Economic Fix

From Barry Ritholtz of The Big Picture Blog, comes 7 ways to fix the economy:

1) One Year Payroll Tax Holiday: Want to increase job creation and reduce unemployment? Tax it less. A 12 month employer FICA holiday will encourage job creation.

How to pay for it: Raising both the retirement age and the cap on FICA contributions.

2) Capital Investment 1 year 100% Deduction: The administration has already proposed a variation on this. It was an effective tax credit when done in 2004-05, but the drawback was it encouraged CapEx over new hiring. The idea of the payroll tax holiday is that it prevents that drawback.

How to pay for it: Via gains from the Corporate Tax-Free Repatriation (#3)


3) Corporate Tax-Free Repatriation: US corporations are sitting on trillions of dollars of cash in their overseas divisions. A one year tax holiday to bring that back to the US. It can be structured in tiers (0%, 5%, 10%). The goal should be to bring to the US a trillion plus in overseas profits.

How to pay for it: Its free; These are overseas revenues that are untaxed by the US.


4) Pure Science R&D Program for Alternative Energy: Gains in the basic science of solar energy conversion, battery storage, alternative biofuels, etc has been incremental. The private sector does not patience for multi-year or basic science R&D.

How to pay for it: Via a Pigouvian tax on gasoline, phased in over 5 or 10 years.


5) Mortgage Principal Write Down Plan: Buyers paid too much, banks lent too much against residences at the top of the RE cycle. To get the sector healthy again requires prices to normalize, which is now occurring thru Foreclosure. An alternative is a voluntary principal write-down, where both the borrower and lender split the losses. An underwater home is refinanced at its 2011 appraisal value, with the mortgage shortfall rolled into a 10 year interest free balloon payment. Banks cut the balloon loan in half in year 10, rolling it into the existing mortgage (assuming the owner stays current on mortgage).

How to pay for it: There is no costs, but Congress would need to make the 10 year zero interest free tax free, and permission the banks to defer reserving for eventual balloon defaults for the same 10 year period.


6) Electrical Grid Refurbishment: This is both an economic and national security issue: The electrical grid is an unreliable mishmash of public and private ownership, vulnerable to both blackouts and cyber-attacks. It needs to be upgraded yesterday.

How to pay for it: A one cent per kilowatt hour grid tax.


7) Airports, Ports, Roads, Bridges, Tunnels: The US was one of the first nations to build out a massive interstate highway system. We love big construction projects, but we seem to dislike the maintenance. Most of the transportation grid in the US is falling apart, in need of a massive repair. Many US airports look like they are from 3rd world countries.

How to pay for it: Usage tolls on roads, ports, bridges, landing slots.

From: http://www.ritholtz.com/blog/2010/09/economic-stimulus-try-these-7-ideas/