When managing a business in difficult circumstances, solving several problems with each major decision and creating no residual negative effects is imperative--simple-minded solutions that also have broad negative consequences are not ok. In our current U.S. business and economic environment we also don't have the luxury of such simple-minded solutions.
The country's primary taxation policies--corporate and individual taxation--each solve only one problem, while simultaneously creating another. Individual income tax serves the purpose of funding governmental services but takes discretionary funds out of individuals' pockets--impeding saving and consumption. Corporate income tax serves that same purpose but impedes corporate growth and re-investment. We must--at least partially--substitute tax policies that solve several purposes and that don't create negative results (except for some special intersest groups--tough).
Many (me included) advocate significantly higher gasoline (or total oil) taxes. This serves the purpose of permanently (a) changing consumers' attitudes toward auto-fuel efficiency, (b) providing a permanent base for economically sound (rather than artificial tax-incentive based) alternative energy investment, and (c) enable the auto industry to have market clarity. The potential negative of course is the short-term impact on individual consumers, but my plan deals with this via a combination of (d) rolling it out gradually, (e) creating a form of ceiling protection, and (f) partially offsetting individual income taxes. I detail this in the entry "U.S. Energy Policy". The result: solving several problems, creating no meaningful negatives.
Another of the same form has been proposed by some. Taxing each equity transaction by, say, 1/4%, creates multiple positive results and no negatives. The positive results are (a) a tax stream used to lower corporate taxes, (b) a dampening effect on short-term trading (which creates absolutely no overall economic benefit), and (c) a a dampening effect on stock market volatility. Day traders, stock exchanges and hedge fund operators will rebel--so? Their interests are not our interests. As President Obama clearly stated today "let's put aside the nonsense."
These are just two new ideas--others can be created by clear thinking and putting national interests ahead of special interests. Our country's overall tax policy is so antiquated and byzantine that, if it were instead a fundamental element of a company, a turnaround CEO would totally scrap--and rebuild--it. That may be too drastic and risky for the country's entire taxation system, but perhaps we can eat this elephant, as the saying goes, a bite at a time.
Comments