Balancing Act

While we might subscribe to different schools of thought when it comes to politics, most of us agree that the economy has been ugly for the last few years.

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This sluggish economy has seen national unemployment rates go from 5.4% in January, 2008 to the current rate of 9.3% in November, 2010. Of course, anyone who has a TV or internet access has witnessed the real estate crash forcing many to lose their homes. For many others who are fortunate to still have their home they have watched the value on their house plummet.

As if these things weren’t problematic enough we have the national debt looming over our heads. In case you forgot what we owe, try wrapping your mind around this figure:
$13,825,413,845,724 and counting…

Indeed things look pretty bleak. In fact, we would each have to cough up $44,720 to make the debt go away. Needless to say, we have seen better days.

So it is easy to understand why politicians would be confused as to how to handle the current Federal tax rates. In one corner you have the President wanting to restore the tax rates on those earning $250k+ to the Clinton era. In the other corner, the Republicans want to keep the tax rates right where they are, even for those who make $1,000,000 or more.

What I find odd about this is that the justification for keeping the tax rate artificially low is the Reagan era “Trickle Down” theory. The story goes that keeping the tax rates low for the wealthy will result in new jobs for the, ahem, not so wealthy. Oddly, this plan did not work in the 80’s and seems unlikely to work now. This has not worked for a number of reasons, I am sure, not the least of which is that the wealthy tend to be great at saving.

This all got me to thinking….

What we really need is a way to make trickle down work. And when I say work, I mean we need a system that might appeal to liberals and conservatives alike.

If I had a proposal that would stimulate consumer spending, improve the Nation’s ability to increase revenue and keep taxes at bay would you be interested?

I thought so.

So this is my idea:

The government could institute a sort of Reverse Value Added Tax.

To make this work we would need to establish a high federal tax base on the wealthiest 2% but we would give everyone an opportunity to buy their way down the effective tax rate.

We should reward domestic consumerism. The idea is that the wealthy create jobs and I am thinking that we should reward that behavior.

The government could set up a certification process whereby businesses would seek to have their products or services qualify for tax credits. The amount of the tax credit that consumers would receive would be based on how much that product or service contributed back to the local economy.

This would create a competitive environment where manufacturers and businesses would seek to create more jobs locally as it would result in a more attractive product for the consumer.

As an example, if one were to purchase a car assembled in the U.S. they would be able to reduce their tax liability by a percentage proportionate to the amount spent. If one were to have a home built, the construction cost might be eligible for a tax credit. Really this could be applied to any purchase that creates work in the U.S.

This would give people a reason to spend and put money into the economy. The increased spending would spur productivity and encourage business to create jobs in the U.S. and if all went to plan, maybe we could decrease the Federal deficit.

Obviously there would be a number of details that would have to be worked out. There would be plenty of fine points for politicians to dull with debate but it could be an out of the box idea that just might work.

And for many people, work is all they want.

Please feel free to share your comments and criticisms but remember to keep it classy.