By Sen. Chip Pearson
ATLANTA (March 23, 2009) – As the crisis in common sense continues in Washington and across the nation, here in Georgia I’m working with my Senate colleagues for real stimulus solutions to put the economy back on track. These solutions utilize the free market and provide the atmosphere for job opportunity and economic growth without using taxpayer dollars for government takeovers.
First, we must fix housing. This is the first recession since World War II that has been caused by housing. Additionally, we have never come out of a recession since WWII where housing has not led the way. The continuation of declines in home values of 1 percent per month for another year could lead to a situation where nearly 35 to 40 percent of mortgages could exceed the value of the homes they are on. That would have hugely negative implications. Now is the best time to purchase a home in a generation with price levels not seen in nearly 10 years, and interest rates at their lowest level in the last 40 years.
But consumer confidence is giving the market the cold shoulder. Therefore, an incentive to spur homes sales, help create a bottom in housing and move in a positive direction is a must. There is some movement toward this goal. Sen. Johnny Isakson has pledged to continue fighting for passage of his $15,000 tax credit proposal for all homebuyers, free from income restrictions. In Georgia, the state Senate is considering a House bill (HB 261) that would provide a $3,600 home buying tax credit.
In addition, a change in the Mark-to-Market rules (FASB 157/114) is of absolute necessity. This arcane rule is a relic of the Enron days and was an attempt to prohibit artificially inflated values of assets which could lead to a bubble in an asset class or stock. But the accounting rule basically requires the holder of that asset to write down the value when there is no buyer, so now you have an artificially low value as opposed to an artificially high one. As chief economist of First Trust Portfolios of Chicago’s Brian S. Westbury explains, “It is true that the root cause of this crisis is bad mortgage loans, but probably 70 percent of the real crisis we face is caused by mark-to-market in an illiquid market.”
Next, we must fix the banking and finance sector. Intimately tied to the housing sector as described above, a return to a functioning credit system is a must for economic recovery. Instead of the Federal Reserve acting as an ATM pumping out taxpayer money and IOU’s that are measured in trillions of dollars to shore up and re-capitalize the banking system, why not incentivize private investors to put their money back into the banks? Investors who purchase shares within the next six months should pay no taxes on profits or dividends if the shares are held for five or more years. After five years, any capital gains will be taxed at 10 percent. This would be a huge pull for investment, strengthening consumer confidence and leading banks towards solvency.
The fourth step is to rebuild the market by engaging the private sector. Eliminating capital gains tax (which is essentially a tax on non-existent inflation) will pump private capital into the economy, meaning the end of a taxpayer-funded bailout. Truly incentivizing private investment calls for extending the Bush-era 15 percent tax rate on capital gains for all assets bought over the next 18 months and held for at least five years. The federal government needs to relinquish its vice-like grip on the American people and their wallets. Even Google’s chief economist Hal Varian agrees saying, “These days it seems like it is our patriotic duty to consume more. And if we don’t choose to spend more money ourselves, the government will do it for us.”
Fifth, a dramatic cut to the U.S. corporate income tax will attract investment and spur job growth. U.S. companies pay the second highest taxes in the world, anywhere between 35 to over 40 percent, which is only expected to increase once the president’s new tax laws kick in. This makes our country less attractive for doing business, and we lose more jobs to companies overseas. Amid recent news that Georgia’s jobless rate is now 9.3 percent, it is clear that immediate job creation is needed. In a global economy, our country needs a more competitive tax rate just to keep up with the rest of the world. In the past two months, at least six countries have announced plans to cut their corporate tax rates. There is good news for Georgia: a pair of bills (HB 481 and 482) that offer tax incentives and credits to stimulate Georgia’s business climate are making their way now through the Senate. The Jobs, Opportunity, and Business Success Act of 2009 (JOBS) includes a $2,400 income tax credit for each employee hired, and a $500 unemployment insurance tax credit for each employee hired. This concept is in direct contrast to Washington’s stimulus plan in that it empowers individuals and small business rather than the government.
Finally, we must strengthen and encourage small business. Small business is the backbone of our economy and its nourishment is the final step to achieving economic stability. Small businesses supply 90 percent of the jobs in the nation. In Georgia alone, small business comprises over 97 percent of the state’s incorporated companies. Instead of the government shoveling out billions of dollars to corporate automakers who seemed doomed to failure anyway with an outdated cost and business model, the government needs to invest in hardworking Americans whose productivity has always been the key to our country’s economic prosperity. I would propose low interest (5 percent), long term balloon loans (5 year ) with Small Business Administration (SBA) backing for small businesses in increments of $25,000 for each job created over the next year, up to a maximum of $250,000. Put this in place and watch small business lead the way in jobs creation and recovery.
While Washington continues to spend well beyond our means in hopes that something will work, it is important to keep in mind that this policy has never worked in the past, so why do we think it will work now? I believe with the common sense proposals outlined above, combined with the work ethic and resolve of the American workers and entrepreneurs, we can lead the world out of this downturn and move toward a productive and bright future for all.
Sen. Chip Pearson serves as chairman of the Economic Development Committee. He represents the 51st Senate District which includes Dawson, Fannin, Gilmer, Lumpkin, Pickens, and Union counties and portions of Forsyth and White counties. He may be reached at 404.656.9921 or via e-mail at chip.pearson@senate.ga.gov.
PRESS RELEASE
For Immediate Release:
March 23, 2009
For Information Contact:
Raegan Weber, Director
Kallarin Richards, Senior Communications Specialist
kallarin.richards@senate.ga.gov
404.656.0028