Posted by
Pete Zimmerman on Sunday, September 12, 2010 12:01:08 PM
Politicians and economists
these days are having endless debates on how to turn the ailing economy of the
United States around. To many of
these individuals the answers seem quite clear, they range from extending the
Bush tax cuts, either temporarily or permanently, to passing even more stimulus
spending to induce demand among consumers. But the element missing from most of
these debates is the strong link required to instill consumer confidence and
drive a recovery.
Depending on which political
camp you fall into, you likely fall on one side of these arguments or the
other. But what will drive consumer and business confidence and increasing
consumer demand? This is critical
because until consumers are confident that we are on a clear path as a country,
they are not going to start spending and they are going to continue to doubt
future economic conditions.
Many democrats and most
republicans understand that it is not a good thing to raise taxes in the middle
of the worst recession in recent history, but ordinary people and business
owners want more. They want to be assured
of what is going to happen down the road.
If tax cuts are extended temporarily for a year or so, they are afraid
once the economy improves just a little, that politicians will have their hand
on the trigger and new tax increases will be right around the corner.
Barack Obama campaigned on a
promise to raise the taxes of the wealthiest Americans, never mind their status
as job creators. He defined the
wealthiest Americans as those making over $250,000 a year. If you fall into this category, your
taxes will go up. And so the
majority of this country, which make far less than $250,000 decided to give
this plan a go. So now President
Obama feels obligated to keep his campaign promise come hell or high water.
But great leaders recognize
that you need to be flexible in changing circumstances. One of the biggest problems we face
economically right now is a lack of confidence, both among the working class
and business owners. Neither group
is confident as to what will happen tomorrow, nor even 3 to 6 months down the
road. And without that fundamental
confidence, our economy is going nowhere fast. Businesses will not hire and people will not spend. If the federal government sent everyone
in America a check for $1,000, most people would probably either pay off a
credit card, or put it in the bank.
Not many are confident enough to go out and blow it on consumer goods to
boost the economy.
So what needs to
change? The obvious answer is
consumer confidence and small business confidence. In order for that to improve these groups need to be assured
the government (the administration and congress) have a plan. The plan should include lower tax rates,
and the rates should be made permanent.
In addition, it is critical that spending be brought under control. Government spending has just about gone
off the cliff to the point of no return, and people are scared to death we
might never recover from the huge debt we have piled up.
Thus the popularity of the
Tea Party and the calls to stop spending are being shouted from the
housetops. Once our government
gets the message and installs a plan to lower taxes and lower spending,
consumer confidence, and small business confidence will naturally turn
around. Once that happens spending
accelerates and businesses prosper.
Business can then pay more in taxes based on more income/profit and
government debt begins to declines.
But the bottom line is that
there is a strict order to things.
We can say we are going to have lower taxes for a few months, or for a
certain part of our population and expect positive results, but it is just not
logical. People crave security,
and not knowing whether taxes are going up or down, or how the new health care
law for that matter will affect their future, means security will be lacking
until a firm plan of fiscal responsibility is put in place. Once the fixed plan is in place, people
can start spending again and living their lives more confident in the direction
of our country and of our economy.