Clunker lesson: Money in hands of people, not government, drives economy
Here's a scenario for you.
The government offers $3,500 to $4,500 to owners of outdated and fuel inefficient vehicles to turn in their cars or trucks and to purchase new ones.
Millions of people rush to take advantage of the program and close it down in one week when the promotion was supposed to go on through November. And this past week, the government had to provide another $2 billion to continue Cash for Clunkers.
Now let's analyze what happened.
In an era when Americans are not confident at all in their economy -- or in the future of their retirement plans -- they decided to open up their wallets and make a major purchase. Why? Because the government let them keep a little bit of their own money and allowed them to make a capital purchase a little less scary.
So, let's think, how could we apply that in another situation.
Say this April, Americans sit down to do their taxes and they realize that they will be keeping more of their money in their pockets. Do you think they might decide to buy that extra something they have been needing for their home -- or invest a little more money in a family trip or a larger purchase like a car or new house?
Let's take it one step further.
If a business owner sits down to do his or her taxes for the coming year and sees that the money that is going out for that expense has been reduced, what do you think he or she will do? Do you think that an expansion or more employees might be in the future?
And take it one step further. If you are a corporation and you finally have a little more money to reinvest in a new plant, where are you going to locate it? Would you choose the place where you pay less in taxes? Of course.
The lessons that have been learned from the Cash for Clunkers program are simple -- if you allow Americans to keep more of their own money, they will decide to reinvest in something that will help grow the economy.
That, in a nutshell, is the reason that so many people do not understand why government officials do not seem to get that cutting taxes will make this economy healthier.
There are many who do not agree with the Cash for Clunkers program. They say what's next -- Cash for (insert name of struggling industry here)? And they are right -- this is not really a precedent that we want to see expanded.
But if this program shows a few more government officials that there might be a reason to consider letting Americans keep a little more of their money, perhaps the light bulb moment will come and there will be fewer taxes in our futures.
All they will have to do is look at the evidence.
Published in Editorials on August 10, 2009 12:24 PM