How much are they paid for such stupid analysis, yes, there is an output gap, it is also called excess capacity, and sometimes excess capacity, when aggregate demand is not increased simply needs to be closed and written off. The Tax reforms of the last two years are to blame for that problem. You don't just throw money at the economy and hope it creates aggregate demand, you got to throw it where it counts, where it creates demand. The excuse for the reforms was that with more money "small businesses" will invest and create job. Small business is smart enough that they do not invest unless aggregate demand for their goods and services increases. There is not shortage of money to be invested in increased capacity (as I said, there is excess capacity), their is shortage of money to create aggregate demand. You want to "prime" the economy, here is a suggestion (and by tweaking the numbers it can be made "revenue neutral")
1. Forget about most of the recent tax reforms, cancel them completely.
2. Replace the dividend exclusion from income by dividend deduction to corporations (and simultaneously raise corporate marginal tax rate by about 1%, it will be revenue neutral and corporation will end up with the same tax load, since their paid out dividends are no longer "taxed " twice, a lot of structural advantages to that). Shares buy back by corporations should be treated as dividend paid for tax purposes (right now, these are tax free dividends to the stockholders), deductible to the corporations but taxable to the stockholders. Minor problems there with timing and distribution of tax liability, but not greater than with divdend exclusion currently on the book.
3. Change the payroll taxes in the following manner: Employers will pay their share on the full first $100.000, employees however will pay this payroll tax only on their income from $25,000 to $100,000. That will put an average of $2000/year in the pocket as a pay raise to every employee making less than $75,000, and be a real boost in aggregate demand (the numbers may have to be tweaked, maybe the first $15,000 but still keeping the ceiling at $100.000 to $125,000 to keep the system balanced might be best). That will also add $200 B or so in real spendable aggregate demand per year. Once the economy start and creates job, lower back, slowly, maybe by just $1000 per year the threshold. I would never get it under $10,000 though.
If "forgetting" the tax reforms means reverting back to the old tax brackets, fine. If that creates surpluses like in 1998/2000, don't let these surpluses go to more than 1% of GDP. If it seems that they do, once or twice a year send a check to each tax payer, independently of how much tax he paid, which is the expected excess surplus (above 1% of GDP) divided by the number of tax payers. If surpluses continues and the national debt starts to decline, don't let it decline to less than about 40% of GDP, if it gets there, send more money back to each tax payer (getting into that 1% excess). Within about 10 years, of prosperity, the economy should be about 60% bigger and budgets would be within 1% or so of break even, enough "wiggle room" would be there to handle any future emergencies.
Raise the fed rate to at least 3%, gradually, but before another recession hit.
Sorry, Here I go like an advisory letter writer, mumbling verbosely, no my name is not Maulding, but it sure was a long rant.
