How To Really Stimulate the Economy

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What motivates people?  Well, money, for one thing.  If you’re familiar with the book “Carrots and Sticks”, or the web-site StickK.com, you’ve probably noticed that money motivates people to do something more than just about anything else.  So, how do you stimulate the $14 Trillion mammoth economy of the United States?  Well, first you have to ask, what causes the economy to grow?  In general, the economy is measured by Gross Domestic Product, which is the sum of all of the goods and services produced in a certain time period.  Or, another way to put it, the total amount of money spent on goods and services.  Thus, we need businesses and people to spend money in order for the economy to grow.

So, how do you incentivize spending?  Simple, reward people for spending.  It’s all about carrots and sticks.

Under the current tax code, businesses are rewarded for spending money.  Most of the items that a business purchases are tax deductible, thus, a business has a large incentive to spend money.  In 2011, a business can write off up to $500,000 of new equipment purchases with the Section 179 Deduction.  When a business does this, several jobs are “created or saved”.  This is a huge boon to the economy.  Why not just increase it to $1 million?  Or, $10 million?  That move alone would create a huge amount of spending on equipment, which in turn would create or save manufacturing jobs, and those workers would then turn around and spend the money again on rent, groceries, gas, etc., and those companies that provide those services would have to pay even more workers, and it goes on and on.

On the other hand, if we move to a business flat tax, like that in 9-9-9 where basically nothing is deductible, businesses suddenly have an incentive to not spend money.  Instead, businesses would save money in money markets or pay more distributions to shareholders, which may or may not be spent.  A National Sales Tax, added in addition to a State Sales Tax, would decrease the incentive to spend and increase the incentive to save.  Sure, Americans need to save more.  But, saving doesn’t grow the economy or create jobs.

So, here are some ways to increase business and personal spending that will immediately grow the economy:

1. Increase the Section 179 Deduction for Businesses to $10 million

2. Get rid of the AMT (Alternative Minimum Tax), permanently.  This will encourage high income individuals to give to charity, take out mortgages, etc.  That money will then get spent on salaries, food, etc.

3. Allow unlimited deductions for charitable giving (currently limited to 50% of income).  This will increase the amount of money that high income earners give to charity.  That money will then get spent on salaries, food, rent, etc.

4. Lower the top Corporate and Personal Income Tax rates to 25%.  This is the biggest and most immediate way to stimulate the economy.  In fact, this one move is pretty much all it would take.

Yes, doing all of these things would lower tax revenues, at least in the short term.  But, that is why Federal spending must be cut at the same time that these measures go into place.