“Simplify, simplify.”–Henry David Thoreau

“Seek simplicity, and distrust it.”–Alfred North Whitehead

The search for simple solutions to complex problems has been going on for a long time.  And with Thoreau on one shoulder encouraging you to pare down and Whitehead on the other telling you to dig complexity, you could easily go totally insane.  First you would look for big, underlying principles to explain things; then you’d start working out the exceptions and adaptations that always pop up when big principles meet the real world.

Anyone who has ever tried to get a straight answer from a politician knows the kind of frustration that can result.

Even with all this in mind, I’d like to put forward two big principles that I really believe in.  I’ll deal with the footnotes, caveats and exceptions later.

Principle One:  Everyone should pay the same percent of their income in taxes.

This one is getting such a workout these days that I don’t have a lot to add.  Even when I hear myself say it, I automatically amend it to, “Everyone who makes more than a certain amount of money a year should pay the same percent in taxes.”  Then it’s not a simple rule any more and we’re off to the races.

The only way to get a truly simple tax code involves shooting way too many people, and I’m not going there.

I would say, however, that when your tax code is so complex that you can’t tell tax cheats from the honestly confused, something should be done.  There are lots people out there for whom cheating on their taxes is a second religion, and that’s wrong in my book.

Principle Two:  The way to pull the U.S. out of our present economic quicksand/doldrums/cesspool is to lower the short-term capital gains tax.  That’s it.  Period.  Simple.

A few years ago, I would have laughed at such a statement, maybe even snorted.  I’ve been a Laffer Curve skeptic for as long as napkin-based economic theories have been popular.

In the present circumstances, the reality of things is that people are scared spitless.  Banks don’t want to lend and buyers don’t want to buy much of anything, from houses on down.  Fear and greed are always the prime motivators of market activity, and fear clearly has the upper hand at the moment.

Lowering the short-term capital gains tax would encourage capital to come off the sidelines and get back in the game.

It’s great that the politicians in charge of shaping the stimulus package are so focused on creating jobs.  Jobs are good.  But they also cater to the politicians’ need to prove to their constituents that they are looking out for their welfare.  No doubt job creation will begin to fatten tax receipts and encourage more purchases of paper towels and hamburgers.

Keep in mind, however, this is a capitalist economy, and it runs on capital investments.  If someone drops $20 at a pizza joint, the effect is local and limited.  But if that same person invests $20 in Dominos Pizza DPZ, which has doubled off its November low, the effect will show up on charts around the world.

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(I don’t think DPZ is a great stock, but work with me here, I’m trying to make a point.)

By lowering the short-term capital gains tax, which can be substantial if you add the Federal and state bites together, you would signal to the capitalists of the U.S. that it’s genuinely worth it to put some money to work.  Money that goes to work in the stock market works very hard indeed.

That’s about as simple as I can make it.

I’m obviously not an expert on taxation, and I agree with the brilliant Peter Drucker that “Anyone who tells you that he understands the American economy ought to be sent to teach modern dance.”

Still, if someone gave me the magic wand and told me to get to work on fixing things, lowering the short-term capital gains tax would be one of my first acts.  The second would be a World Series victory for the Chicago Cubs, but my selfish needs are another story.