon last year's return. It won't work permanently as it can be gamed, but in special situations it is a smarter way to return money to the economy. rant over.

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2 comments:

Anonymous said...

I dont even make $61,000 in two years...possibly in 2.5 if i dont get taxed by the government...

-Shivas

T said...

so lower your ceiling to 10,000 since that's all rice will give you.