This weekend, economist Robert Barro had an interesting piece in the NYT entitled “How to Really Save the Economy.” Although there is nothing particularly new for those who have followed Barro over the years, it is worth a quick read. Drawing on Keynes, Barro calls for a mix of policies that would create the conditions necessary to create the stable expectations and environment that would stimulate investment.
The key proposals:
reforming Social Security and Medicare by increasing ages of eligibility and shifting to an appropriate formula for indexing benefits to inflation; phasing out “tax expenditures” like the deductions for mortgage interest, state and local taxes and employer-provided health care; and lowering the marginal income-tax rates for individuals.
I would add three more: reversing the vast and unwise increase in spending that occurred under Presidents Bush and Obama; introducing a tax on consumer spending, like the value-added tax (or VAT) common in other rich countries; and abolishing federal corporate taxes and estate taxes.
As you might guess, Barro is skeptical that these changes could be implemented in the current political climate (Republicans support a VAT? Democrats support elimination of corporate taxes?). Nonetheless, he makes a strong case for this policy mix the piece is well worth a few minutes of your time.