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A simple solution to the debt and the economy.

Discussion in 'Economics, Business, and Taxes' started by Days, Jun 10, 2017.

  1. Days

    Days Governor

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    If the Treasury would simply write self-redeeming bonds (bonds that automatically redeem themselves) IOW, the bond turns into cash when it matures, it doesn't need to be sent into the Treasury to be redeemed. Just sell that type of bond at auction, the Treasury can simply offer bonds for sale that do that, the bonds are nothing more than legal contracts and they perform according to their offering, so write up bonds that auto-redeem. This is so terribly easy to do, and it can be done any old day the Treasury decides to do it.

    Once we start selling auto redemption bonds to the FED, our bonds will no longer require redemption from the tax base. This has to be done, because our tax base isn't redeeming our bonds anyway, in fact, we run a deficit every year, meaning the tax base is not even paying for government, let alone redeeming our bonds. But once we no longer need to use new bond sales to redeem mature bonds, then that new bond sales can augment tax revenues and balance the budget.

    The goal is to eliminate wage taxes. Taxation of wages is the purest form of austerity. It flows your wages directly back to the FED, the worse possible route for money, it does nothing for the economy. Wage taxes are not only unconstitutional, they are stupid, they are killing our economy, and killing the middle class.

    But how would we balance the budget without wage taxes... the #1 source of revenue for the federal budget?

    I've done this before, as a sensible guide, how taxation could be restructured and budgeted together with the bond auctions. What needs to be defined is "wages"... and the way to define wages is a logical yearly income that relates to the current value of money. At what point, does a yearly income stop reflecting a wage and start reflecting part of a top tier compensation program? At what tax rate should corporate level income be taxed? So here's my best feel for the way to structure that in today's market:

    YEARLY INCOME: `````````` ```````` TAX RATE:

    ZERO TO $250,000 `````````````````````ZERO %
    $250,000 TO $500,000 ````````````````` 5%
    $500,000 TO $1,000,000 ``````````````` 10%
    OVER $1,000,000 ``````````````````````15%

    Combine whatever that revenue produces with the amount of bond sales needed to balance the budget. The loss of revenue from wage taxes would be offset by the bond auctions no longer requiring redemption from the tax base. The national debt is still active but it is retired aside from the budget. Banks still are able to buy our bonds, the bond market continues unhindered, but wage earners are no longer taxed and the top 1% are no longer over taxed. The big money crowd can afford to pay the tax on their income, so that money will no longer leave our shores... and the wage earners will get to keep their wages, put together, those two should provide a huge amount of capital - going into main street - that isn't happening and hasn't happened for the past 30 years; so it solves the capital investment problem which we need to solve, to rebuild our economic infrastructure.

    The resultant growth will raise interest rates; IOW, the economic engine gets restarted and we get back in the game. This is how you make America great again... Fix the currency, eliminate wage taxes, bring back capital investment, as Lukey always was saying, this isn't rocket science.
     
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    Last edited: Jun 11, 2017
  2. Days

    Days Governor

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    I should mention that the resultant bond auctions would remain roughly the same size. A program like this could be started immediately if we simply redeemed the outstanding bonds with Treasury issue from our mints. Note I am not restructuring the tax code, merely adjusting the tax rates; this should take about 5 minutes to do, and the new bond redemption policy could be announced in one minute. Alteration to the type of bond sold at auction will require one or two sentences from a lawyer, no telling how long that takes. ;)
     
    Last edited: Jun 11, 2017
  3. Constitutional Sheepdog

    Constitutional Sheepdog ][][][%er!!!!!!!

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    Let's do this cut spending after a few years abolish the income tax
     
  4. Days

    Days Governor

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    Income taxes are corporate taxes on profit. What the Treasury has been doing for the past 100 years is capitalizing every letter in our names and pretending that makes every person a corporate entity of their real person. and then using that to assess a corporate tax on wages. What I am doing with the tax rates in the top post is eliminating this sneaky wage tax. At the same time, I am limiting income taxes on incomes that really do represent corporate size entities to 15%, which matches the tax paid on dividends from stocks ... so it all gets taxed at the same rate. This is appropriate to the type of income involved, once you get over a quarter million per year, that's no longer a wage, is it?
     
  5. Days

    Days Governor

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    $125/hr x 40 hours = $5000/wk

    $5000/wk x 50 weeks = $250,000/yr

    Any wage over $125/hr = "incomes that really do represent corporate size entities "
     
  6. Arkady

    Arkady President

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    How would that work, exactly? Would you be able to spend the bonds as if they were cash when they matured? If so, in what way would that differ, for practical purposes, from redeeming the bond with the Treasury and having them print cash to hand to you for it? It seems like a distinction without a difference. Where's the benefit?

