Economic help??

Question

I read this article several times but I'm not so sure what it's about. If anyone can please explain what the hell this has to do with economy and what's it's about, that would be amazing. 10 points to the best answer. http://www.nytimes.com/2007/10/07/business/07view.html?_r=1&oref=slogin

Answer 1

Well, I'm no economist, but this is the way I interpret the story:

Alan Greenspan wrote in his book that he is worried about President Bush's budget deficits. He was hoping Bush would be better about keeping the budget under control. The government's budget is a large part of economic policy. If it spends more than it takes in, it either borrows like crazy (forcing the burden of current problems on our children) or prints more money (leading to inflation). Both parties lack the discipline to say the obvious -- we can't keep spending what we don't have. The only person to come close to that goal was Clinton, oddly enough, since Democrats aren't as vocal on the subject.

What the author wants to do is change the tax system. Instead of taxing money coming in, he wants to tax money going out. Think of his idea as a giant sales tax. Pick a number -- 15 percent? 20? If you buy a house, you have the added fee that goes to the government. Same with anything else you buy. However, you don't have as much withdrawn from your paycheck.

I've heard that such a plan might be a little regressive, in that poor people spend all their money while the rich can bank it or invest it. However, the rich are more liable to take advantage of tax breaks such as IRAs, 401K's, etc.

The question is how to increase revenue to cut down on budget deficits as fairly as possible. The author thinks this way will work. My guess is, people won't give up tax loopholes without a lot of squealing.