NCPA - National Center for Policy Analysis


February 26, 2008

The Federal Reserve seems to think we're entering a period of slower growth but faster inflation, or stagflation. Well, we've been there before.  And the answers are the same now as they were then, says Investor's Business Daily.

Among the solutions:

  • Make the Bush tax cuts permanent; this will save taxpayers and businesses hundreds of billions over the next five years alone.
  • Cut the corporate tax rate from the current 35 percent, which is higher than the Organization for Economic Co-operation and Development (OECD) average; better yet, get rid of it entirely, as economists will tell you, corporations don't pay taxes, people do.
  • Eliminate the estate tax, a levy that brings in little money but is responsible for killing many small, family-owned businesses.
  • Zero out taxes on capital gains; these impede investment, growth and innovation, and cost Americans jobs and income.

In addition:

  • Slash the growing burden of regulation, starting with stripping out the most onerous small-firm provisions in Sarbanes-Oxley.
  • Boost energy security by allowing exploration and drilling for the 1.5 trillion to 2 trillion barrels of oil still in the ground in the Northern Hemisphere, both onshore and offshore.
  • Halt ethanol subsidies and end the $16 billion now wasted on farm subsidies. They distort markets and increase prices.
  • Continue to pursue free-trade deals with key hemispheric neighbors and others. Contrary to today's common, but false, wisdom, free trade makes for more and better-paying jobs.

In sum, it makes little sense to focus on demand -- as the just-passed $168 billion "stimulus" bill mostly does.  It is the supply side of the economy -- entrepreneurs and businesses -- that drive growth.  Their increased output pushes incomes higher and prices lower.

Source: Editorial, "Rx For Stagflation," Investor's Business Daily, February 22, 2008.


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