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The real solution to the credit crisis: strategies to increase the savings rate and prevent the state budget deficit

The real solution to the credit crisis:

Strategies to increase the savings rate and prevent the state budget deficit

There has been much debate on how the credit crisis began and the rescue plan appears to be the most effective way to find a solution. If the Reserve Fund for homeowners facing foreclosure? And the banks that are on the verge of collapse? Many of us would agree that we need both approaches to put into affect current engineering remove financial disaster. However, strategies have greater ability to adapt to the task. First, the minimum wage should be increased so that households may have more disposable income and therefore be able to purchase the assets and increase spending. Secondly, it should be a wide range of programs payment of his savings to low-income households so they can buy a house within their means. Third, state governments must realize that the solution its current budget dilemma is to broaden the tax base through payment programs to help.

Trickle Up Economics

Many economists side supplied indicates that tax cuts will boost productivity and growth, boost employment and result in higher tax revenues. However, what we have seen an increase in deficits, both federal and state since the late 80s. [1] This is the result of the illusions that goes against the teachings in the field of macroeconomics. Macroeconomics textbooks to students on a budget equilibrium theory which specifies that there is an increase in public spending, not there should be tax increases. [2] The United States and many other governments do not apply this theory in a given time or not at all. However, what I saw was enormous expense by the federal government that has been fueled by credit lines from foreign countries. If the federal government wants to spend money and cut taxes in the meantime, must do everything to sound business manager seeking a return on capital.

An effective strategy to achieve this performance is that government capital U.S. reduced tax rate for companies in a carrot and stick fashion to increase the minimum wage. For example, companies that pay $ 7.15 per hour and pay a rate of 35% of the corporate tax rate to see Tax of 15% and the minimum wage for the employees become $ 14.30 per hour. It's the same concept as the bailout plan Wall Street financier. However, this time dollars will be paid directly into the hands of consumers and not "leak" of any. In contrast, money received, Trickle Up on the economic scale collection of funds from federal and state taxes to local governments.

Furthermore, this salary will be increased to allow workers to deposit more money into savings accounts. This is good for banks because they give them, if necessary at a time deposits that many have suffered terrible losses. Instead of running banks, does not run on banks to help restore confidence in the banking system. Banks again to be flushed with cash and willing to lend money to worthy customers.

What can you learn from HSBC Bank

I recently visited a local branch of HSBC in Staten Island, because I was interested in their first home savings. The program works as follows: Potential owners need to save a fixed amount of money each month for a period of two years. After the savings period, owners which have established a good payment history with the bank will match their initial contributions to a ration of 4 to 1, which is limited to $ 7,500. The catch you ask? Homeowners must borrow from HSBC. In doing so, HSBC invests $ 7,500 in down payment assistance in the bank recover more than twenty times more than in interest over the term of the mortgage.

Therefore, States may use the same strategy that worked for HSBC and implemented to increase the base taxable. For example, Frank was interested in buying a house, but not enough to pay a deposit. New York City comes in and says it will match dollar for quantity money saved is just say $ 10,000. Now, Frank buys a house for $ 200,000. New York, the rate of property tax is about 12.139% since 2009. Consequently, money the state invests in the form of support in the form of payment will be in effect, a return to crime $ 24,278 / $ 1,000 = $ 24 x $ 50 = $ 12000 (tax bill year). [3] More than thirty years, the owner has paid an estimated $ 36,000. However, housing prices tend to increase at a rate of inflation each year is estimated at 3% per year. This means that the state will recover more than five times what they initially invested with the help of seed capital. In addition, owners will increase their wealth and thus be able to increase their spending. In doing so, local companies make more money and thus pay more taxes, enriching the state.

Damage Control

The recent credit crisis has caused significant damage based on the cities of taxes applicable to all foreclosures. We therefore need a plan into action as soon as possible. There is already talk of massive cuts in social programs due to budget shortfalls. Governor Patterson recently traveled to Washington to seek funds to cover the budget deficit of $ 47 billion expected achieve in the next four years. [4] a further erosion of housing prices shot just salt in the market for housing and urban open wound. However, earlier proposed strategy can enrich low-income households and help move along the ladder of upward mobility.

The increase no doubt the minimum wage, increase consumer spending. The accounts of the consumer spending more than seventy percent of gross domestic product, will be more great percentage of these levels. Along with this increased spending has increased revenue from sales tax on items purchased in the state. Therefore, States not only increase land windfall tax, but also sales taxes. Company's ability to recruit additional workers due to increased business expansion and re-appears a possibility for small businesses. The cycle can be repeated until wealth has been restored to the middle class.

The increased levels of expenses incurred by an increase in the minimum wage will help boost the bottom line businesses both large and small. Since the market value is a future mechanism for share prices appreciate dramatically. Investors will again count on their retirement savings to ensure that their years gold will be just that. Therefore, the increased levels of consumption and consumer confidence as a result of minimum wage increase is exactly what the doctor should be prescribed to eradicate rampant economic flu in the markets. .

[1] Nouriel Roubini, Supply Side Economics: Do Tax Cuts Rates to increase growth and incomes and reduce the budget deficit? Or is Voodoo Economics All Over Again? Stern School of Business at the University of New York, 1997.

[2] Robert J Gorden, edition of Macroeconomics 10, Northwestern University, 2006.

[3] New York City Department of Finance and Taxation, 2008.

[4] Rick Karlin, Gov. Paterson outlines more budget problems. Timesunion.com, 2008.

About the Author

Frank Lorenzo is a recent graduate from the College of Staten Island. He majored in Economics and minored in Political Science. Currently, Frank is employed as a Fraud Investigator with the City of New York.

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