Let's look at where we are. At current, people have stopped spending and are sitting on the fence with regard to making any purchases, whether it is for a car, carpet, couch, computer, etc. Because people have stopped spending, businesses are going bust and the Government is becoming the safety net for these failing businesses. This results in the move towards a more socialist type country where the government controls the capital. The problem is that the government's infusion of borrowed cash, only serves to delay the inevitable - namely, more business failures - because bail outs don't solve the problem of the lack of consumer demand. That's where this tax credit proposal comes in.
Back in 2003 the government offered a section 179 expensing limitation of up to $100,000.00 for purchases of new equipment. At the time we weren't thinking of purchasing a new back hoe but, with the incentive of a one time depreciation credit, we did. So, we purchased a brand new Kubota for $30,000.00 and took the offered credits on our tax return and saved oodles. Again in 2008 the government is offering this deduction plus a 50% depreciation expense in the first year. Accordingly, the net result should create an incentive for spending by businesses to say the least and I think the same concept will work again today not just for businesses, but your average consumer.
The tax credit will work because it is targeted to get people off the fence and into the stores in record numbers and it could happen quickly, even this December. Rather than give failing companies more cash to squander, the government would give the money back to the people in the form of tax credits on their 2008 tax return for up to $15,000.00 maybe 20,000.00 per household and $5,000.00 or higher per individual for purchases of anything from a domestic car from the big 3, a vacation in the US, to a new yacht. Virtually any business could be targeted to benefit from this stimulus package and the resulting movement of inventory.
If couples knew they could deduct up to $15,000 or $20,000 off their tax liability on this year's tax return, if they purchased any combination of items slated for a tax credit in the month of December, chances are they would. This would solve a lot of problems, for starters, you would see a lot of sitting inventory, move. The movement of inventory creates an infusion of cash to business and the need for more inventories would create a demand for jobs. An increase in jobs means lower unemployment. With more people working, more people will begin to spend again. And so begins another business cycle in a capitalist economy, one in which the government gets out of the way and lets the laws of supply and demand in a free market control.
In this scenario, the government is not involved in owning businesses but in helping businesses get what they need, namely, demand for their products. The best thing about this type of stimulus package is that specific industries can be targeted and different amounts of tax credits could be offered. Right now the auto industry is looking for their handout which would not result in the movement of inventory or the creation of jobs and instead the money goes to paying expenses. This is not only wrong it's STUPID.
Under my stimulus alternative, there could be a tax credit of $5000.00 or more for the purchase of an American made car and for solar panels, house purchases, equipment, braces, dentures, durable goods, hardwood flooring, vacations, roofs, windows, electronics, furniture, 2nd homes, exercise equipment, hot tubs, additions, televisions, patios, siding, you name it. What's more, you could implement it right away, perhaps this December and make it deductible this year, just in time to make the Christmas season, merry for everyone. And revenues to the government coffers which come in from sales, income and payroll taxes from this proposed stimulus package might be up enough to compensate for the decrease in revenues from the lack of sales, increasing unemployment, sitting inventories and business failures that we now face.
Wondering how it would work? Well, a tax credit goes right to the bottom line, so if after you fill out your tax return, you owe say $10,000.00 in taxes and you took advantage of the one-time tax credit for a vacation of $5,000.00, your tax liability would be only $5000.00 for 2008 or if you were filing as a couple and had a $10,000.00 tax liability and qualified for $15,000.00 in tax credits, then the government would owe you $5000.00.
One thing is certain, if we keep going the way were going, were going to see more businesses fail as the people continue to spend less and less which causes more unemployment and a greater constriction of the economy. Tax credits are a stimulating alternative to bailouts because they would cause a tremendous influx of cash to the economy at large and end the recession we are now living through.
