Friday, January 29, 2010

Keep It Simple

Both Democrats and Republicans seem to think that making small changes to the tax code can do all sorts of wonderful things for the economy. It's not true. Most of what Obama proposed as favorable tax changes for the middle class don't really cost much because few people will understand them enough to take advantage of them. Who understands the tax code, anyway?

If you want to move the needle, you need simple and broad policies. Imagine you really wanted a jobs program. Instead of targetting this and that, a better approach is an across the board cut in taxes -- say a five percent cut in personal income tax rates, corporate income tax rates and payroll tax rates, effective for the next three years. Something like that is easy to understand, easy to implement, and doesn't discriminate between those who can afford tax advice and those who can't. You could add Obama's notion of a tax credit for new hires, but that is a fairly easy thing to game. It is also gimmicky and requires tax advice.

Simplicity is always better than complexity when it comes to major policy initiatives. That's one of the many reasons the Obama health care packages came to ruin. The health care bills are just far too complicated. Why does it have to be like that? The answer is that it doesn't.

The public is poorly served by proposals that are intricately patched together so that average folks have no idea what the proposal really is and how it really effects them. Having laws and regulations that no one understands is not much different than not having laws and regulations. Complicated rules mean arbitrary government with uncertainty at every step of the way. How can business plan anything and take on an expanded work force if there is no rule of law and set of regulations that are understandable? How many lawyers do we really need?

Give business simple, broad and understandable policies that will encourage them to hire people. Don't design some Rube Goldberg scheme that is mainly structured so that no one who makes over X dollars gets any benefit. What's the point here? -- to get the economy going? - or to engage in class warfare? Poor people and middle class workers do not hire people, businesses hire people. They hire people in order to make money and lots of it. Give them that chance in a simple understandable way and the economy may have a chance to recover.

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