Innovation and Taxation

I read a NY Times article in the Sunday paper that really got me psyched about the economic policies our President is putting forth as they pertain to innovating our economy for long term sustainable growth. The article outlines the story of a hard working woman whose life spiraled out of financial control because of the failing economy. She went from making $52,000 a year to being homeless practically begging for a job while trying to piece her life back together in a homeless shelter. The end of the article suggests that the portion of the economic stimulus package that puts money into the alternative energy and energy sectors of our economy will help us move towards sustainable growth. While the article makes purely qualitative assertions I believe that in terms of money we will reap the benefits of these investments for many years to come.
The conventional wisdom when discussing fixing the economy is two sided. The right believes that we should lower taxes thus putting money into people’s pockets to spend in the economy while the left side argues that increasing government spending will create jobs and put money into people’s pockets. This wisdom is correct but misleading. Simply putting money into people’s pockets is the equivalent to placing a band-aid on a bullet wound. What our economy desperately needed and continues to need is new places to turn to create new money.
Clearly we are at a pivotal time in our economic history and the last thing we need is more of the same policies (band-aids) to help our economy grow. In the short run putting money into consumer’s pockets will help but in the long run our government needs to invest into innovation so that we can have long term growth. Along with that, cutting taxes will also help our economy. However, I believe that many of these tax reforms needs not be done at the federal level but rather at the state level. Our federal government has a relatively standardized taxation method. While some might disagree, it is simple for me to pay my taxes to the federal government and I can predict with a reasonable degree of certainty how much I will be giving to the IRS each year. What needs to end is the state and local governments (and to some extent the federal government) nickel and diming us into submission every time we make a purchase.
For example, the federal government’s recent decision to raise taxes on cigarettes is a regressive tax and one that, as a democrat, I cannot support. I believe that tax hikes should be placed on those that can afford tax hikes, not on those that are living paycheck to paycheck and sin taxes disproportionately affect the poor. Property tax reform is desperately needed as well especially in Pennsylvania where property taxes are unpredictable and housing is reappraised constantly to assure that the government is getting its fair share.
Thus, we need to make our taxation system more standardized so that people know what their going to pay each year, rather than increasing our sales taxes and EIT’s at the local level.