More steps...

Newt Gingrich is promoting 12 steps that would lead to recovery and prosperity. Positive Spillover took a look at four of those steps. Time for to look at a few more... but first a word from Milton Friedman via Harvard economist Greg Mankiw:

The role of the economist in discussions of public policy seems to me to be to prescribe what should be done in light of what can be done, politics aside, and not to predict what is "politically feasible" and then to recommend it.

1. Control spending so we can move toward a balanced budget:

A balanced budget amendment is not the only way to achieve this. We could, and should, impose rules on spending. When tax revenue is strong there is tremendous pressure to spend, to introduce new programs and initiatives. These new programs and initiatives give rise to new interest groups who advocate for more spending. Then, when tax revenue falls or grows more slowly we're caught with a "shortfall." The process of proposing a budget should be changed and that will lead to a change in thinking and language. Currently a "shortfall" is reported even when revenues are growing. It is only a shortfall to the extent that revenues aren't increasing as rapidly as projections, projections that were used to come up with the current budget.

2. Abolish taxes on capital gains:

The objection here is, typically, based on an equity argument. Affluent people realize capital gains. Why should we cut taxes to benefit the affluent? True enough but there are other, better ways, to address equity. Making affluent people less affluent doesn't help those who are not affluent. Income and wealth inequality tend to decrease during recessions. Are they good for less affluent people? The best thing you can do for low-income people is to expand opportunity. Investment, which will increase if we stop taxing it, provides opportunity. Overall there should be less focus on income distribution and more on growth. It is not relative improvements that we should concern ourselves with but absolute improvements. Some numbers will help...

Suppose two households, one making $500 per week and the other making $1,000 per week. They both realize a 10% increase in income. Both are better off even as their incomes become more unequal - from a $500 difference to a $550 difference. Do you think the lower income household would trade this change for one in which incomes fell to $450 and $800 respectivley? In such a case the income inequality would be only $350.

3. Abolish the death tax:

A simple question... Why should a person who saved money to leave to his children be taxed at a higher rate than a guy who spent all his money on himself?