How to End the Recession
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This is normally a column about technology and technology business but I can’t help noticing that the global economy is in the toilet and not much rational thought is going into fixing the problem. I don’t mean to insult the bozos currently pretending to run our economy or the new group of bozos about to take their places when the Obama Administration starts up this month, but my Mom could do a heck of a lot better job than either group and she’s 84 years old.
COME ON! At least do a better job than Mom!
So let’s solve the problem right here and now, get it fixed and out of the way so we can get back to pondering DRM and Windows 7 and whatever else is more interesting than saving the world economy. I’ll just present my plan. If you like it then start calling it your plan and send it to everyone you know. I don’t need any credit for this, especially if I turn out to be a bozo, too. But I don’t think that’s likely.
So here’s the problem. Coming out of a credit bubble we have no credit. People and businesses that HAVE money won’t lend any of it to people and business who DON’T HAVE money so the economy suffers, enters a period of deflation, everything goes to hell and we lose our houses. After that we’re set up for an eventual period of inflation that none of us will be prepared to handle, etc., etc. Against this the government’s idea is to spend a lot of money to stimulate the economy, putting even more financial stress on our kids and their kids through $1 trillion deficits into the sunset. And all of this is justified because of two ideas: 1) we don’t know anything else to do, and; 2) this way the same people who made the bubble are benefitting from its aftermath.
Hank Paulson is not Lucifer in this story, but he IS Belial. Bone-up on your Milton and figure that one out.
The solutions being offered aren’t good. It’s not that I am saying all these companies that have been judged as too big to fail should have been allowed to fail any more than I am saying those companies judged just right to fail ought to have been saved. I think there’s a little too much God-playing going on around here and what we really need is a simple solution that pays for itself along the way.
I want a revenue-neutral route out of the current recession.
And I want that route to involve a lot less government intervention and potential manipulation. Government hasn’t shown itself to be very good at fixing things so far and the plans being presented going forward don’t look much better so let’s just do it my way, okay?
What we need is a lateral solution because the current bag of tricks is empty and wasn’t that good to begin with. All this spending of money IN THE HOPE that it will inspire certain actions by banks and consumers just doesn’t make any sense to me. I’m all for rebuilding our crumbling infrastructure, but I don’t think we can do so fast enough to make much of a difference. We need to pack $2-3 TRILLION in spending into the next 12 months, ideally with as little of that amount as possible being paid for with government money.
Think about it. The point of economic stimulus is to stimulate the damned economy, NOT to spend government dollars. It’s much more efficient to get other people to spend that money and to spend it on most anything, it really doesn’t matter. Just spend it. Now how to make that happen…
A federal study of the 2001 tax year concluded that Americans were underpaying their federal taxes by $290 billion per year and had been for many years. Given that the Bush administration entered in 2001 and cleverly cut the budget for IRS enforcement I can guess with some certainty that tax cheating has become worse, not better. So let’s pin it at $300 billion per year or $3 trillion for the last decade.
My proposal to end the recession will cost $20 billion, not $775 billion. I would allocate $20 billion in extra funding for federal tax compliance in the coming year. I’d also open-up such compliance enforcement to private firms. That’s the stick.
The carrot comes in the form of a quite specific form of one-time tax amnesty. Taxpayers who have shorted Uncle Sam will be asked to come forward and report their crimes, which will result in no additional tax payments or penalties – none. If you are a tax cheat and don’t come forward, that $20 billion will go toward hunting you down. If you are a tax cheat and do come forward but lie about the extent of your cheating, that $20 billion will be used against you, too, so there is a huge incentive to be honest and a large penalty for not being so. This is not a free lunch: you have to report IT ALL. That should be about $3 trillion for the last decade, remember.
