The Multiplier Effect of Government Spending is 0-So Lower Spending after Fiscal Cliff Doesn’t Matter

Was on CNBC with Rick Santelli today.  Here is the video.  Sorry about the ads.

Since the multiplier effect of government spending is 0, lower government spending doesn’t have an effect on GDP. The thing that will have an effect is the convoluted tax policy put forth by Obama and the Democrats, along with similar convoluted propositions by the Republicans.

First, let’s slash government spending and sell off unneeded assets. That brings in revenue. Then change tax policy.

If we want to tax for growth here is what we should do.

1. Eliminate deductions for the wealthy, but give them a flat tax, say around 17%. No matter what they make on anything, they send in 17%. Hauser’s Law says no one pays more than 20% anyway.

2. Allow some deductions for the middle class and poor, but those deductions should be economically efficient. For example, a kid’s private school education.
Tax them at the same 17% tax rate, but their marginal rate will be lower. That will keep Warren Buffett happy.

3. Capital gains rates ought to be 0, estate taxes 0, corporate taxes 0.

Then buy the S&P ($ES_F, $SPY).

Thanks for the link Instapundit.  Thanks for the link Doug Ross.


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