By the same token, there is zero incentive to increase employment or production if their is a lack of demand.
ah, but unrealized demand is infinite, remember?
There
is high demand for luxury cars in America right now -
just not at current prices. The innovator who can figure out how to lower the price of a mercedes-benz quality vehicle to $3,500 will find out that he has plenty of demand indeed.
if you want to increase economic activity (growth), therefore, you need to find ways to increase the creation of supply and enable innovation. Except that our innovators are our small businesses - and it is they who feel most heavily the burden of governance. Large businesses
like regulatory states. They can typically steer the regulatory committees, and it increases the cost threshold to get into the business, thus protecting them from competition. It's the
small businesses that create jobs and are the strongest engines for long-term growth that suffer when we increase regulation and taxes.
The lack of demand is stemming from deleveraging and a lack of disposable income for the lower income brackets, not tax rates on the wealthy or lack of production.
You are right on everything except for the last point. Businesses are currently sitting on unprecedented amounts of cash for the simple reason that nobody knows what shoe is going to drop next. Is the EPA going to be able to pass it's law effectively killing any new power plants, thus sending up the price of energy? Are the tax rates about tho jump? What will Obamacare cost and require? What will the impact of Dodd-Frank on my business be? Nobody knows the answers to these questions, and so everyone holds their breath and hopes for the best while preparing for the worst.
I would be willing to take the Bowles-Simpson Tax plans that left us with
higher effective tax rates
just so long as they were left stable.
Regulations could certainly be scaled back you have no argument from me on that point.
fair 'nuff
I didn't call for increased government spending (stimulus) or higher tax rates, but additional tax cuts wouldn't stimulate demand in this economic climate, nor are they feasible in my humble opinion.
I would say that it's less the nominal rate changes, and more the efficiency savings. In 2010, America spent about $431 Billion in compliance costs - most of it trying to figure out and then minimize our exposure to the tax code. $431 Bn is roughly the entire economy of Taiwan. It is enough to fight Iraq, and Afghanistan while funding the Department of Agriculture, Department of Education, Department of Energy, and NASA. Reducing
that drag on economic activity through tax code simplification would be where I would look to if I were looking to stimulate economic activity through tax reform.