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Monday, May 22, 2006

A good policy idea

The regular and guest financial columnists at National Review Online provide anyone interested a real service with the quality of their work. This column by Cesar Conda and Ernest Christian is yet another example:

The recipe for high GDP growth in the future is the same as it was in 2003-04, when the combination of lower tax rates and “bonus depreciation” caused a spurt in investment that helped lead the economy out of recession and toward its current strong standing.

Standard neoclassical econometric models confirm what common sense and experience suggest: Replacing old-fashioned tax depreciation with immediate first-year expensing would add more than $200 billion to GDP, boost wage incomes, and add upwards of 750,000 jobs. Because the static revenue cost of first-year expensing quickly phases out after four years, it is also in the long term the cheapest, most bang-for-the-buck, and most growth-oriented tax change the Congress could make. When you use dynamic scoring that takes into account induced economic growth, first-year expensing costs nothing.

The best and quickest way to promote high growth and better living standards is to accelerate investment in new and efficient capital stock. Even if there were no energy crisis, Congress would still be justified in immediately enacting first-year expensing. After all, it is their duty to help the economy grow and make the American people better off — and expensing will clearly do just that.

Some tax cuts are just lost revenue, some might provide a payback over long periods of time through increased economic activity and some provide rapid payback. Taxes on capital are amongst the most potent of these. This despite the howls of the collectivists and statists!

1 comment:

Hey Skipper said...

I vote for a flat tax on consumption.