Taxpayers who choose to participate in the amnesty program will be still subject to random audits but in general their accounts will be wiped clean IF they within the next six months take 50 percent of the tax money they admit to having owed but not paid and use it to buy goods and services in the United States. These purchases would have to be documented. No investments or savings would qualify – just buying stuff. Sure you can then turn around and sell the same stuff, I don’t care.
eBay will LOVE this idea.
It would be a $1.5 trillion stimulus plan that doesn’t fix any roads but sure buys a lot of Jonas Brothers tickets or anything else that people really want. It would be distributed geographically much like the U.S. population. It would generate secondary taxes (taxes on income earned by the people selling all that stuff — many of them the original scofflaws if you think about it) that could still be used to fix roads and bridges. And it would put no additional liens on our kids.
That’s my idea, what’s yours?
[...] I, Cringely » Blog Archive » How to End the Recession – Cringely on technology – [...]
There is a lot to be said about people paying the taxes they actually owe. This is one of the reasons I’m in favor of a consumption or national sales tax instead of what we have now. People bitch about their taxes, and I’m no different, but what I do know is that the more money I make the more deductions I seem to get and the less % I actually pay in taxes.
The other thing I know is that EVERYONE I know that owns a small business where they get paid in cash for some jobs….never report all that income. I don’t know a single person who doesn’t do this. Do they do it all the time? No. but they all do it. I’m sure everybody reading this knows someone who does the same thing. You multiply this times the millions of small business owners across the country and it adds up.
Ad this one up with the thousands of Americans that do illegal things to make money…and who never pay income taxes……and you’ve got a lot of money not being collected by the government.
I don’t think a tax Amnesty will work, mainly because big cheaters who’s net worth has probably taken quite a hit recently, won’t come clean. If your down 50% in the market, and then expected to pay back taxes…..they’ll fight before they pay. I think a better way would be to design a system that makes it much harder to cheat, ie national sales tax.
Bob:
Glad to have you back! Your own website great.
As far as your stimulus plan it lacks some coherence. When the Depression Occurred it took
1929-1941 to bring us out, what did it take, unprecedented deficit spending on military and infrastructure. What would do that again, well calculate the amount needed over those 12 years and amortize it to our spending needs to stimulate our economy.
Or how about a tax break or tax grant for the hiring of any American Citizen out of work to the tune of 100% subsidy from the government for say 6 months can be extended if necessary. That is only US Citizens out of work. This would one, relieve the welfare or unemployment, which we are going to have to pay out anyway, and get tax paying citizens back in the employment, stimulate the economy game and generally avoid a 12 year odyssey of pain.
Another, take the $1 Trilion we are outsourcing, foreign energy etc. and put $1 Trillion of it in our own renewable energy sources, bio-fuels, wind, solar, coal whatever it takes, we need to be energy independent we are paying over $1 Trillion to outsource our energy and professional needs. This getting us our of our own viscious foreign energy loop can only help us.
Build things here, cars, parts, steel, subsidize them, the global economy be damned, they aren’t buying our stuff we won’t buy theirs. Actual tit-for-tat trade agreements. $1 in $1 out international trading partners not leeches.
Anyhow, that’s my take it doesn’t seem too expensive to me, try 12 years of depression that sounds a lot more painful than some deficit spending now.
Jan Clairmont, KMGO
Paladin of Security Insecurity and the Department of Redundancy Department.
Where is the $1 Trillion going to come from? Why not focus these dollars by increasing the Federal Tax on gasoline. Feed this money into the Green revolution. You get a quadruple bang with this technique:
1) Less money to Saudi Arabia, etc. to fund terrorist schools.
2) Will re-adjust the cost tradeoff between gas guzzlers and green cars.
3) Will keep GM focused on actually marketing their Volt automobile.
4) Enables US economic power – instead of military power.
I wish this suggestion was my idea or that I could remember where I heard/read it.
Give a large rebate to anyone purchasing a new Big 3 high-miles-per-gallon car if they trade in an older (10 years?) gas guzzling vehicle licensed and in running condition. Save tons of pollution, and provide some revenue for steel recycling. Even a bit of economy for mechanics who can get that piece of junk in your back yard running and a bit to the state for license update.
