A Winning Strategy for Economic Recovery

By:  Ralph R. Reiland
03/25/2014
       
A Winning Strategy for Economic Recovery

There's a commonsense perspective and first-rate line of attack for economic recovery in the ideas quoted below from a major speech by a top U.S. politician.

His policy recommendations reveal a clear comprehension of economic incentives, human nature, and the fundamental fact that people do less of something when it's more penalized, more taxed, and more costly — and do more of something when it's more rewarded, less taxed, and less expensive.

That's why cigarettes are taxed at a higher rate than oranges — so we smoke less and get more vitamin C.

It's also why there's a federal Gas Guzzler Tax on new cars that goes up as fuel economy goes down.

As posted by the Department of Energy at fueleconomy.gov, there's no guzzler tax on cars that get “at least 22.5 mpg city/highway combined,” a $3,000 tax on cars that get “at least 16.5 but less than 17.5 mpg,” a $6,400 tax on cars with “at least 12.5 but less than 13.5 mpg,” and a top tax of $7,700 on cars that get “less than 12.5 mpg.”

As the Department of Energy explains, “The Energy Tax Act of 1978 established a Gas Guzzler Tax on the sale of new cars with particularly poor fuel economy to discourage the production of such vehicles.”

Overall, that's the way the world works. Raise the sticker price on gas hogs via taxation and fewer gas hogs will be on the road than would otherwise be the case. Similarly, raise the price of workers to employers via increased taxation, mandates, and regulations and there will be fewer workers on the job than would otherwise be the case.

In understanding these basic economic principles and being adept at applying these fundamental economic insights regarding human behavior and incentives to such issues as tax rates, government revenue, federal budgets, deficits, business incentives, investing, profits, economic growth and job creation, the aforementioned politician, addressing the Economic Club of New York, powerfully and succinctly presented his policy prescriptions for economic recovery, deficit reduction, and job creation.

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