5 Ways Government Can Kick-Start the Economy

The Inflection Point submits:
With the U.S. economy showing a second quarter slowdown in its rate of growth, the question arises does the economy need another jolt to boost output? If so, what should be targeted to boost the growth? With deficits on everyone’s minds I have considered them as well but am of the belief that currently, a deficit is less important than getting the economy growing. Below I have highlighted 5 ways which could help boost the economy. The consumer remains a focus, since the consumer makes up about 70% of US GDP.1: Incentivize consumer spending: Consumers have rightfully been paring down debt. But to offset this economic drag, incentives can be offered to the consumer to spend. Think of what the auto dealer does as the new car year approaches. The dealer offers large incentives to clear out the old car inventory. Eventually the inventory is depleted making way for the new cars. How though, to incentivize consumer spending? One way would be to lower personal income taxes. A decrease in taxes would leave more for the consumer to spend.2. Lower the capital gains tax: Decreasing the capital gains tax would encourage the large number of Americans who earn their income from capital gains. Since this is likely to affect those higher in the income brackets, maybe this should be lowered less than the regular income tax. Regardless of how much it is lowered, it will have a stimulative affect in two ways. One, it will increase the amount left over following, for instance, a stock sale. Two it will encourage businesses to form since they know their gains will be taxed at lower rates.3. Phase in the health care legislation to firms hiring new employees: For businesses growing rapidly and that hire new employees, the health care legislation that just passed could be slowly phased in for them over time. Rather than face a wall of new health insurance rules, firms hiring more than 10% of their work force in each of the following two years would be exempt from the health care reform for a total of 4 years.4. Increase infrastructure spending: This is already happening with the Obama stimulus plan. But much more can be done. This would be money well worth spending. A friend of mine once commented that she knows when she is nearing the New York City vicinity when the noise from the potholes becomes louder. I am sure there are many parts of the country that could use an increase in infrastructure spending. Infrastructure spending could come mostly from the government but perhaps a small increase in a gasoline tax of $0.01 – $0.02 per gallon could offset some of the spending. The amount of spending would have to be significant but it would be useful for three reasons. 1 - It would upgrade the infrastructure for the future; 2 – It would have a multiplier effect as construction workers spend their money in the local economies they work in; and 3- it would boost the morale of Americans as they saw ‘economic’ activity increase. During the Depression Rockefeller built Rockefeller Center and the Golden Gate Bridge was also constructed during the 1930s.5. Incentivize lower income workers into becoming higher income workers by incentivizing education: Studies have shown that a worker with a college degree earns more than one with a high school diploma. The government can provide extra low interest student loans for wage earners who wish to further their education. Also, the government can reward firms with tax breaks that provide financial incentives for their employees to complete or continue their education. This will take some time but in a few years could provide further stimulus once some of the above stimulative effects wear off.There are other ways to stimulate the economy but these are some I thought of as a start.Authored by Tom Henderson, Strategist JBH Capital.Disclosure: There are no disclosures to make.Complete Story »