Your idea is ok. I think this is a really good idea:
http://www.fas.org/programs/energy/btech/policy/retrofits.html
Previous boom periods were preceded by new technology or significant improvements in existing technology like the introduction of the World Wide Web. US high speed internet access now trails many other industrial countries. Why not spend some of our new infrastructure funds on truly modern internet access for consumers. This new capacity would greatly expand the opportunities for media distribution and should create many new jobs.
I am surely not an economics genius, but wouldn’t this have the effect of reducing consumer spending capacity because they have to pay their back taxes? Also, most consumers are flat broke. They simply don’t have the cash to pay back taxes. The exception would be rich people who pay accountants billions to “reduce” their tax liability. Your idea might work for them.
Re enabling private firms to go after tax cheats, I can only shudder at the privacy issues it would raise. Perhaps accountants that have been helping rich people reduce their taxes would change sides and turn in all of their customers. Sounds like the Soviet Union to me.
Why not just go to a flat tax? A flat rate on income. No deductions. Very easy to administer. It would have the side effect of reducing the number of accountants and lawyers needed in the US.
[...] I’ve long known that technology pundit Robert Cringely (a pseudonym, I believe) alternates between being very insightful and completely off the reservation. But in this case, I seriously hope he’s kidding. [...]
Hey, check this out:
http://money.cnn.com/2009/01/14/technology/apple_jobs/index.htm
Maybe not practical but it is similar to what I’ve been thinking — make those accountable pay up. Why now is there less than nothing when a year ago everyone was in the black? Where is it stashed? Switzerland or off-shore banks? Demand the release of all funds deposited by individuals connected to questionable financing. Also, how astonishing that those of us attempting to do the right thing and invest for our senior years now have much less to show for it. Find it.
Really Bob? I, mean… really? Wow. Just… wow.
I know. How about we put up radar activated camera’s throughout every city and highway. Then automatically generate speeding citations for everyone that exceeds the speed limit. That should generate billions of needed dollars for the government that might otherwise go missed.
The govenment is supposed to be the servant of the people Bob. Not vice versa. Come ‘on.
@James Kimble: I was following until that last line
Enforcing laws makes the people slaves to the government? That’s ridiculous.
If the people don’t like a law, then it should be repealed (Prohibition, anyone?). You don’t just say, “geez, let’s not enforce the law because people don’t like to pay fines”
We all put in some of our money (taxes) for the common good (roads, law enforcement, bureaucrats’ salaries). People who cheat on their taxes are screwing us all over. If you don’t like the tax laws, work to get them changed.
Your objection isn’t with Cringely’s idea (to have people spent the tax money they owe instead of paying the government)…
it’s with enforcing tax laws, and it makes no sense /not/ to enforce a law (if you don’t want to enforce it, get rid of it. otherwise, The People agree with it)
Yes, the government serves The People. so… use the government.
While tax amnesty isn’t a half-bad idea, I’d go another route. Offer debt forgiveness to anyone willing to forgo future debt of any kind. While living within our means won’t generate nearly instant growth it also won’t cause the crash that follows it.
Then start repealing every law that interferes with the ability of individuals to earn an honest living. Most laws are used to protect those who already have businesses from competition from those willing to work hard. Bad idea.
While we’re at it repeal all laws that confiscate personal property or impose fines that are obvious forms of taxation without representation. If we don’t act very soon it will be too late….
“…When they came for me, there was no one left to speak out.” ~ Pastor Martin Niemöller (1892–1984) ~
One word, genius, Yep this works, all those audits will find the off shore money, and may well bring most of it back… that could be as much as 13 -14 trillion … now that is stimulus…great idea.
now I would suggest two little tweaks, save and use locally…
1) That you save part of it, in cash, (the money you want to spend as stimulus) and
that you save apart of it in gold too… put the gold in the bank, in “your safety deposit box”, and have the bank pay you a little interest for putting there, and have the bank pay you a lot of interest if they “want to use it as collateral, (move it from your box to their box so to speak” …from you… this would give banks the money to lend, from their new deposits…
2) but I would suggest, this new money be only used locally …keep the wealth here in your home town, where the lender knows you, and you know the lender.
