Tax Cuts Are Not Tax Incentives

Tax Cuts are so fashionable right now. Apparently, they are needed to create jobs because they (tax cuts) have proven to be so effective with creating jobs over the last 10 years. At least, that’s what we here about the tax cuts for $250K+ folks. Then on the sub $250K folks, the tax cuts are deemed as a “stimulus” because apparently they have stimulated our economy so well over the last 10 years. Stimulated us into mountains of debt is all I can really think of.

There are also those, like a commenter on one of my blogs about QE2 who think that tax cuts are tax incentives. It was a playful back and forth with Ben, and I hope that he’s reading up on his economic theory so we can have a legitimate debate about the failed logic of QE2. The logic is not just failed, but extremely dangerous. Which leads me to the topic of this blog: tax incentives. To further illustrate outside the box thinking as well as make clear that tax cuts are NOT tax cuts, I’ve come up with a really good tax incentives that would definitely “stimulate” the economy:

Make the purchase of Federal Bonds completely tax deductible. I’m not talking about the interest here. I’m talking about the actual money paid for the Federal Bonds. If you pay out $1,000,000 for Federal Bonds, you get to deduct a million bucks from your taxes. This would make the purchase of US Bonds by Americans significantly more attractive than they are right now.

The Federal government can even keep taxing the interest if they want, but the ability to write off what you are loaning the government would provide a massive incentive to investors. Plus, it’s not like the Federal government is not collecting the money. Should it care whether it  gets the money from taxes or from Bond sales?One might argue that right now they are getting both taxes and the purchases of Bonds. Well, that is true in the sense that the Federal Reserve just printed more money to purchase more Bonds. However, with this idea, it would be the American taxpayer ONLY who would realize the real benefit of this offering. It would provide a huge tax incentive to any taxpayer (individual or corporation) to lend our government money. The proceeds of Bond sales would go up significantly.

This is Democrat, Republican, and Tea Party proof. Going with typical stereotypes of each political party: The Dems get money to spend. The Republicans get lower taxes. The Tea Party gets less Federal Reserve! It’s a win, win, win!


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