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http://financialsense.com/fsu/editorials/zweig/2009/0709.html
Money Stability without Using a Gold Standard
by David Zweig | July 9, 2009
Numerous articles have been appearing about what is wrong with the current economic system. Usually the solution proposed is to adopt a gold standard. Here are the components of a system that combines the best of a gold standard (eliminating lasting inflation) with the flexibility required in today’s world and utilizing modern technology. This approach can create transparency, fairness and stability in government:
Match tax with spending: Tax collected at the end of a period should EXACTLY reflect the amount of government spending that occurred during that period.
Eliminate Fractional Reserve Banking: A single government- owned bank would hold 100% of the cash 100% of the time. There would be no paper money or coins as legal tender. This all-electronic cash would be accessible through the internet for transfers to other accounts within the same bank. All of the cash within the system would be privately owned; government would not own any money nor issue any debt. Government spending would instantly create money and collection of taxes would instantly retire money. No matter how much money the government were to spend, it could only cause the reallocation of money between private accounts.
Separate banking from lending: Money in the government owned bank would be 100% safe at all times, since it would never leave the bank nor be lent out. Only privately owned entities could lend out money; they would not be banks and could not create money. Brokerage accounts could not hold customer money, but could seamlessly access customer’s accounts at the government- owned bank.
Replace existing taxes with a net worth tax- it would not only be fair, but invisible and painless: A net worth tax applied equally to all wealth in the system, affects each dollar of value proportionally the same. Thus, no matter how wealthy people are, each person has the same relative buying power after paying the tax as they had before. The redistribution of wealth is caused by government spending, not by a tax on net worth.
Eliminate the state level of government: Current state functions could be divided between federal and county. This would create huge efficiencies. Computer technology reduces the need for middle management. Examples: One motor vehicle administration instead of fifty. No overlapping court systems. There would be fewer politicians to pay and to have spending taxpayer money.
Automate registration of property and loans: All transactions run through accounts at the government owned bank and involving items subject to registration would automatically cause items to be re-registered in the new party’s name. Trivial property exempt from the net worth tax might include items of personal property not held for investment valued at less than $5,000 each. For most people this would involve registration of their real estate, cars, stocks and bonds, bullion and other collectibles, mortgages and loans, and cash in the government- owned bank.
Create personal escrow accounts funded by transaction taxes: Use these funds to pay the net worth tax, and any excess to fund retirement. Transaction taxes could be automatically assessed by the government-owned bank as the transactions are occurring, freeing retailers, employers, and other companies from this paperwork burden.
Discourage the use of barter: Tough laws would initially be needed to get the world’s worth registered. Over time, these laws would become less important, since once property is registered it would never leave the system.
Likely Results:
1. There could be no lasting inflation or deflation other than due to changes in productivity. Like with a gold standard, prices would fluctuate based solely on supply and demand, which over time would promote price stability. There would still be booms and busts, causing some temporary inflation and deflation, but because the money supply is constant prices would eventualy revert back to the mean. By not having the system favor any one commodity over another, there would be no need for government or anyone else to hoard any particular commodity as a store of value.
2. Eliminating coins and paper money and eliminating the need to hoard commodities reduces the likelihood of tax avoidance or evasion. The system allows for more transparency as no money could be hidden. The effect of government spending would be known EACH QUARTER by looking at one’s own accounts. This might be accompanied by a quarterly report reconciling that quarter’s government spending with that quarter’s tax. Then there could be a breakdown of tax by net worth bracket, and tax and spending by region. Overall, the system would be respected, considered fairly applied, and voluntarily followed.
3. Since government spending would immediately affect the amount of taxes collected:
a) Taxpayers would become active in controlling government spending, by becoming involved in spending legislation. They could not pass costs on to another year or another generation.
b) Tax legislation once in place would need little change. Much of the need for tax preparation, litigation, and lobbying would be eliminated. An added bonus to this system is that it includes a sustainable social security system based on need.
4. Many distortions and mis-allocations would be eliminated: Since spending and revenues would be matched, no catastrophic currency destruction or implosion could occur. There would be no treasury securities to crowd out the credit markets. If this became a world currency, there would be no foreign exchange spreads or losses.
5. This system could easily be adopted as a world currency, while still keeping the current country political boundaries. Each country’s government spending each quarter (creating more world currency) would be taxed to its citizens that quarter (retiring the same amount of world currency). Much of the current tensions between countries would be reduced, which could go a long way in reducing everyone’s taxes.
