Is a change in tax policy the root of our current financial evils?
This is the first thing I've read in a long time that really got past the blame game and looked at the problem from it's inception . . .
Fedex Corp. (FDX) Chief Executive Fred Smith said Thursday he believed the root cause of the current economic crisis was a tax policy that encouraged growth in the financial sector at the expense of manufacturing. In the early 80s, the financial sector represented about 15% of U.S. industry profit, but that climbed to 32% after the federal government encouraged borrowing through the deduction of interest, according to Smith. Meanwhile, the tax on capital spending was significant, he said. "Unless, or until, those tax policies in the U.S. move toward [encouraging] industrial activity and away from leveraging, we will continue to have a massive deleveraging that we see occurring at this moment," Smith said. He dismissed economic stimulus plans that encourage consumer spending, saying in tough economic times people will just put it towards reducing their debt.
- 1 decade agoFavorite Answer
Well, first we have a dollar that is fiat currency, based on whatever the government says. This causes more problems than it's solves. The solution: The penny costs 5 cents to make, so reset the currency to match the penny, making all US money worth 5 times what it used to. You reissue the currency so only new bills are the new value and old bills are the reduced value. Then you link the currency to something solid. Gold is done for, as is silver, but link it to the US GDP and the way to keep the dollar healthy is to manufacture and prosper.
Then you fix the tax code to give the tax payers back their money... or better yet not take it. Lower taxes means higher paychecks. And a simpler code allows people to know what they are paying sooner.
Then you fix the inflation reporting system to accurately report the current 11-15% inflation. People should be informed of reality so they can prepare.
Government should get out of the business of trying to run businesses, financial or manufacturing or whatever. The deregulation of running the economy and a focus on promoting "the general Welfare" rather than trying to ensure it. That way the market would decide what it needed.
- 5 years ago
No - sadly Bush's tax policies were only part of a huge republican scam to empty out our National Treasury and pour it into the pockets of the Super Rich. That's why the Supreme Court was bought to put that miserable little Moron into the White House in 2000. Then came 9/11 - a god-send for Bush. With that he could start two needless wars which are only a gigantic tangle of legal contracts whereby the Super Rich get fat no-bid contracts. That has further emptied out the National Treasury. The "election" of this horrid little man has been one of the major tragedies in the history of the United States! To climb back out of this hole is going to be pretty tough. Vote Obama - No More Neo-Con Lies!
- HeathenLv 51 decade ago
People don't want to look at fundamentals. And I don't mean financial fundamentals, I mean the fundamentals of our behavior. We spend more than we earn; how is that sustainable?
We count on debt to fuel our economy. Not only that, we expect outrageous returns on our investments, not over five or six years, but in five or six months. CEO's and boards trying to generate those results fleece everyone, legally and illegally. No wonder there's no confidence.
We have to not only change tax law, but the mentality of the American consumer. Immediate gratification and a sense of entitlement; why do we think this way? Save up some money and borrow less. Why don't we teach that in schoool?
- 1 decade ago
Yes, the lowering of the tax rate at the top tax bracket has taken away most of the incentive to invest in creating jobs and wealth through manufacturing products in the USA.
The top tax bracket needs to be greatly increased to give the very rich the incentive to either invest in USA economic growth or let the federal government take the majority of their taxable income.
Example: If the top tax rate is 70% and someone makes $2 million in taxable income, they have the choice of either letting the federal government take $1.4 million of their income or investing that $1.4 million into creating more jobs in the USA.
We have seen what lowering the top tax bracket has done in the past 8 years. It gives the very rich the incentive to hide and invest their money in other countries.
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- Robinson CruzLv 61 decade ago
Poppycock. Interest is a true business expense. The money spent on it is gone, so US tax policy allows deduction of interest as an expense. But capital investment is used to buy assets that have value. The money is traded for things like (in the case of FedEx) planes, trucks, and facilities. As the value of those assets depreciates, US tax code allows the depreciation to be deducted as an expense. This makes sense because that depreciation is also a true business expense. Money lost due to asset depreciation is gone, just like interest. What Smith wants to do is to allow that entire capital investment to be deducted on day one, not over time through depreciation, even though the assets purchased with the investment still have their full value on day one. This would be equivalent to allowing a stock investor to deduct the entire purchase price of a stock as an expense, even though the money was invested in something of value, not spent. True silliness.
- Anonymous1 decade ago
I only agree in one aspect. Banks are blood suckers. They don't produce anything, and now despite the bailout they still refuse to make loans. It's really the manufacturing sector that should have gotten bail outs, if any one did. I am still opposed to bail outs. The Federal Reserve together with the other banks should be nationalized, so they don't pull their shenanigans any more.
- Boss HLv 71 decade ago
To much trying to blame taxes, and not enough blame on deregulation of trade or the financial sector.
But why should we expect an exec to blame anything but taxes. We sure won't see any of them blame deregulation, which is the true root of the problem.
- 1 decade ago
Warren, you should try reading more.
Watching how easily wall street got their huge bailout, while the auto makers had to fight, it does seem that our government is more concerned with the circular economy of financing instead of the tangible economy of producing goods and services.
- PowerLv 71 decade ago
No, money disappeared the same way it does when a theive takes it away. We were robbed. There are some very rich people now.
- Scottish DachsyLv 51 decade ago
This sounds like something an economics major needs to decipher. I can't follow what he is saying.