    The plan you're proposing seems to involve simply printing money, rather than taxing it. That could, theoretically work, but would require a high rate of inflation. Essentially it would be a disguised wealth tax. From an individual's perspective picture two scenarios:

    (1) The person has $100,000 in assets, earns $50,000, which is taxed 10%, with 3% inflation.

    (2) The person has $100,000 in assets, earns $50,000, which isn't taxed, and there's a little over 6.2% inflation.

    In each case, you'd wind up with $140,650 of value, after account for taxes and inflation. Shifting from a wage tax to a disguised wealth tax would have some advantages -- for example, it would allow us to get at value that's currently sheltered. However, it would have disadvantages, too, like causing the kinds of market distortions that happen in high-inflation scenarios.

    What level of inflation would you picture being enough to finance the government in the face of the ultra-low taxes you're envisioning?
     
  7. Days

    Days Governor

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    You can take a savings bond into any bank at any time of maturation and cash it. What I am writing about is the billions in bonds that the big banks hold in cash reserve... you have the gyst of this exactly correct, it amounts to printing money from the Treasury; I've even said, it will be necessary to begin redeeming outstanding bonds with Treasury issue, so the program can be started on a dime.

    This is not an inflationary program. Somewhat, yes, but not hardly enough to raise interest rates back to single digits, which is where the FED wants them. There's no high inflationary scenario here, you have to remember the under funded nature of living conditions currently in place... America has millions of homeless people and tens of millions of working poor; eliminating wage taxes will not create inflationary pressures on the dollar, but it might stop the quality of life from dropping even further than it has. Capping personal income taxes at 15% on the rich is likely to be a revenue neutral program; although the Carribean banks might feel a pinch, since it won't be necessary to offshore all those big earnings. If it creates more capital investment in America; that's the goal, but again, capital investment won't put inflationary pressure on the dollar either. There will be more money in circulation, but the cost of goods should not be largely affected. The trick here is to get the rich to invest in our infrastructure; if that happens, all should be well. If they use the money instead to ramp up the world heroin trade... ouch.

    The debt currency is already deployed in this manner; I'm not changing the currency, I'm tweaking the methods already in use. Our money is not hard currency, so taxes are really a relic from days gone by, the money we use today is purely synthetic and 100% geared to distribution; there's no reason to tax in small quantities; it is a pointless exercise. The Treasury is creating bonds out of thin air, they might as well be retiring those bonds the same way. There's no reason to use a hard currency tax to retire a synthetic debt... the only purpose a personal income tax serves today's currency is as a governor on major player's earnings... and 15% is sufficient to get that job done.

    What we have today is an overtaxed system, so overtaxed, in fact, it can't get up any steam. Our economy is dead on its feet. For the longest time, 3% growth was considered optimal, interest rates were not raised until growth hit 5% and above. We've been sputtering around 1-2% ever since the 2008 stock crash. This money needs a lift! It needs a shot in the arm to get back up and running; the last thing I am afraid of right now is inflation.
     
    Last edited: Jun 12, 2017
  8. Arkady

    Arkady President

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    What analysis tells you that? Have you attempted to do the math? Let me give it a quick "back of the envelope" try here. For ease, I'll look just at the impact on individual taxes. Using income distribution tables, we can figure out how much revenue your system would get from individual earnings:

    https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-hinc/hinc-06.html

    There are 4.184 million households earning over $250,000. For ease of calculation we'll take the median of your three brackets and apply it to all households in that group. So, 10% taxes for 4.184 million households earning an average of $411,551. So, you'll collect about $172 billion that way. Currently individual income taxes plus payroll taxes bring in something in the ballpark of $2.8 trillion. So, even ignoring the hit to corporate taxes, you'll need the Treasury to print an extra $2.628 trillion in currency every year to make up for the funds you're no longer collecting in taxes. There are about $13.5 trillion in money stock. So, you'd be diluting the value of each dollar by about 19.5% in year one, relative to where you'd be without that extra printing (in other words, on top of the inflation we already have). Inflation over the last year has been about 2.2%. So, it would appear your system would put us around 21.7% inflation. To put that in perspective, we averaged about 9.7% in the Carter years, so it would be well over twice as much inflation as that.

