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Tuesday, November 25, 2008

My Mostly Conservative Stimulus and Economic Recovery Plan

With Barack Obama as President and Nancy Pelosi and Harry Reid leading the Congress, expect any and all stimulus packages to focus on massive expansion of government, massive new spending, and all sorts of government regulations as part of any stimulus package. Jobs will be created with the government taking the lead. As such, what I am about to propose is nothing more than a pipe dream in the current environment. At the very least, we can all compare the conservative approach to stimulus than what Barack Obama proposed yesterday.

My proposal would focus on a series of across the board tax cuts. First, I would make the Bush tax cuts permanent, and I would drop each and every marginal rate another three percent which would expire in five years unless they are extended. Currently the rates are 10, 15, 25, and 33% and so under my plan they would be 7,12,22, and 30% for the next five years.

Second, I would reduce the corporate tax rate from 35% to 27%. Right now our corporate tax rate is the second highest in the civilized world behind only Japan. When Ireland reduced their rate to 10%, their economy exploded. When I saw Rudy Giuliani speak during the primaries, he made an interesting point about the corporate tax rate.

He spoke about productive and unproductive taxes. An unproductive tax is one that is among the most extreme when compared to the civilized world. For instance, he pointed out that our corporate income tax is one of the highest in the entire civilized world. He said that if we merely lowered our tax so that is closer to the middle not at the top that it would keep a lot of the business we lose. He said his tax policy would focus on identifying and lowering those taxes that he determined to be unproductive.

Putting the corporate tax rate at 27% would put the U.S. in the middle of the civilized world. It would continue to allow the Federal government to collect a relatively healthy amount of corporate taxes, but also, it would keep the U.S. competitive against other nations. Corporations won't have high taxes as a motivation to move offshore.

Next, I would encourage strongly for FASB to suspend and eliminate the corrosive marked to market. This new rule forces companies to write down long term assets like mortgage backed securities. Many times MBS are used as part of capital requirements. Marked to market causes capital requirements to be drained fairly artificially.

Next, I would eliminate the capital gainst tax for any investment made in the next three years. In other words, any home, business, or other investment purchased in the next three years would face absolutely no capital gains tax if and when the gain is realized. This will spawn some much needed investment and home buying.

Next, I would eliminate all fees and taxes on early withdrawals from IRA's, 401ks, and any other retirement vehicle if the withdrawal is used for the purchase of a property. Such a suspension would be another help to the distressed housing market.

I would also immediately halt the bailout and announce that any further bailouts would only come under the most extreme of circumstances. While I am firmly against any bailouts, I also would want to leave myself some room for a very disastrous situation.

I would also set up an advisory committee to look at regulating two markets, credit swaps and loan modifications. While I am generally against regulations, these two highly unregulated markets are open to a lot of abuse and fraud. I would be hesitant to institute and mass regulations while the economy is weak, but it would be a priority to look at putting in some much needed regulations in these two markets. On that note, I would reverse and halt all federal government interventions that encourage loan modifications. The FDIC, for instance, is now insuring loan modifications. My government would not be in the business of rewarding irresponsibility. Loan modifications occur when a borrower gets a better loan because they can't afford the one they have. Federal government help for such behavior would end right now.

This would all be combined with John McCain's idea of a freeze on all non essential government spending. Under my administration, we would attack the weakened economy be encouraging the private sector and keeping the federal government as far away as possible. Keeping spending down would limit the deficits we would incur by dropping taxes dramatically.

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