Smart Stimulus Amid Deepening Debt: Future- Flow Tax Credit Programs

Entering 2012, the world finds itself in a precarious financial position. In January of this year, the World Bank released its new economic outlook, warning of a global, double-dip reces-sion. “An escalation of the crisis would spare no one, ” Andrew Burns, manager of global macroeconomics and lead author of the World Bank report stated in a press release, matter-of-factly, before continu-ing: “Developed- and developing-country growth rates could fall by as much or more than in 2008/09. The importance of contingency planning cannot be stressed enough ” (World Bank 2012). The report lists several key risk factors, including the sovereign debt crisis in Europe; the global spread of risk aversion resulting from the European crisis; and stifled economic growth resulting from inflation-motivated tightening of monetary policy in develop-ing countries. But the World Bank may have forgotten a critical fourth concern: the snail-paced economic recovery of the world’s leading generator of global demand and output— the United States. The United States still faces constrained economic growth and an unemployment rate of 8.5 percent, accord-ing to the U.S. Bureau of Labor Statistics. With an already expanded U.S. money supply and all-time low interest rates, monetary policy is no longer an effective tool—even in the short term—to stimu-late growth. Meanwhile, record high debt levels and a self-imposed debt ceiling have severely limited the possibility of any fiscal expansion funded by borrowing. How then can the U.S. government ex-pedite a recovery? I propose a new form of fiscal stimulus, financed by future-flow tax credits rather than government bor-rowing. Similar tax credit programs have been used on a small scale to promote low-income real estate development and small business investing. I suggest a large-scale, by William Werkmeiste