A detailed example of this system:
1. Tax would be assessed at the end of each quarter, to pay for the EXACT amount of government spending made during that quarter:
a) Federal portion: Divide total federal spending each quarter by the total number of taxpayers, to determine the tentative quarterly tax owed by each taxpayer. Adjust each taxpayer’s tentative tax liability according to a zero- sum formula to allow for an allocation of tax based on each individual’s net worth.
Note: There would be no state portion, as the state level of government would be eliminated (see above).
b) County portion: Each jurisdiction calculates how much it has spent during the quarter. Allocate that sum into two parts. Part 1 is divided by the total number of taxpayers residing in the county and is computed in a manner similar to the federal portion. Part 2 is assessed to real estate owners and is allocated according to the value of their real estate. There would be no local sales tax since the internet makes it difficult to determine where transactions are conducted. Likewise with trying to tax non-resident workers.
2. Funding for this combined federal and county quarterly tax could be effortlessly made through amounts escrowed from everyday transactions:
a) For all transactions except reimbursements, the person making the transfer of cash also pays something like a sales tax, except that it is a tax escrow.
b) For all wages received, from the recipient is withheld a percentage of the wages, and that withholding becomes a tax escrow.
3. Each taxpayer’s quarterly tax is deducted from the running total of that person’s escrow, and:
a) Any quarterly tax exceeding an individual’s escrow would be assessed directly to that individual. This could only happen to high net worth individuals. At the beginning of each quarter those individuals would pay an estimate of what this assessment would be for the quarter.
b) Individuals with lower net worth would see their escrow grow over time, and eventually their escrow would be paid out as a retirement annuity. High net worth individuals would have no escrow left over and would need to fund their own retirement.
4. Possible ways of discouraging barter:
a) Contracts involving barter would be unenforceable under the law.
b) All asset items subject to registration that are not registered may be subject to fines or confiscation. Most likely, people would voluntarily register so as to insure that they had legally enforceable rights to the property.
c) All barter transactions over a threshold level would be treated as sales paid for with money at fair market value, and taxed accordingly.
The Challenge: Even if we design a sound system like the one described here, we will still need to figure out how to transition to that new system. The current system may need to collapse first. But we should at least be discussing what comes next, instead of just bashing what doesn’t work.
Money Stability without Using a Gold Standard
by David Zweig | July 9, 2009
Numerous articles have been appearing about what is wrong with the current economic system. Usually the solution proposed is to adopt a gold standard. Here are the components of a system that combines the best of a gold standard (eliminating lasting inflation) with the flexibility required in today’s world and utilizing modern technology. This approach can create transparency, fairness and stability in government:
Match tax with spending: Tax collected at the end of a period should EXACTLY reflect the amount of government spending that occurred during that period.
Eliminate Fractional Reserve Banking: A single government- owned bank would hold 100% of the cash 100% of the time. There would be no paper money or coins as legal tender. This all-electronic cash would be accessible through the internet for transfers to other accounts within the same bank. All of the cash within the system would be privately owned; government would not own any money nor issue any debt. Government spending would instantly create money and collection of taxes would instantly retire money. No matter how much money the government were to spend, it could only cause the reallocation of money between private accounts.
Separate banking from lending: Money in the government owned bank would be 100% safe at all times, since it would never leave the bank nor be lent out. Only privately owned entities could lend out money; they would not be banks and could not create money. Brokerage accounts could not hold customer money, but could seamlessly access customer’s accounts at the government- owned bank.
Replace existing taxes with a net worth tax- it would not only be fair, but invisible and painless: A net worth tax applied equally to all wealth in the system, affects each dollar of value proportionally the same. Thus, no matter how wealthy people are, each person has the same relative buying power after paying the tax as they had before. The redistribution of wealth is caused by government spending, not by a tax on net worth.
Eliminate the state level of government: Current state functions could be divided between federal and county. This would create huge efficiencies. Computer technology reduces the need for middle management. Examples: One motor vehicle administration instead of fifty. No overlapping court systems. There would be fewer politicians to pay and to have spending taxpayer money.
Automate registration of property and loans: All transactions run through accounts at the government owned bank and involving items subject to registration would automatically cause items to be re-registered in the new party’s name. Trivial property exempt from the net worth tax might include items of personal property not held for investment valued at less than $5,000 each. For most people this would involve registration of their real estate, cars, stocks and bonds, bullion and other collectibles, mortgages and loans, and cash in the government- owned bank.
