Capital Gains Tax

I'm tired of hearing the Robert Gibbs, the Obama team, and my liberal friends claiming we're criticizing Obama's budget but that we don't have any cogent policy solutions of our own. Newt has always been a font of ideas, almost too much so. So I'm starting this thread to ask, if you were President, what policy and budget priorities would YOU be sending to Congress.

Brave fellow and glutton for punishment that I am, I'll go first. It's by no means complete (no housing policy for example), but it's a start.

My message to Congress is in four parts. First, stabilize the economic ecosystem and stop the fear that's spreading now to all sectors of the economy as they assess the impact of the recession combined with radical reforms like health care reform and energy policy.

1. Table the cap-and-trade debate until economic growth returns for at least two straight quarters.
2. Table major health care reform til 2010, but help the uninsured and our emergency rooms through Medicaid and S-Chip, and continue discussion of Community Health Centers as a small-scale solution targeting medical services to the uninsured.

Second, we need to have tax policy that attracts investors back to the markets and allows for capital formation that will drive business creation, expansion, and jobs in the private sector -- and keeps some money in the pockets of individuals so they can spend, save, or pay down debt.

1. Permanent indexing or elimination of alternative minimum tax
2. Leave Bush tax cuts in place til 2012
3. Cut or eliminate the death tax
4. 5-year tax holiday for long-term cap gains
5. 5% reduction for short-term cap gains

Third, the federal bureaucracy needs to manage the budget responsibily. In business, millions of managers are challenged every year to reduce expenses while maintaining output. In bad times, those reductions are steeper, and pay is frozen or cut. Time for government to do the same. Items 6-7 are already in the Obama budget.

1. The President should defer his salary for two years, be an example to those greedy CEOs.
2. Implement a 2-year freeze on Congressional compensation (including staff)
3. 5% across the board reduction in administrative and operating expenses for all federal departments and incent managers to acheive these reduction through bonuses
4. Freeze all discretionary spending, except for unemployment compensation
5. 50% cut to travel and entertainment budgets in the legislative and federal branches
6. Account for supplemental spending estimates (wars in Iraq, Afghanistan) in the budget
7. Means-testing for agriculture subsidies

Fourth, we need an energy policy that protects the environment and improves our security by expanding the role of non-fossil fuels in our energy mix, while keeping costs low.

1. Increase the tax write-off for installation of solar panels from 30 to 65% for residences and businesses
2. Fund and accelerate licensing to build 10 new nuclear power plants in 3-5 years to power the electric grid and hybrid cars
3. Provide new incentives for domestic natural gas production and use it as a transitional energy source 

A remarkable thing happened last night on the MSM. CNBC Mad Money host Jim Cramer yesterday pinned the tail of recent stock market declines squarely on President Obama's backside. It was remarkable opening commentary, from a Wall Street guy who admits to supporting Obama's policy goals and who all but endorsed his candidacy during the campaign.

Only twice before in my memory has Cramer ventured into the political realm to assign blame for stock market performance -- last summer and fall, respectively, with Bush deficits and Bernanke/Fed inaction on the collapse of major investment banking firms.

Cramer's treatment of Obama was gentle compared to the spitting-mad tirade he threw at Bernanke ("'They know NOTHING!). 

Cramer says nothing we haven't heard at this and other conservative blogs -- except to agree that national health care, cap-and-trade, are good policy objectives, they just have to be pursued at the right time.

At the same time last night, David Gergen commented on Anderson Cooper that Obama's team seems to be losing focus, pushing too many ambitious policy goals to the point where they are starting to undermine the foundation objective of stabilizing the economy.

All of this commentary points to one of two possibilities: Either Obama is an overly ambitious Harvard guy, naive about how much change the national can absorb in a year, or he is a reckless ideologue -- he just doesn't care if his accelerated agenda wipes out private savings, because he is so absolutely certain in that "righteous wind at our backs."

Cramer himself raised the possibility that maybe he "just doesn't care about the stock market," and implored Obama to show otherwise.

As if in response this morning, Obama says he won't base policy on the "gyrations" of the financial markets.

Fair statement, but it only proves Cramer's point: There is no gyration in the markets; it is a freefall collapse. Were that we were seeing gyrations! Two and three hundred point drops wouldn't be so troubling. But the decline, since the election and inauguration, has been steady and strong, especially after Obama policy pronoundements.

If capital is indeed on strike, and stays on strike, Obama's confident words this morning about a 2009 recovery ("I'm certain of it") will come back to haunt him, just as John McCain was quickly haunted by his statement that the fundamentals of our economy are sound. It will be no satisfaction to see, given the suffering that is being inflicted.

Since none of our so-called leaders are going to present an alternative economic recovery package, I'll do it myself.  Items are in no particular order except the order in which they came to me.

1) Slash the Corporate Income Tax Rate to 15% - The United States currently has the Second Highest Corporate Tax Rate in the World.  This puts our companies at a gigantic competitive disadvantage internationally and retards both job growth and the stock market here at home.  Cutting corporate taxes will spur a business led investment boom in the United States.

2) Make Bush Reductions in Capital Gains and Dividends Permanent - While I would love to slash these grossly counterproductive rates further, that's not feasible politically at the moment.  The next best thing would be to send a permanent signal to financial markets.

3) Abolish the Employer Half of the Payroll Tax - As liberals frequently point out, 80% of taxpayers pay more in payroll taxes than income taxes.  They deserve a big tax cut.  This will also act as a major job creation mechanism.

4) Pass Colombia, South Korea, and Panama Free Trade Agreements - This move is more symbolic than substative, however, it is crucially important.  Passing these agreements would signal to our trading partners that the United States will not turn protectionist like we did in the 1930's.

Passing the Colombia agreement would also weaken an increasingly despotic Hugo Chavez.

5) Establish a 15% flat rate on All Income - This will leave Americans with more money to spend, invest, or do whatever the heck they want to do with it.  It will also do away with the deadweight loss from tax code complexity.  Many other Countries have done this successfully.

Should this prove politically unfeasable, we should still strive to do this for everyone except the top income tax bracket.

6) Create A National Market for Medical Insurance - Rising Medical Costs have been a major economic drag for the past decade.  While the reasons for this are worthy of their own blog post, creating a national market for Medical Insurance instead of 50 separate state markets is the easiest way to lower costs.

7) Drill, Baby, Drill - In addition to harming those nice guys in Tehran, Moscow, and Caracas, increased energy production at home will create oodles of jobs.  It might even make the auto bailout a moot point.

8) Immeadiate Expensing for Business Investment - This will also create a boom in business investment.

9) Boost Defense Spending - This is a policy I support for other reasons.  That said, defense spending has a higher Keynesian Multiplier than anything President Elect Obama is proposing.

10) Abolish the Alternative Maximum Tax - This wildly unfair tax should just be abolished.  I don't care about the rationale.

11) Abolish Sarbanes/Oxley - This onerous regulation, passed during the Enron panic, drives capital and businesses overseas without preventing fraud at home.  Repeal of SarBox would ignite a stock market boom!

12) Abolish Mark to Market - This obscure accounting rule forces companies unnecessarily to lower the value of their assets relative to what they could be sold for.  This was a major factor in the credit freeze.

13) Abolish the Death Tax - Any change in tax policy that both antagonizes liberals and hurts Warren Buffet must be a good idea.