Solutions for saving the 'real economy'?

The FT's economists' forum suggests two unusual solutions to the current crisis in the US that a new President could easily implement and quickly boost spending:

  • To keep revenue-starved states, cities, and towns from slashing spending and raising taxes, raise by a flat, across the board percentage - say by a quarter or even a half - every cash grant the Treasury makes to state and local governments. An increase by a quarter would boost their revenues by $95bn, or 5 per cent.

  • Reduce by a flat, across-the-board percentage federal payroll taxes. A 25 per cent reduction would increase take-home pay by about $250bn per year. Cash-constrained households, perhaps half of all households, would quickly spend the money. Even most of the rest would probably increase their spending.

An interesting scenario but one that is unlikely to see the light of day in the UK.

Here, the Labour Government is looking to increase spending, although there is little talk of providing a fiscal boost to local authorities, as suggested above. Indeed, the reverse is true and it is likely that there will be higher council tax bills next year at a time when the economy can least afford to have them.

Secondly, there has been no talk by the Treasury of either personal or corporate tax cuts to boost spending and unless Alistair Darling is keeping this up his sleeve and changing the habits of a lifetime, that is unlikely.

The full article can be read here.

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