Thursday, October 16, 2008

A radical approach to dealing with the financial crisis

WRT the economy, I think the various notions being floated or practiced now are dangerous nonsense. Nationalizing the banks or debt will further distort the economy and lead to inflation. Given the sordid history of State intervention in the housing market which caused this mess in the first place, I would be very reluctant to accept that further direct intervention in the economy can "help". Someone needs to take the lead with a more radical approach that restores liquidity and confidence without breaking the bank. For a Canadian solution I propose:

a. Eliminating business income tax entirely. Business does not pay tax anyway, but simply passes on the costs to consumers. Dropping the tax will free up massive amounts of resources to retool, pay off debt or whatever else the owners see fit, and give the overall economy a huge boost. The political criticism from the "Progressives" and regional interests can be deflected by pointing out that every business and every region will benefit without prejudice or special favor, and the amount of funds released into the productive economy will create many new jobs. The $50 billion in business tax cuts that Jack Layton wanted to take back is the resources to create 1,000,000 new, full time jobs. That's a lot of kitchen tables.

b. Institute a single tax (AKA Flat tax). Eliminating all loopholes, exemptions etc. will make revenue collection much easier, and also deflect criticism from the "Progressives". As a bonus, a single tax can free up about $3 billion after tax dollars a year in compliance costs to taxpayers and business; more funds that can flow to the productive economy pot.

c. Eliminate corporate subsidies as a partial payment for "a". Corporate subsidies cost an estimated $19 billion per year to the taxpayer, probably a lot more if regional funds, special initiatives to "selected" industries, agriculture, arts and culture etc. are included. Since the business world receives a huge boost from eliminating business tax, dropping subsidies is a fair trade off, and since the elimination of business income tax will assist all business, calls for corporate subsidies to "selected" industries and regions can be muted.

Can such a plan be implemented? Prime Minister Harper has demonstrated a great deal of skill in handling a fractious parliament in the past. The plan can appeal to both the business wing of the Liberal party (by helping business nation wide) and the "Progressives" of all stripes by providing resources to create new jobs across all sectors of the economy and all regions. Careful explanation and stickhandling through parliament will be needed to get this passed, and I am not sure that even a global financial crisis engulfing the Canadian economy like a tsunami will cause politicians to drop petty partisan differences for the greater good.

Still, forward this plan to every person and media outlet you can; discussion can only increase the number of options that can be considered.

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