    Why? I understand that various dynamics can mute the impact of money supply increases when the economy is depressed. But at this point we're near full employment and wages are already rising substantially, so I don't see those dynamics being in play any more. I wouldn't mind doing something to push inflation up to around 3.5% or so, since I think the Fed's target it too low for optimal growth. I wouldn't even freak out about 6% inflation. But I just can't see printing trillions of extra dollars per year, essentially permanently, without making the price system go totally nuts. I'm not aware of any nation that had sustained inflation anywhere near those levels without serious problems, so I'm not willing to risk it.

    What makes you think that? Recall that the US is under-taxed relative to most other wealthy nations (if you look at government revenues as a share of GDP, we're nearly always near the low end of the GDP, ahead of Mexico and Chile but far behind most or all of the wealthy nations). And we're under-taxed relative to where we were in the late Clinton era, when the economy was humming along fine.

    It may not be moving ahead as quickly as you like (largely due to austerity and demographic/age issues), but it's certainly not dead. It has been growing without interruption since June 2009, which makes this the third-longest growth cycle in American history. We have near-full employment, record median real family incomes, we just had the most annual growth in real household income in American history, poverty is declining, and stock values are rising. We can certainly do better, but what you're proposing is akin to using electric shock to try to restart the heart of a patient who is up and around already, and is merely feeling groggy.

    We got used to being in a period when our largest age demographic was aging through increasing levels of productivity. The country grew as the Boomers moved through their teens, 20s, 30s, and 40s. Now the Boomers are retiring and becoming a net drain on the economy. Japan went through something similar earlier, since they're demographically older than us. Things can change when the Boomers have largely died off, but short of a game-changing technological advance, we're likely in for a couple decades of lower average economic growth.
     
  9. Arkady

    Arkady President

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    By the way, regarding the idea of 3% GDP growth, not only do I think that's not realistic with the current demographics (older, with less population growth), it's not even consistent with past trends. Here's the annualized Real GDP growth rate by presidential era, going back to Truman, from best to worst:

    Kennedy/Johnson 3.99%
    Truman 3.09%

    Clinton 2.55%
    Carter 2.23%
    Reagan/Bush 1.92%
    Nixon/Ford 1.62%
    Obama 1.21%
    GW Bush 0.67%
    Eisenhower 0.58%

    Historically, we had extended period of 3%-or-more real GDP growth in the 1930s, 1940s, and 1960s, and that's it, at least as far back as I've checked.
     
  10. Days

    Days Governor

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    This idea does not print trillions of dollars, it doesn't print any dollars, really. I've tweaked the redemption method, but those bonds are always getting redeemed, it isn't like anything extra is getting put in circulation. You have reacted as if billions of dollars were printed for tax payers, nothing was printed for taxpayers, all I am trying to do is lower their tax burden on money that was already in circulation, I haven't added any extra money to circulation. That's why I said I don't see this being terribly inflationary towards the price of goods and services; especially with the economy being service based, wages are not that high.

    By the way, I wouldn't mind 6% growth either, that's kind of the goal. And sure it would kickstart interest rates on the bonds, but remember, the redemption is no longer affecting the taxpayer, it just perks up earnings for the big banks, which makes them more willing to lend, which, incidently, lowers lending rates.

    You keeping those federal taxes you now pay, does not worry me, Arkady. What worries me is what the super rich do with that extra 15% they get to keep. I'm hoping it inspires them to reinvest in America, as they no longer have to go elsewhere to avoid our high taxes.... No guarantees there.
     
  11. Days

    Days Governor

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    3% growth is the historical target of the FED... IOW, it is what they base their interest rate decisions on. Under 3% and they might lower rates, over 3% and they might raise rates, it is a benchmark.

    btw, the latest policy of raising rates on a 2% growth is totally nuts. To justify it, the FED actually pointed at high employment numbers! (as if they needed to reduce employment)
     
  12. Arkady

    Arkady President

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    Then I can't picture what you're saying. If those bonds "self redeem" then they're equivalent to cash. Whatever value of bonds are created adds to the money stock. It doesn't really matter if that money takes the form of dollars versus those self-redeeming bonds, any more than it makes a difference whether it takes the form of ten dollar bills or twenties. They're just different forms of the same things, right? So, for all practical purposes, isn't it the same as just printing trillions of dollars to pay the nation's bills? And, as my math suggested, doesn't that massively dilute the value of each existing dollar in existence?

