Our thanks for FedEx Chairman Fred Smith for dredging up a 2001 IPI study and resurrecting its recommendations in a Wall Street Journal op/ed this past Saturday.
In his op-ed, Mr. Smith rightly touts accelerated depreciation as a powerful tool through which the federal government could stimulate real job creation in the private sector through tax policy.
He’s right—in 2001 IPI found that for every $1 in tax reductions through accelerated depreciation, the economy would reap $9 in increased GDP.
But depreciation fixes are not the only tax tools available to the feds to stimulate economic growth. In that same study, IPI found that capital gains tax cuts, repealing the Alternative Minimum Tax (AMT), an investment tax credit (ITC) and even a general corporate rate cut would all deliver “bang for the buck” in GDP growth.
The simple fact is that the most powerful economic recovery in recent memory was driven by tax cuts, but the current hoped-for recovery is being stillborn. It’s tax cuts, not massive spending programs, that really drive private sector investment and thus private sector recovery.
But WHY are tax cuts a better way to stimulate the economy than government spending?
Simply put, the private economy does a better, more efficient job of allocating resources than does the federal government. After all, what is the private economy but the collective wisdom of hundreds of millions of Americans making decisions every day in the marketplace? And what do you think is going to deliver better information: The decisions of hundreds of millions of Americans, or the decisions of a relative handful of appointed government bureaucrats or even worse, the politically manipulative decisions of politicians?
Cut their taxes, and American businesses will find the best, most efficient uses for the extra capital. But have the government spend tons of money, and waste, fraud and abuse is the name of the game. Does anyone doubt that there will be enough fraud and waste resulting from the $787 billion “stimulus” program to make the careers of scores of muckraking journalists?
Ask yourself this: Would the private economy invest $541,000 with a discredited global warming researcher in order to create 1.62 jobs? Almost certainly not. Yet that type of wasteful, inefficient so-called “stimulus” is the strategy thus far employed by the federal government.
Massive government spending accomplishes some measureable amount of economic stimulus. But a better, more cost-effective and ultimately more productive way to get the economy moving again is through specific tax cuts designed to encourage business investment and risk-taking.
Isn’t it about time to give tax cuts a try?