Friday, March 27, 2020

Tax cuts during recession

It is obvious that government will announce tax cuts to corporates which seems to be the way to help economy, to put salaries in the hands of workers and increase liquidity. So, instead of giving tax cuts, let the government buy bonds of corporates for the amount of tax cut being announced. Say, if it's 30% corporate tax, i announce a tax cut of 10% or even more, which the government will buy corporates bond. And the corporate can accept it by choice and redeem the bond and give the money back to government at any time within 10 years, even in parts.

Government is benefitted by not just avoiding tax loss but gaining a bond amount which is generally higher than normal interest rates. At the same time, It also injects money into the system, which gives liquidity. It's like Government investing in private sector and making profits. Also, giving a boost to private sector. But just through a bond, which is safer.

Corporates are benefitted, because every company doesn't need to go and ask for a loan in the bank, which it may get or not. Not because, it is not eligible. But, banks may not have enough reserve. Tax cuts more than normal is expected, which will be converted to bond. This is not just for the first two years, but  any couple of years, till economy comes out of recession. Corporates need to pay more tax, only after making good income, after recession, but within  a time period of 10 years.

I hope that recession goes off in around 2 years, but still corporates should be allowed a time window of 10 years. This policy can be followed even after recession. Once, you pay back all the bond amount,  maximum 2 years of income tax cut. You can renew it. Businesses having huge incomes can be trusted and more tax cuts, converting it to bonds can be given.

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