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Friday, November 19, 2010

To Save or To Spend

These days we here quite contrary things on the economy.  We are told that with the massive deficits, personal and business debt today, Americans need to spend less and save more or we will never restore economic health.  Then we are told that the economy is dead in the water because consumer spending has slowed down and that we must spend, spend, spend to get it going again. Which should do?


That's right, both.  The most serious problem we are facing is not the national and personal debt.  Nor  is the lack of consumer spending.  as serious as each of those problems are, they are symptoms of a greater problem.  The growing disparity of wealth and income.  The middle class is shrinking, the poor are getting poor, even the rich are often losing ground to the wealthy few. Income, property and saved wealth are concentrating in fewer and fewer hands.

By itself this is problem.  The economy exists to serve people, not the other way around.  We will never have economic health so long as most people do not benefit from economic activity.  No recovery that leaves most people worse off than before the recovery is economically healthy.  But that is the kind of recovery we are being offered, if any.  No we need a recovery were more people own homes, more people have jobs and more people have rising wages and benefits. If those who have wealth still benefit, so be it. But never at the expense of basic human needs like a decent home, health care, food for the family, education, etc.

So what do I propose?  I don't have a complete economic proposal ready made, and bow to many ideas that others have.  I do see the need for jobs programs, restoring the social safety net, protecting education and health care, and rebuilding our infrastructure.  I also see the need for many local economic initiatives. And private stimulus as well It see the need for prudent spending on both levels.  So how do we do this.

One step is to change the incentives of our tax structure.  I am suggesting that the poor and the moderate income get more tax advantages for saving, into retirement accounts, home purchase accounts and education accounts.  Above the lower middle income, those deductions would be reduced, and over $250,000 they would go away.  A different set of deductions would come into play over $250,00.  Deductions for spending., Spending by hiring, spending on machinery for factories and businesses, investments in infrastructure bonds and everything else we need the wealthier to spend on to stimulate the economy.  If they don't spend it would be heavily taxed for the needed social safety nets, infrastructure development, and deficit reduction.

This will tend to create greater income equality after tax deductions and  later, after job and infrastructure creation and safety net restoration.  At the same time the lower income would be secured by bank accounts for needed things like housing and retirement.  Our economy would be stimulated by the spending of the wealthy.  Unemployment would be reduced.  And we would have tax revenues to pay the deficit.

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