Create personal escrow accounts funded by transaction taxes: Use these funds to pay the net worth tax, and any excess to fund retirement. Transaction taxes could be automatically assessed by the government-owned bank as the transactions are occurring, freeing retailers, employers, and other companies from this paperwork burden.
Discourage the use of barter: Tough laws would initially be needed to get the world’s worth registered. Over time, these laws would become less important, since once property is registered it would never leave the system.
Likely Results:
1. There could be no lasting inflation or deflation other than due to changes in productivity. Like with a gold standard, prices would fluctuate based solely on supply and demand, which over time would promote price stability. There would still be booms and busts, causing some temporary inflation and deflation, but because the money supply is constant prices would eventualy revert back to the mean. By not having the system favor any one commodity over another, there would be no need for government or anyone else to hoard any particular commodity as a store of value.
2. Eliminating coins and paper money and eliminating the need to hoard commodities reduces the likelihood of tax avoidance or evasion. The system allows for more transparency as no money could be hidden. The effect of government spending would be known EACH QUARTER by looking at one’s own accounts. This might be accompanied by a quarterly report reconciling that quarter’s government spending with that quarter’s tax. Then there could be a breakdown of tax by net worth bracket, and tax and spending by region. Overall, the system would be respected, considered fairly applied, and voluntarily followed.
3. Since government spending would immediately affect the amount of taxes collected:
a) Taxpayers would become active in controlling government spending, by becoming involved in spending legislation. They could not pass costs on to another year or another generation.
b) Tax legislation once in place would need little change. Much of the need for tax preparation, litigation, and lobbying would be eliminated. An added bonus to this system is that it includes a sustainable social security system based on need.
4. Many distortions and mis-allocations would be eliminated: Since spending and revenues would be matched, no catastrophic currency destruction or implosion could occur. There would be no treasury securities to crowd out the credit markets. If this became a world currency, there would be no foreign exchange spreads or losses.
5. This system could easily be adopted as a world currency, while still keeping the current country political boundaries. Each country’s government spending each quarter (creating more world currency) would be taxed to its citizens that quarter (retiring the same amount of world currency). Much of the current tensions between countries would be reduced, which could go a long way in reducing everyone’s taxes.
A detailed example of this system:
1. Tax would be assessed at the end of each quarter, to pay for the EXACT amount of government spending made during that quarter:
a) Federal portion: Divide total federal spending each quarter by the total number of taxpayers, to determine the tentative quarterly tax owed by each taxpayer. Adjust each taxpayer’s tentative tax liability according to a zero- sum formula to allow for an allocation of tax based on each individual’s net worth.
Note: There would be no state portion, as the state level of government would be eliminated (see above).
b) County portion: Each jurisdiction calculates how much it has spent during the quarter. Allocate that sum into two parts. Part 1 is divided by the total number of taxpayers residing in the county and is computed in a manner similar to the federal portion. Part 2 is assessed to real estate owners and is allocated according to the value of their real estate. There would be no local sales tax since the internet makes it difficult to determine where transactions are conducted. Likewise with trying to tax non-resident workers.
2. Funding for this combined federal and county quarterly tax could be effortlessly made through amounts escrowed from everyday transactions:
a) For all transactions except reimbursements, the person making the transfer of cash also pays something like a sales tax, except that it is a tax escrow.
b) For all wages received, from the recipient is withheld a percentage of the wages, and that withholding becomes a tax escrow.
3. Each taxpayer’s quarterly tax is deducted from the running total of that person’s escrow, and:
a) Any quarterly tax exceeding an individual’s escrow would be assessed directly to that individual. This could only happen to high net worth individuals. At the beginning of each quarter those individuals would pay an estimate of what this assessment would be for the quarter.
b) Individuals with lower net worth would see their escrow grow over time, and eventually their escrow would be paid out as a retirement annuity. High net worth individuals would have no escrow left over and would need to fund their own retirement.
4. Possible ways of discouraging barter:
a) Contracts involving barter would be unenforceable under the law.
b) All asset items subject to registration that are not registered may be subject to fines or confiscation. Most likely, people would voluntarily register so as to insure that they had legally enforceable rights to the property.
c) All barter transactions over a threshold level would be treated as sales paid for with money at fair market value, and taxed accordingly.
The Challenge: Even if we design a sound system like the one described here, we will still need to figure out how to transition to that new system. The current system may need to collapse first. But we should at least be discussing what comes next, instead of just bashing what doesn’t work.
