First, 90% of what is in the Internal Revenue Code has nothing to do with raising revenue for the government; it’s about achieving social and economic goals.  This is a bipartisan endeavor, Richard Nixon creating the Earned Income Tax Credit and Jimmy Carter the (really) balanced budget.  Perhaps it is a left-handed compliment that both parties think that tax credits and tax breaks are a more effective way of implementing policy to, say, encourage production of drugs for rare diseases, or to promote recovery from hurricanes on the Gulf Coast.  In an efficiency showdown between the IRS and FEMA, I know which one my money is on!

   So as we slide toward recession in an election year, the pressure to “fix it” is overwhelming and we have the rebate proposal.  The truth is there is not much evidence that such rebates work; by the time they are distributed they are often too late to have the intended effect and most of the effect is attributable to a “demonstration effect”, the idea that the government is serious about doing something (anything!) about the problem.  And giving us rebates so everyone can run down to Walmart to purchase their Chinese made HDTV doesn’t really address the problems that caused the pain to begin with.

   So what would really help?  First, government has dazzled itself with its own success is over managing markets and the economy (the “Greenspan effect”) and needs to stop it.  “Start—stop” fiscal and monetary policy are beginning to be counterproductive.  Second, the American economy has been drifting from one bubble to another (remember the dot-coms?) and some structural long-term measures should be put into place.  Financial instruments, such as mortgage-backed securities, should be sufficiently transparent that buyers can judge risk and set prices accordingly.  America must address its health care financing crisis and remove health care and retirement costs (“legacy debt”) from the cost structure of American corporations to make them more competitive and stop the cycle of bankruptcy so many industries are in as they attempt to shed these obligations.  America must rebuild its infrastructure, from airports to highways to hospitals and waste water treatment plants.  And, yes, a simpler tax policy might help.