    Again, if that's the case, I'm really not seeing how that's supposed to work. Let's get down to the mechanics of it, and maybe that will clarify things. Let's say that the government runs out of tax money near the end of October (less than a month after the fiscal year started), thanks to radically reducing taxes on individuals. The bills will keep coming in for the balance of the fiscal year. How does the government pay those bills? It can pay them with IOUs (which is to say bonds), with the promise to pay even more down the road. You seem to be proposing a kind of IOU that automatically self-redeems for some higher value down the road. But where does the money for that come from? Is it that the IOU is then used as a cash equivalent? If so, isn't that extra money in circulation?

    To look at the same problem from another direction, a dollar can't be two places at once. Under a tax-and-spend system, you take the dollar away form the taxpayer and hand it to whoever sold you the stuff you spent it on. Under the system you're picturing, the taxpayer keeps the dollar. So what do you hand to whoever you bought things from? If it's a normal IOU, you're just postponing the transfer from the taxpayer to the goods/services provider. With this special bond you're thinking of, how does the goods/services provider get paid? We're talking about over $2.6 trillion in goods and services currently being covered by tax dollars that would have to be covered in some other way. Where does the money come from?
     
  13. Arkady

    Arkady President

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    OK. Understood. As a practical matter, that's clearly not really what they target, no matter what they say. If it were, they wouldn't have raised interest rates. Real GDP growth has been under 3% and yet they've raised rates twice over the last two years.

    I think the Fed's behavior is best understood by picturing them as the servants of old money. Old money is willing to tolerate a little inflation to get out of a recession, but otherwise, they're vastly more concerned about inflation than unemployment. Inflation erodes their mountains of wealth, whereas unemployment can actually help them (by making it easier to staff the family compound with people who will be grateful enough to have a job that the aristocrats can treat them like crap).
     
  14. Days

    Days Governor

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    The bonds did create the money supply when they were written. After the bonds were written, they are definitely going to be redeemed... the only other choice is default. The method of redemption is not changing the money supply.

    Right now, we have something like $14.3 Trillion in outstanding bonds (Treasuries)... all of them will come in for redemption. They are all part of the money supply. After redemption they all turn into cash. The cash remains in circulation, redemption doesn't change the money supply. I want to change the method of redemption, but either way, the bonds will be redeemed, the money supply remains constant. Currently, the way they redeem mature bonds is to write new bonds... and what are those? More synthetic money supply, no different than Treasury issue. Whether we sell new bonds - those are added to the money supply - or we print the redemption (figuratively) - that issue is added to the money supply - either way, the mature bonds are retired from the money supply and replaced by cash.

    How large is the money supply? There are over $1 quadrillion dollars pooled around the planet, so it is very large. Over the course of a year, about a trillion of it comes in for redemption... so the bond redemption affects 1/10th of 1% of the money supply over the course of a year. That's the real money inflation happening. And that will happen, because we would be creating new bonds for the budget in place of the redemption, so you add the Treasury issue to the bond auctions and you have inflated the global money supply of dollars by 0.1% over the course of a year... as a stand alone factor.

    In local economies, wage earners paying less taxes (they still pay plenty of taxes) should help turn around our stagnant economy. But wages are so low right now, having been stagnant for the past 30 years, the cost of goods and services will likely never feel it... once upon a time, 25% of your income was supposed to pay the rent/mortgage... we've seen that rise to 50%, so if this lowers it back down to 35%, that's just a partial recovery.

    Bear in mind, the federal bond redemption does not go into local circulation, it goes to the federal reserve banks; it gets crushed back into the global money supply... look at that, when you are trying to figure inflationary impact.
     
  15. Days

    Days Governor

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    Don't get me started on the FED, you'll never shut me up.
     
  16. Arkady

    Arkady President

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    The point, though, is that if you vastly reduce tax receipts, you can't get by with just the current distribution of bonds. You need vastly more IOUs to cover the vastly greater gulf you create between tax receipts and spending. That will change money supply. How can you boost money supply radically like that without causing very high inflation?

    Global money supply isn't the relevant issue when analyzing inflation. It's supply of the currency in question. The M2 money stock is about $13.5 trillion.

    Anyway, I still can't see how you picture this working. Let's get back down to brass tacks and maybe you can explain it to me. Let's look at it in ultra-simple form, where the nation consists of just two people, Abe and Ben. In a pure tax-and-spend system, when the nation wants to buy something for $1 from Ben, it collects the dollar from Abe and Ben (say 50 cents each), then hands it to Ben, and Ben hands over the deliverable. Thus, you end up with the same total money in existence, but with some portion of it being moved from one to the other.

