Tax Cuts
As any first semester student seeking an MBA can tell you, most money to fund business growth comes not from the sale of equities, but from retained earnings and debt. Debt, in the form of bonds, bridge loans or credit facilities, allows businesses to grow, to add capacity, to gain market share and to hire new employees.
However, in a time when our savings rates are (and have been) the lowest in the developed world, our tax policy favors speculation, rather than savings. Capital gains, from investments in stocks for example, are taxed at a favorable rate while 1099 interest income is not.
Tax Cuts
As any first semester student seeking an MBA can tell you, most money to fund business growth comes not from the sale of equities, but from retained earnings and debt. Debt, in the form of bonds, bridge loans or credit facilities, allows businesses to grow, to add capacity, to gain market share and to hire new employees.
However, in a time when our savings rates are (and have been) the lowest in the developed world, our tax policy favors speculation, rather than savings. Capital gains, from investments in stocks for example, are taxed at a favorable rate while 1099 interest income is not.
Currently, we are in a credit crisis which endangers the foundations of our economy. At a time when interest rates need to be kept low, but savings need to be encouraged, would it not make more sense to increase the tax rate on Capital Gains, while exempting 1099 Interest Income from taxation? Is this not especially true where we are in the turbulent aftermath of a stock market bubble which burst at the beginning of this decade and housing bubble which in slowly and painfully deflating now and current conditions in the credit markets that look like the Summer of 1929?
Such a change would require careful regulatory scrutiny by the IRS as to what was and was not interest income, but would enhance the liquidity of banks here in the United States and reduce reliance on foreign lenders, at least for private debt.
Along the same line, it might make sense to allow a tax credit for homeowners who are current on their mortgages over and above current deductions. While some might see this as some sort of "Nanny State" intrusion, any policy that might keep strapped homeowners from walking away from their mortgages, leaving banks with houses they cannot sell rather than discounted cash flows, would seem desirable.
Money invested into Employee Retirement Income Security Act ("ERISA") Plans and Individual Retirement Arrangement ("IRA")accounts would continue to be tax deferred to the investor and Capital Gains Taxes paid by individual retirees could continue to be taxed at the current lower rate. The intent here is to avoid speculative bubbles which tend to endanger ERISA plan participants' and beneficiaries' and IRA holders' retirement assets. Additionally, this would cut down on the current fad of people who are in most ways W-2, Darden factors employees from calling their earnings "Capital Gains" to gain (or more properly game) tax advantage.
Additionally, these tax policies favor a wider swath of the American people, being most beneficial to the less affluent but also offering benefits to even the very wealthy, an important political consideration.