I think your mom would like that too, …speaking of her, tell her, for me, she did a good job, you idea is rational, logical, and “doable”. A lot of common since in that, you must be an engineer at heart. Great Idea, this will work, allot better than giving money to guys who lost it all… in the first place, and how in the hell, can you get out of debt, by getting deeper in debt? They must teach that one in Ivy league business school.
I know a couple of people that have done jobs “off the books” for cash. If it were possible to determine this amount of money that was not taxed I am sure the people I know do not have half the taxes for it from the last decade to spend.. on anything. They would be become bankrupt themselves. I like the idea of forcing money into the economy that did not come from my tax dollars, but I don’t see this one working.
Sorry!
Anne Hunt says it all.
I would like to add, it appears to be another case of reverse socialism The needy bailing out the greedy. who have caused the mess in the first place. We are burdening our kids and grand kids with trillions of debt. And when this debt has to be repaid, the same people who have benefited by government bailouts will fly off in to the sunset in their LearJets to some Tax haven
Cringe,
I hope you are joking, because this is daft.
First of all you assume “underpayment” means cheating. It can also mean underestimation, interpretation and errors. You might have heard somewhere that taxes are complicated and open to interpretation by a whole industry of accountants and lawyers?
Second, if thieves get to spent half of their plunder, why the hell would anyone ever pay taxes again? It would be an automatic 50% off sale.
Third, there are easier ways to increase compliance. Just replace all the self reporting with collection at the retail level, to go along with reporting by the banks/brokers. The IRS itself could then be largely eliminated.
Bob, please, for the love of God stop thinking you know anything outside of computers.
As plans go, this is as good as any other. I just think the basis is flawed.
While Hank Paulson may be worthless – his replacement, Tim Geithner, lends to your tax evasion recovery.
I would argue that there are a larger issues that are missed here and by all of the bozos.
The only purpose of government is to protect the citizenry. Just out of curiosity; how many people does that take?
THEY failed to protect US from the “credit” meltdown. THEY created the laws; then failed to enforce them. Now, THEY are taking OUR money to help the poor, unfortunate, and downtrodden businesses. WE have spent far too much for far too long. Now, OUR state governments line up for federal funds; they have extracted their pound of flesh locally and now want MORE! And the answer is to create an even LARGER government.
I am speaking for myself, but I don’t need a big BROTHER. I have grown use to the idea that I will forever be, an indentured servant. I just had greater aspirations for my daughter.
All this time I have been under the impression that this was a free market society – free to win or lose. Now that its all lost we want it back at any price. Let it go. If we fix this it creates problems not yet contrived. How much worse can it be to let it all fall apart?
The fair plan would be to have the people and companies who profited from the real estate bubble to pay for our recovery–return the ill-gotten gains. Unfortunately, that would certainly be illegal, probably unethical, and many of those people no longer have that money that they earned by selling real estate at the bubble’s peak.
The next best thing that we can do is decrease debt load. People’s incomes are far higher than they were a decade ago, yet we have less disposable income primarily because of housing prices. Borrowing is harder today, so make the amount you need to borrow smaller. How do we lower real estate prices?
- Eliminate the mortgage tax deduction.
- Eliminate the capital gains exemption for housing sales
- Build more houses where the demand is, change local zoning laws that are holding back construction
- Eliminate laws that limit property taxes to the original assessed value rather than current assessment
By making housing less appealing as an investment vehicle, housing prices go down where people can afford them, and housing becomes a commodity that has a cost close to construction costs. By making housing cheaper, we have more money to spend on things which actually grow the economy.
