Boosting the economy

Even though the economy basically has stalled, it is still possible that it can be revived before it enters the history books as one of virtual stagnation.

So far the recovery since 2010 appears to be the shortest and shallowest in living memory. The way to change this may not strike a resonant chord with those left wingers, the “know nothings”, who fail to understand or appreciate the way that business functions.

We must cut taxes, and before some throw up their hands in mock horror, if it were done properly, it would raise government revenues  – that has been demonstrated in the past. The right tax cut, combined with reducing red tape and some regulations, would stimulate the economy and start the unemployment numbers falling down significantly.

Under ordinary circumstances, those who favour minimal government spending, would approve cutting all taxes. However, obviously of course that is impossible, so we should focus on one tax cut where history shows it works, better than almost any other measure: a cut in the rate on capital gains.

High taxes on capital gains certainly hinder the incentives and ability to invest. If one taxes something, obviously there is less available to use. Taxing capital gains directly curbs and cuts funds to invest by any entrepreneur.

The cost in revenue is almost non-existent. If the tax were cut in half, plenty of individuals would profit from the lower tax rate and sell something that previously would attract a higher capital gains tax.

This is exactly what happened in the 1980s in the United States. As many took advantage of the tax cut, revenues poured into government coffers from people who were inhibited from taking a capital gain because of the tax it would have attracted. In any event all capital gains are taxed eventually as income, dividends or wages.

The tax on capital gains started under Prime Minister Pierre Trudeau, reminiscent of an ideology that looked on private initiatives as something inherently inferior compared to government-financed projects.

This change in the capital gains tax should be accompanied by an international agreement so that funds leaving here would be considered tax-free as capital gains taxes had been paid.

This would make international funds flowing here, anxious to avoid a capital gains tax. Too, there would be an increase in overall investment stemming from the lower cost of financing.

Also more government revenues would reduce budget deficits. Clearly, the time for this change is now.

 

 

Bruce Whitestone

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