Jump Starting the U.S. Economy

I always find it interesting how ideas travel through society. Sometimes they are infectiously passed along like a virus; other times they spontaneously appear in multiple places at once, as an obvious and logical response to situations.

This has been on my mind this week. The second slowing of the US economy, the problems in Europe, the slowing (not slow down) in China, all trace their path to the overhang of the credit crisis.

Some of the policy conversations involve things we have discussed before:  Tax-Free Repatriation for overseas corporate cash, Payroll Tax Holiday, Infrastructure rebuild, the 100% capex deduction.

We were willing to spend trillions on Iraq, and trillions on bailing out reckless bankers, and we are still spending $100s of billions of dollars in an ill advised back door bailout of banks bad mortgages by moving them at full value onto the taxpayers via Fannie/Freddie. Why not spend trillions on the national economic infrastructure instead?

If you were going to give me a 10 figures to stimulate the US economy so that the next expansion could proceed, here’s what I would do:

1) Greencard for Buying a home: This idea has been floating for a while, and its time to give it serious consideration. The problem with the US housing market is simply to much supply relative to the outstanding demand. That can be brought into balance by finding more qualified buyers. Post 9/11, we tightened up immigration rules excessively. Its time to bring in more scholars, engineers and well educated people from the rest of the world.

2) Corporate Tax-Free Repatriation: US corporations are sitting on trillions of dollars of cash in their overseas divisions. A one year tax holiday to bring that back to the US. It can be structured in tiers (0%, 5%, 10%). The goal should be to bring to the US a trillion plus in overseas profits.

3) One Year Payroll Tax Holiday: The Bush admin overlooked this when they did their version of the accelerated depreciation bill, emphasizing cap ex over hiring. We can increase job creation by Taxing it less. A 12 month employer FICA holiday will encourage job creation.

4) Pure Science R&D Program for Alternative Energy: Gains in the basic science of solar energy conversion, battery storage, alternative biofuels, etc has been incremental. The private sector does not patience for multi-year or basic science R&D.

5) Roads, Bridges, Tunnels: Why does the US love big construction projects, but dislike basic maintenance? Much of the transportation grid in the US is falling apart, in need of a massive repair. Repave everything, and turn our roads into showcases.

6) Electrical Grid Refurbishment: This is both an economic and national security issue: The electrical grid is an unreliable mishmash of public and private ownership, vulnerable to both blackouts and cyber-attacks. It needs to be upgraded yesterday.

7) Airports, Ports: Many of the older US airports are simply awful compared with European and Asian facilities — some US airports look like they are from 3rd world countries. Issue bonds, split the costs with the Airline industry, and make US airports globally competitive.

If we are going to deficit spend on ill advised wars, unfunded tax cuts, new entitlement programs, why not spend money on programs that leave behind a viable infrastructure? Other than the Payroll tax holiday (which offsets the accelerated depreciation law), all of these items leave behind a valuable infrastructure that can be built upon. Even the Housing idea will allow the US construction business some measure of repair.

The focus on Deficits today is absurd, forcing us towards another 1938-type recession. The time to reduce the government’s economic deficit and footprint is during a robust expansion, not during (or just after) major contractions.

During the de-leveraging following a credit crisis is the worst possible time to be deficit obsessed.