The recent market downturn has produced a lot of worry as markets around the world decline and investors witness the evaporation of wealth worldwide. It’s been ugly. In the United States, we continue to feel the fallout from the decline in the housing market, which was the catalyst to our financial woes. How we got here and who is to blame is another story. The only thing for certain about the economy is the uncertainty. The fact of the matter is that we had a terrible recession and our economy’s limping along. We need our political leaders in Washington to be decisive and step up to the plate with ideas for growth. A growing economy would go a long way toward solving our country’s fiscal problems.
An Energy Policy That Makes Sense
We, at Investment Insight, attribute the slowdown in growth in the second quarter partially to the increase in the price of gasoline. Every consumer dollar spent at the pump is a dollar not spent in other areas of our economy. Current policy on energy is not focused in the right area (natural gas). It is estimated that we have a domestic energy supply of natural gas that can serve our energy needs for the next 150 years. One major hurdle is that the preferred extraction method used by energy companies to extract the gas, known as “fracking”, may cause the water in wells to become polluted by the chemicals used in the process, or by methane gas released in the process. Polluting our drinking water is unacceptable.
We should be spending billions (use some of the unused stimulus money) to develop safe ways to extract the gas with minimum pollution to our environment. We should also be investing in building additional infrastructure to support the transmission of gas throughout the country.
For those who may argue against this in favor of renewable energy, while renewable energy is a good thing, current technology cannot even come close to fulfilling our energy needs. It needs to be put on the back burner so that we can have a laser like focus on developing natural gas. For those who say natural gas pollutes too much, it’s the cleanest abundant source of energy we have at our disposal. Even the “green energy” manufacturing process produces pollutants. What do you think the byproducts of mining and refining silicon, cadmium and copper are? What about manufacturing plastic? What about the disposal of old solar panels? Windmills are made from steel and a host of other metals too.
If we could successfully develop our natural gas resources, we could decrease our dependence on foreign oil in a big way. The law of supply and demand says that once our abundant natural gas comes on line, the diminished demand for oil will cause prices to decline.
The benefits to us as a nation are many, including increased national security through a stable energy supply, a decline in our trade deficits because we aren’t buying as much foreign oil, the creation of many private sector jobs, and the tremendous opportunity for growth that would occur in our economy as a result of stable energy prices and supplies.
Once these objectives have been achieved, we should turn our attention with the same laser like focus toward the creation of renewable energy sources.
Job Creation Now
How can we rebuild the manufacturing base that has moved overseas over the last several decades? By allowing companies that wish to build and operate manufacturing facilities within the United States to receive preferential tax treatment (0% tax) on profits, as long as the manufacturing of the product takes place within the United States.
This has the potential to create a large base of manufacturing jobs and wealth within our economy. It will not cost the American people anything, because presently these companies don’t exist, so there is no loss of tax revenue.
The workers (currently unemployed and paying no income taxes) that would be employed by these newly formed manufacturing firms would pay federal, state and local income taxes, thereby reducing government deficits. It would also shrink the size of the budget, because less people would require government assistance.
Additional benefits to this proposal are all of the peripheral businesses that would be created to supply these businesses with goods and services. It’s not inconceivable that there could also be a turnaround in construction and the real estate markets, as investors scramble for prime manufacturing properties and the housing that will be necessary for people who can buy homes, and actually pay a mortgage.
If my theory is wrong, and only a handful of jobs are created, it didn’t cost the taxpayer a dime.
Tax Code Reform
We are in desperate need of tax reform. It takes a lot of time and effort to maintain your records for the preparation of your tax return. Many people need to hire a CPA because they, either can’t prepare their return, or don’t want to take a chance of making a mistake on their return for fear of an IRS fine. The bottom line is the tax code is thousands of pages long and extremely difficult to understand. Something’s wrong with this picture.
The solution is to simplify the tax code and implement something as simple and as fair as a national sales tax. Everyone would participate and those who consume more will pay more. All purchases are taxable at the same rate. Even those flying under the radar not paying taxes would begin to pay tax.
This is obviously not the only idea when it comes to tax simplification. However, this proposal and others like it should result in economic growth through increased productivity. It would also shrink the size of government as tax collection and enforcement now would require substantially less personnel.
Conclusion
In conclusion, these ideas might not be the answer, but at least they begin the conversation on how we can solve some of our problems. The ideas of more debt and printing money, or just plain austerity aren’t the answer. When it comes to fresh, creative and well thought out ideas on how we can grow our economy, the silence from Washington is deafening.
