Memorandum for Proposed Action to Revitalize the US Economy

Problem Statement 

The United States economy has shown positive growth since the Great Recession. Despite the positive overall trends, the economy is still sluggish. The fact remains that unemployment is still plaguing middle and lower class demographics and is leading to weaker-than-preferable economic activity (1). Below you will find several policies that, if undertaken collectively, will revitalize the US economy.

Change Tax Policies towards Small Business and Corporations

Large US corporations are taking advantage of loopholes in the current tax system and are manufacturing goods overseas before importing them for sale in domestic markets. These firms are also able to avoid paying taxes on revenue earned from other countries (2).

By eliminating these tax loopholes, corporations will be re-incentivized to bring manufacturing back to US soil. This can be done by raising taxes on US corporations’ foreign holdings, while decreasing taxes for domestic profits. In addition, further tax reductions should be put in place for corporations that hire US employees, operate plants in the US, conduct business in an environmentally friendly way, as well as other activities that aid the US labor market and economy. The combination of tax deductions a corporation can pursue and lower domestic corporate taxes will offset any impact to firms that an increase in taxes on foreign holdings will have. This will also attract foreign firms to do business in the US.

To further promote middle class employment, small businesses will face lower taxes than US corporations and will be less regulated. However, the same tax reductions available for large corporations will also be available to small businesses.

Adjust current Federal Income Tax Policies

To ensure fairness in federal income tax policies, a progressive tax system should be put in place. As part of this new tax system, millionaires and billionaires should pay an even larger percentage, as per the “Buffett rule” (3). One guarantee needed is that the switch to the new tax system will not increase taxes for the middle class from current levels. Such a system will more evenly spread the necessary burden of taxes, while optimizing tax revenue for the federal government.

Government Spending should remain at Reduced Levels

Discretionary spending should remain at the proposed $967 billion level (4) for the time being. With the tapering of quantitative easing by the Fed, government spending should not be reduced further as it could cut confidence in the market, having adverse effects on unemployment and the economy. Although an increase in spending would be preferable, in order to continue any cooperation with Republican leaders, a compromise of keeping the current level, still lower than the President suggested, is necessary.

In addition, emergency federal aid should be extended to support the long term unemployed for 6-9 months with mandatory drug testing put in effect for anyone receiving federal aid.

Conclusion

A revised tax system, both for individuals and businesses, in conjunction with policies promoting business to be done within the US, and continued reduced government spending are all enormous steps to accomplishing the goal of revitalizing the nation’s economy. The key is to promote the development of the middle class, reduce the deficit, and stimulate spending and investment throughout the economy.

References

(1) Politi, James. “Bernanke Bows out with Upbeat View.” Financial Times. The Financial Times LTD, 3 Jan. 2014. Web. 03 Jan. 2014. http://www.ft.com/intl/cms/s/0/b4d283a6-74a9-11e3-9125-00144feabdc0.html?siteedition=intl

(2) Thurm, Scott, and Kate Linebaugh. “More U.S. Profits Parked Abroad, Saving on Taxes.”The Wall Street Journal. Dow Jones & Company, Inc, 10 Mar. 2013. Web. 3 Jan. 2014. http://online.wsj.com/news/articles/SB10001424127887324034804578348131432634740
Figure 1: Data KPMG; Graphic by Bloomberg Businessweek (3) Zarroli, Jim. “Would The Buffett Rule Help The U.S. Economy?” NPR. NPR, 11 Apr. 2012. Web. 03 Jan. 2014. http://www.npr.org/2012/04/11/150406660/what-would-the-buffett-rule-mean-for-the-u-s-economy

(4) Plumer, Brad. “Congress Is Trying to Avoid Another Shutdown. Here’s Where the Talks Stand.” The Washington Post. The Washington Post, 6 Dec. 2013. Web. 3 Jan. 2014. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/12/06/congress-is-trying-to-avoid-another-shutdown-heres-what-we-know-about-the-talks/

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