How Can We Help to Fix the American Economy? Answer #2

Last week, I mentioned in my blog that the official unemployment rate was 9.8% and the U-6 rate of labor underutilization (includes discouraged workers who are not currently looking for work as well as other categories of workers) was 17.0% for September 2009. Now, the October 2009 numbers are out. The official unemployment rate is 10.2% and U-6 is up to 17.5% for October 2009. So, unemployment has risen further.

How can we help Americans get back to work? How can we help to fix the American Economy? Answer #2 is cut income taxes and capital gains taxes. Some people might not see why at first. But, it not only makes theoretical economic sense, it also works in a practical sense. For example, look at President Kennedy’s tax cut package from the early 1960’s. His package cut both personal income taxes and capital gains taxes. The result … unemployment fell to the lowest rate in 30 years!

Why do income tax and capital gains tax cuts work so dramatically in lowering unemployment and boosting the economy? That’s easy! People want to improve their own lives. Let’s say, you pay 50% of your income to various government entities at the Federal, State and local levels. If the government cuts your tax burden to 40% of your income, you have both the incentive to earn more and the incentive to spend more. It’s no surprise … income and spending go up. But, there’s an added bonus too. Private spending has a much higher economic multiplier effect that many government programs.

America exists in a global economy. If America is to be competitive, it needs to lower personal income and capital gains tax rates. This should help lower the unemployment rate and increase economic growth.

How can we help to fix the American Economy? Answer #2 – Cut Personal Income and Capital Gains Tax Rates.