    If we changed to a system financed your way, how would it work? Ben would still need to be handed $1, or something worth that much, right? If that didn't come from Abe and Ben, the taxpayers, where would it come from? In theory, the government could just print that dollar. But that would decrease the value of pre-existing dollars. For example, if before that printing Abe and Ben each had $2.50, you'd go from $5 in existence to $6 in existence. The two would still nominally have the same $2.50 they started with, each, but in terms of value, it would be worth what $2.00 was worth based on the past valuation of dollars -- the same as if they'd just been taxed, right? So, if $2.50 is now worth what $2.00 used to be worth, that means the dollar has lost 20% of its value.... in other words, you've got hyperinflation.

    How do you picture it working, in that microcosm, to avoid inflation? Is the idea that by stimulating the creation of more goods or services, you wind up with the same ratio between money and goods and services? I guess that could work, if demand were infinite and there were no obstacles to production (e.g., no even temporary resource shortages) such that all new money immediately created exactly that much value in new goods and services. But that's not how it has worked in practice. We have countless historical examples of too much money chasing too little real-world value, with sky-rocketing prices resulting. How would your system avoid that?
     
  17. Days

    Days Governor

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    to be clear, I was not pointing at the global money supply of all types of money, I was pointing at only the global money supply of dollars... so yes, that is impacted, but minutely. If you read back into our earlier posts, I pointed out that the use of new bond sales to balance the budget would generate roughly the same size auctions currently taking place, given the current president's conservative approach to budget, auctions would likely decrease in size a small amount. Since the redemption of mature bonds would now be added on top of new bond auctions to the global money supply, there would be inflationary impact, but hardly enough to raise eyebrows at the FED, if indeed they would even notice. Recall that the FED opened a special discount window during the 2008 crash and created $7.7 Trillion in hard cash to rebuild capital in our bank system... that happened in less than a year, and was concentrated in our Wall Street banks, while the normal redemption of bonds spreads that cash to the entire planet, so it would hardly be noticed and it happens to the banks the same way they already experience redemption; IOW, from the global banking perspective, nothing changes, they go right on getting their bonds redeemed and they go right on buying the same volume of new bonds; hence, the bond market is totally unaffected.

    The only serious question of inflation would be in the area of disposable income for the average taxpayer, something that has been woefully lacking and needs to be bolstered; a big reason for making the tweak to the system; you are mostly worried this might help taxpayers, be reassured, it should help them indeed, it would help you, wouldn't it? It wouldn't help me, I pay no taxes already, it doesn't help the poor, it helps the middle class. Other than that, the only serious concern is that globalists will use the hefty capital infusion to the top 1% to invest in America... to that end, capping their tax rate at 15% should go a long way toward convincing them charity begins at home; again, this was the other goal I had in devising this policy.

    This would represent a major shift in tax and currency policy, short term impact would not be felt so much, but it should make a long term impact on how we think and invest; I want to create a better world for my 19 year old soon-to-be Sophomore in college. I want theirs to be a lively thriving commercially viable economy in America for him to live and work in. If the Treasury acted on this tomorrow morning, I believe that it would produce that type of economy by the time my son graduates in another 4 years (it is going to take him 5 years to get his degree).
     
    Last edited: Jun 13, 2017
  18. Arkady

    Arkady President

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    What, specifically, makes you think there are a quadrillion US dollars? M1 is $3.4 trillion. M2 is $13.5 trillion. Currency in circulation is around $1.5 trillion. MZM money stock is $14.9 trillion. The FED lists total monetary base at about $3.8 trillion. Even the largest of those figures is almost only one-sixty seventh the figure your quoted.

    Here's a basic overview:

    http://money.howstuffworks.com/how-much-money-is-in-the-world.htm (note, my numbers are up-to-date and so won't agree with what's there, since that's from 2009)
     
  19. Days

    Days Governor

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    The total money supply based in dollars, would be from my reading and it would be outdated also, I've been aware that it is in the $1 quadrillion dollar range for a decade now. Total money supply is quite a bit larger than money in circulation, it includes all types of asset values and bonds held in reserve at the NYFED by oil trading nations; the only comparative number I can think of was an analysis of asset values held by the Rothschild banking conglomerate that came in around $500 Trillion. Again, that analysis is probably a decade old also, viewed together, those numbers make sense... so I think they were probably accurate, and since stock and housing values have returned to roughly the same point they were ten years ago, those numbers should be pretty accurate for today. Don't ask me for a Link.

    It is worth noting that whether you send cash or bonds in large volume to the big banks and central banks on the planet, they both end up going into asset reserve, they both get used the same way.
     
  20. Arkady

    Arkady President

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    How did you become aware of that? What's your source? As I pointed out, that's entirely out of proportion with any official count I've seen.
     

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