Punchinello’s Chronicles

January 31, 2009

Actually Stimulating the Economy

Filed under: Just Thinking — Punchinello @ 5:10 pm
Tags: , , ,

Like a lot of people, I’ve been listening to the stories and fairy-tales coming out of Washington about the economy. All these “leaders” and politicians want to help stimulate the economy. How come? Is it maybe because without a strong economy there won’t be any money flooding into their pockets? Maybe.

But what strikes me as important, and apparently is the same for a number of financial people is that all the stories are the same. They begin with a bottom-line premise: The federal and state governments must always come first when being paid. There’s no possible way that either form of government can cut costs or reduce their share of the pie.

Everybody else is going to have to do this or that, tighten belts, lay people off, stop spending. But certainly not the government! Taxes, taxes, taxes, and more taxes. Then there are fees, special costs, loans, bonds, treasury bills and taxes. And lest we forget, there’s the fabulous, magic printing machine!

Here are 3 ways we could use the tax policies and codes to actually stimulate the economy. And none of them require so-called “tax cuts” for the rich or the poor. Even so, the options would use the tax code to help.

  1. Any small or micro business should be allowed the first $100,000 in annual revenues (not profits) tax free.
  2. Allow people to use IRA money to invest in foreclosure properties.
  3. Create something like the Resolution Trust Corporation (RTC) that was used during the Savings & Loan (S&L) crisis of the 1980s.

The first one is something I’m proposing. The second two have been discussed on Bob Brinker’s “Money Talk” program, and make a lot of sense.

Excepting for unprecedented greed on the part of the government, I don’t see why we aren’t at least having a discussion about these kinds of options. There’s no possible way our descendants will ever be able to pay back the $50-trillion (and rising) debt now on the books. As such, we likely will see a devaluation of the American dollar for perhaps the first time in history.

And yet that seems preferable to our “brilliant leaders.” With capitalism being blamed for the problems instead of raw, unadulterated profiteering and greed, we can’t even use good old American inventiveness to fix the problem! Anyone with a brain understands that unless you create more “stuff” and sell it, you’re never going to get more money.

Micro Business Revenues

We all hear how the small business sector is the only healthy part of the economy today. Unfortunately, most “small” businesses are actually very large, when compared to a micro business. The emerging ecommerce, Web businesses often are these tiny 1-3 person operations. They often have no capital, little organization, and the owner(s) are doing all the work.

A small business can be any company earning upwards of $100-million/year. That’s NOT a micro business! But if we were to allow these Web startups a hundred-thousand dollars each year to start, with no taxes, that would provide them with investment capital to grow their business. It would legitimize many “gray market” companies, and provide money for employees.

We should also eliminate employee withholding taxes for the 1-2 employees a micro business might hire. At that level, with no money and no job prospects, many employees would rather have the job and not care about the fabled Social Security. They’re also not going to get health care, and typically are working part time.

Remove the massive blockages and penalties to these kinds of individual startups, and see what blossoms.


Back when S&L companies were tumbling like a house of cards, we also have massive amounts of bad (toxic) loans. There were empty homes, default loans, and the same things we see today. The Resolution Trust Corporation was created as a business! True, it was a government structure, but it was designed to buy up houses and loans then try to sell them.

With a unified, central company designed to operate as a business, anyone with money could bid for some of the assets. There was a mechanism in place to set up auctions or to negotiate for best prices and deals. Income from these sales helped the operations of the RTC, and offset costs of buying the toxic assets from failed S&Ls in the first place.

How come we’re not hearing even a whisper of anything along these lines? Why are we only hearing about Trillions of dollars being shoveled into failed banks, with no plan at all to get back that money?

IRA Investments

The theory behind individual retirement accounts is that you put aside money (tax free) each year while you’re working. Then you get to take that money out after retirement age, still pay no taxes, and have money to pay your living expenses (just in case Social Security isn’t enough, y’know).

Why not allow people to use the money in those accounts to buy foreclosed properties, then take any profits from those properties and increase the IRA? As more people get involved, prices for houses would stabilize. Some houses could be sold, others might be rented. Income from the sale or rentals could also be re-invested in the IRA at some formulated tax reduction.


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