In the past when our economy needed a jump-start, the method of choice was interest rates. The Federal Reserve Bank (Fed) would step in and ratchet down interest rates. After several downward rate adjustments, we would reach a rate that would give the business community sufficient confidence to believe that the return on investment (ROI) would be higher than the cost of debt from borrowing capital.

This conviction resulted in businesses borrowing money, expanding their operations, and increasing employment, as well as higher consumer confidence and more consumer spending. The effect of these events was that the economy bottomed out and went on to better times. See Figure #1.

Without robust consumer spending, the direction of our economy will go from stagnant to receding. Consumer spending represents more than 70% of our economy. It is the key to our economy. Consumers’ motivation to spend their money depends on the level and direction of their confidence. There is only one way to improve consumer confidence, and that is to put people to work. Increasing employment is the surest way to increase consumers’ confidence.

Lowering interest rates doesn’t always bring an immediate result. Sometimes it takes a little longer. Recently, Japan reduced their interest rates to almost zero, and it took several years for their businesses to begin borrowing, expanding, and hiring. This was followed with consumer confidence increasing, and consumers beginning to spend their money.

What happens when interest rates are lowered and after a reasonable period of time businesses don’t expand, employment doesn’t increase, consumers’ confidence doesn’t go up, and consumers don’t spend more money?

The aggregate of the individual and corporate tax dollar numbers, both from the collection and the spending side, is huge (over $5 trillion). When you combine those numbers with the federal government’s ability to pass legislation, the programs that are available to motivate consumer spending are limited only by the creativeness of the minds in the federal government. The following action plans are examples of possible strategies that have a high probability of stimulating the economy, and they are intended to be partisan-neutral.

1. Reduce Corporate Taxes
   Currently, the maximum federal corporate tax rate is 35 percent. A reduction in corporate taxes increases the net profitability of a business. There are three things businesses can do with additional profits: (1) Increase dividends. (2) Keep the profits in the bank. (3) Invest the profits back in the business. Executives are paid to manage and grow their businesses, and number (3) has the highest probability of achieving that goal.
2. Reduce Individual Income Taxes
   The maximum federal income tax rate is 35 percent. In addition to providing jobs, another way to increase consumer confidence and consumer spending is to get more money into the hands of the consumers. If individual income tax rates are lowered, the consumers have fewer taxes to pay and more money to keep, save, and spend.


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