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We have made the mistake of using short-term policy changes to try to cope with a long-term problem. There are several long-term changes called for. There is great uncertainty and lack of confidence in the future. That reduces investment and employment. One change that would reduce uncertainty is a five-year moratorium on new regulation except for national security. Another would be a budget agreement that made the debt sustainable. Not likely. Third: corporate tax rate reduction paid for by closing loopholes. Finally, we need assurance that we won’t have inflation. A credible, enforced inflation target would work.
Allan Meltzer is a professor of economics and the political economy at the Carnegie Mellon University Tepper School of Business.
QE3: Fed should buy lots of long-term T-bonds.
Alex Tabarrok is the Bartley J. Madden professor of economics at the Mercatus Center at George Mason University.
My answer (within the realm of “remotely politically possible”) is: Replace all income taxes, including that on capital gains, with a consumption tax. But do this only if the Constitution is amended to prevent government from taxing incomes and capital gains.
A second, less radical, proposal is to eliminate capital gains taxes and amend the Constitution to prevent Uncle Sam from taxing personal and corporate incomes at marginal rates higher than 20 percent.
Donald Boudreaux, a professor of economics at George Mason University, blogs at cafehayek.com.
Fred L. Smith Jr.