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celticlord2112 -> RE: Gohmert's Tax Plan Has Plenty of Merit (12/17/2008 10:43:03 AM)
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quote:
I'm not a great believer in stimulating an economy with incentives for consumers to get them consuming again.
The financial crisis is shaping up, at its core, to be a dramatic "deleveraging". One way or another, debt is going to disappear (it's either going to get paid off or wiped out in bankruptcy).
The quicker the deleveraging happens the greater the shock to the system. If the government must intervene, the most effective interventions will be of a type most likely to put a brake on things, to slow the pace down and give people, businesses, and markets time to adapt to a changing paradigm.
A "tax holiday" adds to people's disposable income, which they will necessarily dispose of in one of three ways:
1. Consumption: they will spend more, buy more, upping demand.....the usual stimulus arrangement.
2. Pay down debt: they will pay off a credit card, or perhaps get out of a hole on a mortgage. Paying off debt should increase liquidity and thaw frozen credit markets.
3. Save/Invest: Savings in a traditional savings account or other deposit instrument boosts banks capital reserves. Investing in capital markets would make capital available for companies to expand/invest in durable goods, et cetera. (alternatively, companies, by tapping equity markets, could similarly relieve themselves of debt as consumers might in option #1).
Tax holidays also benefit businesses directly by relieving them of payroll tax burdens--and for some companies that might be just enough to sustain a few jobs for a few more months. Every day/week/month a job is preserved is one less day of unemployment benefits that have to be paid out, one less day/week/month of government "make work" jobs that arguably is needed to keep folks off the unemployment lines.
A tax holiday will not end the recession. A tax holiday will ease money into markets where it is needed, and more efficiently than any other form of government intervention.
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