Little deduction might be addition to the economy



Recently (and, indeed, every time the economy sniffles) the White House has trotted out plans to cut the capital gains tax rate, which it says would stimulate long-term investments and help put Americans back to work.

Democrats predictably counter by proposing tax relief for the middle class at the expense of the rich or, this time around, cleverly suggesting that tax reductions could be paid for with defense cuts, thus giving a sliver of the peace dividend directly to taxpayers.

Let's get serious, folks!

Consumer spending is two-thirds of the economy, and while personal savings and investment dollars might wind up stimulating more research, better business services and more efficient factories, the economy simply won't rebound unless consumers spend more money.

And if you really want consumers to spend more money -- right away -- listen to some thoughts from Anita Heygster, a reader in Severn whose writing is so thoughtful she can't possibly be confused with a news hack (or a politician).

Mrs. Heygster blames the 1986 tax reform act for dulling consumers' spending appetites. The law ended tax deductions for most interest expenses and dramatically changed consumer behavior, at least in her two-breadwinner, two-child household.

"The elimination of tax deductions for interest on personal loans and credit cards has changed virtually all of my behavior as a consumer, and I know that I am not the only one affected.

"When we quit using credit cards except for emergencies, we went to cash or check-only purchasing and, for the first time in many years, we found ourselves carefully thinking about our purchases. The result is a foregone conclusion: We spend a lot less than we did when the interest was deductible.

"We won't consider buying a new car unless we are convinced beyond reasonable doubt that the current one is beyond fixing. Interest on an auto loan is a lot of money, none of which is deductible any longer.

"We go out to eat less often now that we have to get the cash out of the bank in advance and are forced to recognize the actual cost of a dinner in Little Italy for four before we go.

"At Christmas, we first set a fixed dollar amount, take cash in hand and make our shopping fit the limits.

"In other words, impulse purchases for the children or each other are no longer an option. We go to shopping centers less for things we don't need; instead, we stop at 7-11 for hot dogs, soda and popcorn and feed the ducks at a park.

"In general, we consume much less, we pay a whole lot less sales tax and no more income tax.

"If Congress were to make personal interest deductible again, they would see many people go back to the old habit again because it is so much fun.

"Is that what we need? It's like giving the junkie a fix to ensure that the junkie doesn't kill himself. The gamble in this case is particularly great because there is instability everywhere (in government, finance, all industries dependent upon government), and increased consumer spending by those of us with some money seems to be the only hope for creating jobs for the unemployed and making the economy move again.

"Just make personal credit deductible again and watch how fast we individual consumers buy new cars, expensive restaurant meals, expensive vacations and unnecessary goods again! Sales tax receipts will go up. Income tax receipts will go up in general as more people are employed. There will be more income for government, more government spending and a general increase in the flow of money in the economy.

"I don't like giving the junkie a fix before he kills himself because it maintains an addiction and that carries its own risk of death, but if we maintain the status quo, we may watch this recession turn into a real depression because there is no strength -- only weakness -- in every part of the economy."

If a quick fix is what you want (and isn't that the American way?) then boosting consumer spending should be your game.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.