Add in wireless surround sound and cheap compact fluorescent bulbs and you have a winning plan.
First problem is all the million/billionaires hiding money in off shore accounts and dummy corps that have no laws posted. They will never pay. Second taxes were only supposed to be temporary. Third it’s time for our society to grow up and become a society bases on education, research, and development not consuming. (I know, I am dreaming.) Maybe the next empire will do better.
I have to agree with other commenters, the easiest way to make sure people start paying their taxes (including on those cash tips, cash under the table jobs, offshore profits, etc, etc) is to just collect a consumption tax at the retail level. I’m willing to exempt food and drugs (also used goods). Nothing else. This would be so much easier, and when people see the TAX line item on every receipt they get, it might stimulate some thinking about the size and scope of government, and whether that much tax is necessary.
Furthermore, at least initially (I would guess for the first 6-12 months) it will probably stimulate spending, because a consumption tax could completely replace payroll taxes and therefore increase “take home pay” which would be a great psychological spending stimulator for most average Americans.
The used goods exemption is also genius, because it would direct more Americans to buy things from places like eBay and Goodwiil, which would not only get cash flowing through the economy again, but would be an enormous boon to charitable thrift stores and the like.
I don’t know an easy way out of the current recession.
I do know a way to prevent or ease future ones:
The current time window for preferential taxation on capital gains is too short.
I advocate that capital gains be taxed at regular income rates untill they have been held for at least five years, rather than the current one.
This would break the current emphasis on very short term profits, which has lead companies to persistently underinvest in the longer-term projects necessary to insure they are still competitive in a few decades.
The scourge of offshoring has been pushed in large part for a preference for immediate profits over long-term viability.
I have suggested that the lower capital gain tax rate be granted only on assets held at least five years (seven years might be even better) and the cost basis indexed for inflation, ’cause it just isn’t fair to tax people on the illusory gains from inflation, not to mention the lack of inflation indexing contributes to that short-term fixation from investors.
I even have a name for legislation for such a modificataion to the tax code: the Industrial Recovery Investment Stimulous Amendment AKA the IRIS Amendment (or Act should it be stand alone.)
By this means, we could get off the path to becoming a country where the only jobs are flipping burgers at one end of the spectrum and bankers and venture capitalists at the other, with very little in between.
[...] one of the blogs I read. Interesting [...]
Bob,
interesting idea about a one-time tax amnesty. However, as someone who has worked in various parts of the federal government for 20+ years, I see several problems with it:
– It is probably currently illegal under federal tax law. You reply, “Just change the law!” The reality is that it would take the support of Obama and/or other committed stakeholders to get the law changed. Also, marketing matters in the legislative process, so there would have to be a committed push by some important and influential people to get it done quickly.
– It changes expectations that may INCREASE tax evasion in the long term. People may just try to evade taxes more in the future in anticipation of the next “one-time” tax amnesty.
– It effectively penalizes people who play by the rules because they don’t directly benefit from this idea (i.e., get more money in their pockets). And there are a LOT of these people. 90% of all income taxes are collected via payroll taxes. This means that the average wage earner does not get away with significant tax delinquency. This means that the recoverable dollars ( i.e., the dollars that are not drug or crime related) are attributable to a relatively small group of people.
– Finally, it probably won’t work. The biggest benefit of the tax amnesty idea would be to 1) better understand the groups that effectively evade taxes and how they do it and 2) create methods and tools for ensuring their compliance in the future. The evaders will probably figure this out also and avoid the amnesty program. Thus, you have collected few new tax dollars and caused all of the problems mentioned above. Congrats, you have made the problem worse!
My $0.02 on Inauguration Day.
Support the FairTax, contact you Senators and Congress Representatives!
H.R. 25 – http://www.fairtax.org
The government has such huge deficits, and yet they don’t worry about paying them. So how about this – let them spend whatever they want, but cancel all taxes? The deficit will only be slightly huger, but the burden will be lifted from the people – and the spending will start.
