Economic Stimulus Solutions Include Tax-Deductible Down Payments, Flex-Fuel Laws and Trips to Mars

Posted February 6, 2009 at 8:28am

Congress is currently debating an economic stimulus package that would spend nearly a trillion dollars on measures of doubtful timeliness and efficacy. Here are three ideas on how to really hit the target much quicker, harder and for a lot less. [IMGCAP(1)]

1. To resolve the credit crisis, make all down payments on house purchases tax-deductible. The credit crisis has been caused by a collapse of the housing market, which has made trillions of dollars of mortgage-backed securities held by major financial institutions worthless. This can be rapidly remedied by reboosting the housing market, which a tax deduction on all (not just first-time buyer) home purchase down payments would effectively do.

With house values restored to reasonable levels, there would be no incentive for people to run out on their mortgages; even if they couldn’t make their payments, they could save themselves simply by selling their homes. New home construction, and thus millions of jobs creating real wealth, would also be mobilized by adequate house prices, and new mortgages would tend to be much sounder, because people would be encouraged to make larger down payments to take advantage of the tax break.

Finally, and critically, the mortgage-backed securities now held by the banks would be made good, and they could balance their books without a trillion-dollar raid on the Treasury. Assuming a healthy rate of 6 million homes sold per year at an average price of $300,000 each, with 10 percent down payments made deductible to taxpayers in the 25 percent bracket, the total income lost to the Internal Revenue Service as a result of this measure would be about $45 billion per year.

While substantial, this is a pittance compared to the trillions that would be thrown away by continuation of the bailout program, and not only Wall Street but every American homeowner and many job-seekers would benefit directly as a result.

2. To protect the recovery, pass a law requiring that all new cars sold in the U.S. be flex-fueled. The global economic crash was significantly caused by high oil prices, which hit the U.S. economy for $1 trillion, and the world economy for $4 trillion, in fiscal 2008.

For Americans, the $800 billion increase in oil tribute from 2003 to 2008 was equivalent to a 30 percent increase in income taxes — a burden more than sufficient to send our economy into recession. As a result of the ensuing crash, oil prices have now declined to merely twice 2003 levels, but the Organization of Petroleum Exporting Countries has responded by taking 4 million barrels of oil per day off the world market. As soon as the economy starts to recover, this will send prices soaring above $100/barrel again, unless an effective competitive market is created in liquid fuels.

Flex-fuel cars can now be made that will run on any combination of gasoline, ethanol or methanol, or any mixture of the three, at an additional cost of only about $100 per car. By making this feature a requirement for any new car sold in the U.S., we will effectively make fuel choice the international standard, as foreign car makers would be impelled to switch their lines over to comply.

This would open the worldwide fuel market to free competition, as around the globe millions of new potential suppliers could enter not only with ethanol made from sugar or grains, but also methanol, which can be made economically from any kind of biomass without exception, as well as coal, natural gas and recycled urban trash. Such open market competitors would put a permanent constraint on the future price of oil, limiting it to the $50/barrel range, thereby protecting our economy from future raids by the OPEC cartel.

3. To expand our future, initiate a program to send humans to Mars within eight years. President John F. Kennedy’s Apollo program not only boosted the U.S. economy of the 1960s to terrific rates of economic growth, it mobilized the nation’s sharpest minds to create dozens of new technologies.

But much more than that, the enthusiasm among youth for Apollo’s reach into space caused a doubling of the number of American science graduates, an unmatched harvest of intellectual capital that we have been benefiting from ever since. Those 10-year-old would-be space explorers of the 1960s became the 40-year-old inventors and technological entrepreneurs of the 1990s, and they showered this country — and the world — with wealth and progress to a degree far in excess of the $100 billion (in today’s money) spent on Apollo.

A Mars-Apollo program done today would have an even bigger impact, because nowadays the science and engineering professions are open to women and minorities in a way that simply was not the case in the 1960s. So this time, the stirring challenge would go out to all our youth: Learn your science and you can be a pioneer of new worlds. From such a call we would reap millions of new scientists, engineers, inventors, doctors, medical researchers and technological entrepreneurs — young men and women who would ensure our prosperity, national defense and continued progress for decades to come.

In 2004, President George W. Bush, adopting a visionary pose, issued a call for NASA to return to the moon within 16 years. This was farcical. It took only eight years for us to get there the first time. If we are to really fill the shoes of those who came before us, we must embrace new challenges, and do so with similar commitment and courage.

We can reach Mars within eight years, and we should. In doing so, we will make it clear to the world, and to ourselves, that we are a people whose can-do spirit can defy any limit, that we are living at the beginning of our history, not at its end, and that henceforth, our greatest deeds will continue to be celebrated in newspapers and not just in museums. We can not only beat the current recession, but soar far beyond it, into a wide-open future truly worthy of the promise that is America.

Robert Zubrin is a senior fellow at the Foundation for Defense of Democracies.