Economists Predict Recession; People Want Tax Cuts

A quick note on two articles from today that are related to each other.  First, the Wall Street Journal reported that major economists have raised their predicted likelihood of a recession in the next year to 36%.  This is up substantially from August's 28% next-twelve-months probability.

What do people want Congress to do in the face of this increased recession likelihood?  Apparently, the answer is not "raise taxes and spend more money."  According to Roll Call, pollster Dave Winston briefed Senate Republicans about public attitudes.  What people don't want is tax increases, since they believe Congress will simply spend the money.  Nor do they want Republicans to simply rest on the laurels of the 2001 and 2003 tax cuts.  Rather, they want Congress to deal head-on with the economy, which includes new tax cuts.

Luckily, there's no shortage of good ideas:

• The most pressing need is to make the expiring tax cuts permanent.  Failing to do so would result in capital gains, dividends, and small business tax increases that would definitely wreck the economy
• The corporate income tax is the highest in the industrialized world, behind only Japan.  At 39%, the U.S. rate is far higher than the European average of 25% (and falling)
• Capital, the formation of which is key to economic growth, is taxed multiple times in the current tax system.  This can be fixed by full business expensing, killing the death tax, zeroing out the capital gains and dividends tax, and expanding tax-free savings accounts
• The U.S. is the only country in the developed world that double-taxes the international income of its taxpayers.  This forces U.S. companies and wealthy individuals into offshore tax havens.  The U.S. should shift to a territorial tax system like the rest of the world has
• Dozens of countries, from Hong Kong to Estonia, have adopted a flat rate income tax.  Almost nothing would do more for economic growth than having a flat income tax rate in the teens