Of course, they will never do this. Not because those in control worry about paying the debt. Because they are in control, and taxes are one way they stay in control.
Reward the cheaters? Terrible idea. I think Denninger has got a decent solution. Yours is not good.
http://market-ticker.denninger.net/archives/733-There-Is-Only-One-Solution-To-The-Banking-Crisis.html
The economy is not in a recession. The economy has failed. Failed because the economic growth of the past twenty-five years was not distributed fairly. Median wages have stagnated for twenty-five years while the economy’s growth accrued to the wealthiest, and it has led to consumer and national indebtedness that no amount of deficit spending can correct. What needs to occur to return the US economy to affluence is to reallocate the misallocated wealth of the past twenty-five years back to the workers who add value to goods and services with their labor. That must be done with fines, fees and sur taxes on the top 20% of wealth and returned with public services that mostly benefit the bottom 40%.
[...] [13] http://venturebeat.com/2008/12/19/the-opportunity-for-ad-networks-in-the-recession/ [14] http://www.cringely.com/2009/01/how-to-end-the-recession/ [15] [...]
Hey, I like this idea. It occurs to me, though, that perhaps half of the people
who owe taxes won’t be able to pay up. Our new Treasury Sec’y perhaps excluded,
dont most people who owe taxes owe them not because they wish to put the money
in a savings account but wish to blow it on something else? Another large number
of tax deliquents will have a way to opt out of owning up- skip the country, change
their name and address, go underground in a cash economy, get a lawyer, etc…..
or just be unable to pay and thus join the first group….
At first, I disagreed with you – but, seeing how many current/potential cabinet members in Obama’s administration have cheated or skipped out entirely on their tax obligations, I’m beginning to change my mind…
…and a third one today: Nancy Killefer.
i am hoping that the global economy would recover from this economic recession. life has been very hard with these massive job cuts.
Economic recession created huge unemployment rates around the world. I think the world economy is already on the road to recovery.
the Economic recession made a lot of jobless people in my own country. We could only hope that our economy becomes strong again
I’ve been active in taxations for lengthier then I care to acknowledge, both on the private side (all my working life!!) and from a legal point of view since satisfying the bar and following tax law. I’ve offered a lot of advice and righted a lot of wrongs, and I must say that what you’ve put up makes utter sense. Please continue the good work – the more people know the better they’ll be armed to handle with the tax man, and that’s what it’s all about.
In a word – MANUFACTURING. I have nothing against China, but as long as everything from a t shirt to a hubcap is made over there i can’t see an end to this recession – unless we start charging them an inflated price for energy and raw materials and then we can just sit on our cans and wait for them to make stuff and email us once they make it an then we can just have fedex deliver it to our door along with our welfare cheque. Whatever it takes to start making stuff in the USA and Canada and any other hurting country again ( without unions making it so everyone is making inflated hourly wages and benefits – thats what killed the jobs in the first place ) We were put here to produce – so produce, not everyone can be a doctor, dentist or lawyer !
Our country had been so much affected by this Economic Recession. there are lots of job cuts and company shutdowns. We are seeing some signs of economic recovery right now and we hope that it would continue.
:
I think we are also seeing some signs of recovery from the Economic Recession. Of course, we have no idea of how long it will take to completely recover, but some say it’s going to be longer than for the other recessions in decades. I also scanned an article yesterday that said business owners need a new set of tactics to do well during recovery.
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This is one of the greatest ideas I’ve ever heard but this ideas are next to impossible. You cant just change the mind set of the people in your country and force them to do what you think in your judgement it good and right enough. Where not only talking about the political and financial status of the country and its people. You are up to change people’s view about the credibility of those in government and those who work and maintain the good financial stability of the country. The said problems were just unexpected because of unexpected calamities and scarcity so you cant just predict what the government must do and inculcate it to people..