Three Ways to Really Stimulate the Economy Without Looting the American Taxpayer – Part One: Enact the Fairtax

This is the first part in a four part series on how government could really stimulate the economy without looting the people.

For a presidency built on hope, we are certainly being fed our daily dose of doom.  Every day that passes without the passage of a stimulus bill is a day Obama’s rhetoric becomes even more bleak.  As the Washington Times noted, he has claimed "A failure to act, and act now, will turn crisis into a catastrophe."

His solution is a near $1,000,000,000,000 stimulus package.  Obama claims it will save or create three to four million jobs.  The solution Obama says we have to have will save or create one job for every $275,000 spent.  Behold the brilliance of a government run economy.

It will also spend billions of dollars on non-stimulus related projects.  The intellectually honest refer to this as pork.  There have been numerous articles listing the wasteful, unconstitutional spending included in this bill, but National Review Online’s Stephen Spruiell and Kevin Williamson have one of the better lists.  Meridian Magazine has another.

This isn’t a economic recover plan or a stimulus bill.  It is a Democrat wish list, a compilation of projects and schemes they have dreamed about but couldn’t get funded.  Under the advice of Obama’s Chief of Staff, they haven’t “let a crisis go to waste.”  They have even stuck a dagger in “very heart of the widely applauded Welfare Reform Act of 1996,” an Act that has proven positive results.

With all the doom-speak, with all the speed and will all the spending, economist agree, this will not help the economy.  Even the Congressional Budget Office expects it to make things worse.

This will only move American father across the Bridge to Dependence. 

There is a way to stimulate the economy in three steps that, taken independently, would do more to stimulate the economy than the entire stimulus package.  Combined, they would transform America into the economic giant that currently slumbers.

Step One:  Enact the Fair Tax

For those who have not heard about the Fair Tax, it is “a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.” (Source.)

It ends the confiscatory taxation style of income tax and instead taxes consumers on purchases they make on non consumable items.  Imagine getting your paystub and seeing your entire check coming to you.  No taxes, no FICA, no federal deductions.  Do you think you might spend more?

The benefits of the Fair Tax extend into the private market.  From the movement’s webpage:

A $10 trillion dollar stimulus program funded with private investments
Economists say the FairTax will attract literally trillions of dollars into our economy from offshore. That means new jobs right here in America, higher wages and a stock market that goes up instead of down.

Bring Back the "Made in America" Label
The FairTax ends the retail price disadvantage American producers suffer under the income tax system. The income tax system adds up to 20% to the price of American products and that chases our manufacturing and service industries offshore. The FairTax gives American companies–and jobs–a fair chance.

Americans for Fair Taxation shows in studies how the Fair Tax will benefit small businesses (pdf), retailers (pdf), investing (pdf), ranchers and farmers (pdf), education (pdf), health care (pdf) and promotes home ownership (pdf), which is what started this mess in the first place.

Here is what some economists think will be the results of enacting the Fairtax:

…the capital stock will be 13 percent higher under the FairTax system than under the current system by 2010, and 41.4 percent higher by 2030, and that long-run interest rates would be 150 basis points lower than under the current system. Their study states that, "the shift to the FairTax raises marginal labor productivity and real wages, over the course of the century, by 18.9 percent and long-run output by 10.6 percent. . . . These macroeconomic gains have important microeconomic welfare implications. In the long run, low-income households experience a 26.7 percent welfare gain, middle-income households experience a 10.9 percent welfare gain, and high-income households experience a 4.7 percent welfare gain. This is a very progressive long-run outcome."

Another new study of the FairTax plan by Arduin, Laffer & Moore Econometrics finds that investment will be 33 percent higher in the first year and 41 percent higher by the tenth year than under the current tax system. The effect of an increased rate of productivity growth and the reduced efficiency costs yields GDP up to 24.4 percent greater than under the current system by the tenth year. Consumption, fueled by 1.7 percent higher real disposable income in the first year which increases to 11.8 percent higher by the tenth year, is higher by 2.4 percent in the first year and 11.7 percent by the tenth year.2

This one step would have a profound positive effect on the economy, and would do it for far less than a trillion dollars.  Plus, it
would be the largest shift of power from the government to the people since the Declaration of Independence. 

Instead of looting the pay checks of hard working Americans, Congress and the President could turbo charge the economy with one bill, one stroke of a pen.  They could let us keep what we make. 

This isn’t a tax cut.  It’s a tax revolution. 

Tomorrow:  Step Two:  Privatize Social Security

Photo Credit: 

• Americans for Fair Taxation