With the inauguration of Barack Obama as president at hand and all of the discussion about solutions to the U.S. economic mess, one of the best suggestions I have seen came from Vince Malanga of LaSalle Economics Inc. in a presentation several months ago. “Fiscal stimulus” seems to be the watchword of the day but things like tax rebates or getting those stimulus checks that many taxpayers got last May or extending unemployment benefits or other types of one-shot solutions may sound good but they have been tried again and again and have never stimulated economic activity, Malanga contends.
All the talk about emphasizing infrastructure improvements to produce jobs and to provide grants to state and local governments won’t have much impact in the near term and they invite fraud and abuse, Malanga points out, and this is the type of pork barrel spending that has been wasteful and widely criticized.
“Smart fiscal stimulus is an across-the-board tax cut and, even more preferably, a reduction in the payroll tax,” Malanga says. “This is immediate; it affects all wage earners in a progressive manner and it affects both business and individuals with one stroke of the pen.”
Malanga suggests the cut in the payroll tax would be for 2009, with the tax then phased back in over the next three years.
Simple. Immediate. Less pork and fraud. Odds of approval for any kind of tax cut? About as slim as for the flat tax. If Obama wants change, his economic team ought to be looking at such measures instead of the type and hype of stimulus packages that have been tried and failed in the past.