From the “This Would Never Happen” file

Here’s a little “what if?” thought experiment for you as we head into the election cycle with its endless coverage about Taxmageddon, green subsidy fails, the exploding deficit, and on and on.

First a few facts:

Corporate tax receipts to the federal government over the last ten years have averaged $228 billion annually.  If you take out the $342 billion average for the three years (2006-2008) at the peak of the bubble with its artificially inflated profits, you have a more normal average of just under $180 billion a year.  Let’s use $200 billion.

Federal spending for the Bush years 2004-2008 averaged $2.7 trillion a year.  Yes, he started the $800 billion “stimulus,” but spending under Obama, including projections through the end of the 2012 fiscal year now averages $3.5 trillion a year.  So, despite all of the rhetoric about “emergency” and one-time jump starts, that $800 billion is now locked in and the feds have spent nearly $3.5 trillion more than they would’ve if they hadn’t heeded the opportunity to “never let a serious crisis go to waste.”  And here we are.

Now for the thought experiment.

Let’s say that upon the 2008 onset of the beginning of the end of this final bubble, George Bush, instead of listening to his Treasury Secretary Hank Paulson (former Goldman Sachs chairman and vested Wall Street shill) and deciding to “abandon free market principles to save the free market system,” had instead decided to embrace free market principles to save the free market system.

Besides no bailouts and no propping up zombie companies and insolvent states, what if he’d also said “and to get America back on track, we’re going to abolish the corporate income tax for ten years.”

Begin thinking.

No one can say it would be too expensive.  We could’ve covered that and still had an extra $1.5 trillion just on what we wouldn’t have spent over the last four years.  The real power, however, is what it would’ve done by removing the distortions that the byzantine tax code wreaks on the economy.

Try to imagine how much creativity would’ve been unleashed, how many jobs and “corporate offices” would’ve shifted away from Washington, D.C. and into productive activity.  Think of how the landscape would change as efficiency (profits) wasn’t penalized and stupidity wasn’t subsidized.  How much money would’ve moved from “tax shelters” and into profit seeking investments.

Think of how much more competitive U.S. companies would be around the world.  Contemplate how much the small business “growth engine” would’ve fired up after the disappearance of all of the myriad special breaks and loopholes that the big corporate players with their departments of tax lawyers and lobbying staffs exploit.

Finally, think of an America where people didn’t think everything they wanted was supposed to be given to them by the government.

Of course that would never happen.  Not on purpose.

Just something to keep in mind for after the bubble.

 

 

 

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4 Responses to From the “This Would Never Happen” file

  1. Marshall Sutherland says:

    If Gary Johnson got elected, at least someone would be trying to make this happen…

  2. mca says:

    Love your thought experiment Jerry. My answer agrees with your title.

    One question relating to your first couple of paragraphs: (let me first say that I don’t live in the US and economics is not my area of expertise so there might be something I don’t understand about this- feel free to correct me). Federal spending is approx $3.5 trillion per year. I checked a couple of sites and revenue is about $2.2 trillion. This doesn’t sound like a sustainable business model.

    How does the government plan to make up that deficit…ever?! Or don’t they? What kind of plan would reduce spending by $1.3 trillion (or increase revenue by the same)? How does a first world country with all the know how and means necessary to put a man on the moon in the 60′s allow this to happen? Ok, now I’ve given you more than one question.

    As to the economic path our government has us on being unsustainable, you understand perfectly.

    The “government” needs to be understood not as an entity, but as an industry comprised of individuals who happen to be in the governing business at any one time. So the “government” doesn’t have, care about, or need a plan to make up the deficit. All that the current occupants need, care about, and plan for is making sure it doesn’t implode on their watch.

    The man on the moon analogy is actually an illustration of how we fatally confuse the ability to address an engineering problem (albeit massive and massively expensive) with the ability to “engineer” human behavior in directions opposite the laws of economics. In some sense, the ability to accomplish a moon shot feeds the hubris of thinking that we’re somehow smart enough to be the first culture in the entire history of mankind to borrow and spend our way to prosperity.

    –jn

  3. Tom Naughton says:

    You mean we can’t just tax our way out of this mess? I’ve heard from some leftist pals that if we just raised the top rate to 45%, our troubles would be over.

    If only somebody had thought of that before! Oh, wait…

  4. mark says:

    The US is the new third world country. Most goods sold in China will say “Made in USA” pretty soon.

    New term being bandied about is “in-sourcing,” where companies are bringing their manufacturing ops back to the U.S. That seems like a good sign, though.

    –jn