Uncrunching Credit and Housing
Former Labor Secretary Robert B. Reich writes in Salon about prospects for getting beyond what he sees as a credit crunch and a collapse of the housing market. What he says makes absolute sense, given his citation of how much real estate is overvalued when compared with such fundamentals as earnings and rents. His solution is foreign bail out, which is happenning and will ease the credit crisis. He does ignore one set of obvious obvious solutions, however - increasing incomes, as well as one which is counter-intuitive but true - increasing taxes on savings.
Income tax rate cuts actually would do some of that, although a far more robust way to increase income for those who need it would be to not only give a temporary rebate, but also a permanently larger tax credit for children and other dependents. Doubling this credit from $1000 to $2000 and making it both refundable (to help lower income individuals) and available at withholding (so that it comes with payroll) would have this effect. Coupling this with a $10.00 per hour minimum wage (so that people aren't being paid only their tax credits) will increase income by the required amount.
Of course, it would save everyone much bookkeeping to simply transfer the tax liability for most wage withholding to the employer, replacing the personal income tax for all but the wealthiest with a VAT (which could be hidden as a business income tax, explicit like a VAT, or some combination of the two). Of course, this might lead to a recession in the financial and accounting sectors. Pity that.
The other piece, which will pay for some of the expansion in tax credits, is higher income taxes on the wealthy. Instead of waiting for the Bush tax cuts to expire, end them now. This will force money out of the savings sector into the government sector, where it will be used to decrease the deficit, thus freeing up money in the credit markets for consumer use. In a short period of time, the repayment of the debt will continue, leaving more money available for private borrowing.
Keynes is alive and well and living in the economy.
Income tax rate cuts actually would do some of that, although a far more robust way to increase income for those who need it would be to not only give a temporary rebate, but also a permanently larger tax credit for children and other dependents. Doubling this credit from $1000 to $2000 and making it both refundable (to help lower income individuals) and available at withholding (so that it comes with payroll) would have this effect. Coupling this with a $10.00 per hour minimum wage (so that people aren't being paid only their tax credits) will increase income by the required amount.
Of course, it would save everyone much bookkeeping to simply transfer the tax liability for most wage withholding to the employer, replacing the personal income tax for all but the wealthiest with a VAT (which could be hidden as a business income tax, explicit like a VAT, or some combination of the two). Of course, this might lead to a recession in the financial and accounting sectors. Pity that.
The other piece, which will pay for some of the expansion in tax credits, is higher income taxes on the wealthy. Instead of waiting for the Bush tax cuts to expire, end them now. This will force money out of the savings sector into the government sector, where it will be used to decrease the deficit, thus freeing up money in the credit markets for consumer use. In a short period of time, the repayment of the debt will continue, leaving more money available for private borrowing.
Keynes is alive and well and living in the economy.
posted by Michael Bindner at 11:16 AM
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