Driving Down the Depression Road

by Dick McDonald
Ownership Society Institute

The Wall Street Journal article posted today, The Keynesians Were Wrong Again, confirms the painful reality that Barack Obama is trying to solve our severe recession with outdated and discredited fiscal policies that led to the severity of the Great Depression of the 1930’s.

More importantly the writer alerts us to the fact that until our government passes incentives for job-creating investment we will likely be headed for continued negative growth and possibly a depression.

When government takes money from taxpayers and borrows from their grandchildren to spend today to create temporary demand it always fails to create growth or jobs. Obama is making the same mistake FDR made to prolong the Great Depression. He is also tripling the mistakes Jimmy Carter made.

Our economy languished until Ronald Reagan passed the Kemp-Roth bill in the early 1980’s that was the incentive the economy needed to free capital to be used for job creating investment. Marginal income tax rates were dropped from 70% to 28% and that triggered the greatest 25-year period of prosperity any country has ever experienced.

Today America can experience an even greater and more dynamic period of prosperity if it can reverse the direction of the Obama Administration and pass incentives for job-creating investment. That would entail defeating the Obama Administration’s many spending proposals and passing a massive tax cut that freed capital for job-creating investment.

This time around cutting income taxes is not necessary. Fifty (50%) of the people don’t pay any and the rich pay only 15% on capital investments. Therefore the pool of capital that could be tapped is payroll taxes. The government taxes 15.3% of a worker’s lifetime income in return for no nest egg whatsoever. They deliver a paltry monthly retirement check one-twentieth (1/2oth) of what would have gotten if the taxpayer had been able to invest those taxes in the market during his working life.

Dumping over $100 billion a month of payroll taxes into the stock market would be the incentive the market needs to recapture the market losses in 401(k)s and create new jobs, prosperity and growth. It also would be the wealth creating policy that delivers the American Dream of financial to ordinary citizens. See here for how we can do this.

Defeating the current spending proposals will not solve our financial crisis. We still have find capital to invest in job-creating enterprises. The quickest and most accessible source is the pool of payroll taxes waiting to be employed.