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11/07/2010

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Jack

Alex: Good comments and as the incoming teabaggers force a push coming to very shovie debate this question will come to the fore:

"Why propose cuts in Medicare and SS and not propose cuts in defense?"

and

"My commentary was aimed at the debate over allowing the Bush Tax Cuts to expire, which I think they should. A 3.6% increase in marginal tax rates for the highest earners has been more than offset by the increasing returns to income that this 2% of the population has seen over the past 30 years."

.......... right direction but even with any imaginable cuts, and especially so during this deep recession (and I believe structural unemployment) won't come close to bringing the deficit under control. This assuming the only practical goal is that of lowering deficit growth, at least, below GDP growth that we don't amass debt as a higher percent of GDP than it already has become.


With expected growth in the 2% range there's not much margin for error. Mostly we've never paid down the debt itself. After WWII rapid growth reduced debt as a percentage of GDP and the economy seemed to do well despite FAR higher marginal tax rates. Since 1980 it appears the "supply side" "Laffer (Humor?) Curve" theory of lower marginal tax rates has brought us DEBT growing much faster than GDP and to the cusp of disaster:

http://www.usgovernmentspending.com/downchart_gs.php?year=1950_2010&view=1&expand=&units=p&fy=fy11&chart=H0-fed&bar=0&stack=1&size=m&title=US%20Federal%20Debt%20As%20Percent%20Of%20GDP&state=US&color=c&local=s

With income inequality having soared over the last 30 years returning to a higher progressivity of taxation would hardly A. Affect growth rates or B. be redistributionist.

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

But the politic of the day suggests they'll trot out the "Fair" tax, or more likely a "consumption tax" which are inherently regressive and will further strap the middle and lower classes with the result being an economy yet more starved by lack of demand, as the top 5% amass family fortunes and yet more self-propagating political power.

Deeptee: IF you've concluded that H/C costs in our once wise and democratic nation MUST soar to an amount taking over half of median income we're pretty well doomed and should begin migrating to Europe and Canada where such cost escalations are not predicted.

Alex: I think we've gone past the era, if it ever existed, when we could count on cost compression by price shopping H/C. The trouble with catastrophic insurance is that the preventative and ongoing maintenance costs are 100% born by the increasingly strapped working class (see wage stagnation! above) with a strong economic incentive to "do it later" and, if one is called by his primary doc for a check-up etc. is he then likely to shop around for a lower price?

Jim Satterfield

There are constantly proposals being made about raising the retirement age because people are living longer. First, that is true more of high income earners than lower income people. Secondly, in the real world of American employment age discrimination is rampant and almost never prosecuted because of the difficulty of proving it. How can raising the retirement age for everyone receiving Social Security be justified when it's just this side of impossible to find a decent job when you are fired when in your 50s or older? I never, ever see that fact of life addressed by conservatives. Also, our problems with the general fund have nothing to do with Social Security. Want to fix it? Don't whine about it being welfare if it's means tested and increase the cap on income that can be taxed for it.

John

again more madness and lies from the extreme, extreme right wing.

following the bush tax cuts, capital investment in the US went down.

look it up.

From a recent FT column:

Please use the link to reference this article. Do not copy & paste articles which is a breach of FT.com's Ts&Cs (www.ft.com/servicestools/help/terms) and is copyright infringement. Send a link for free or email ftsales.support@ft.com to purchase rights. http://www.ft.com/cms/s/0/9e6a18ec-c019-11df-b77d-00144feab49a.html#ixzz157ZmDZvd

Not only were the 2000s by far the weakest period, but the tax cuts did not even curtail the secular slowdown in the growth of business structures.

Rather, the slowdown accelerated into a full decline.

During each decade from the 1950s to the 1990s, growth in real gross non-residential investment averaged between 3.5 per cent and 7.4 per cent per decade. During the 2000s, it averaged a mere 1 per cent.

Similarly, the growth rate for investment in equipment and software ranged from 5.7 per cent to 9.9 per cent in these earlier decades. It averaged 1.9 per cent during the 2000s.

Average growth in non-residential structures ranged from 1.3 per cent to 5.7 per cent from the 1950s to the 1990s. During the 2000s, it declined by 0.8 per cent.

The stated goal of cutting taxes to spur US capital investment was not achieved.

Where did the benefit of the tax cuts go?

there is no evidence showing, tending to show that cutting taxes leads to growth. We just had the lost taxes for a decade of any period of time in 75 years, and 98% of americans lost ground

to the contrary, what our society needs is fundamental reform aimed at productivity growth of 10% or more a year.

the internet is abuzz with a new video from China. construction of a 16 story hotel in 6 days, with no work site job injuries.

nothing stands in the way of our entire society not being this productive except the no no no party, the extreme right wing, which has only one agenda, political power at any price.

Look at the Senate, regardless of merit, McConnell has said that it will not be done, if it leads to re-election of Obama. Now that is uncertainty.

Gary Marshall

Hello Mr. Becker,

There is a very easy way for the nation to revive its finances and return to growth. It requires, however, looking at old problems with new eyes.

First of all, the government is in deficit to whole of its expenditures because the taxing authority actually generates none of its own revenues. Governments do not pay taxes. They never have and they never will. When the bill for public expenditures arrives, the various levels of government simply pass it along to the taxpayer.

If the government spends $200 billion on various public investments, then the deficit is actually $200 billion. It does not really matter if the tax financed portion of this deficit were $180 billion and the borrowing financed portion were $20 billion. Its all deficit.

The only thing to really decide is would the nation have been better off if those who earned the funds taken by government had kept them and put them to more productive use. If the government had a more productive use, then the nation would have benefited. If otherwise, then the nation loses. Generally, the nation loses.

The only reason a nation will tax is to avoid interest charges. In government borrowing, the nation, its taxpayers, must pay interest on the principal borrowed whilst the government delays taxing the principal and repaying the loan.

Here is a little paradox:

If the state of California's citizens and corporations were to purchase all of its Governments' debt instruments, what is the effect on California's finances?

Well, there would be no effect as the state would see its debts rise by the amount of bonds sold and Californians would see their personal financial assets rise by the same amount of bonds purchased. It is the same with the interest paid out. The nation's debts will rise by the interest paid out and the nation's assets will rise by the amount borrowed to pay such interest.

How few people seem to understand this simple fact!

In conclusion, if the state were to borrow all of its expenditures, and the interest also, the wealth of the state would be unaltered in the transaction. A rise in the nation's aggregate debts would perfectly balance with rise in the nation's assets.

The only question remains is what would the nation be getting from its public expenditures? Well, in a nation wherein the borrowing government must face its banker daily and must justify each and every public expenditure, I would say a lot more than in a nation wherein the taxing government can take as much as it desires and spend it accordingly.

Regards,
Gary Marshall

B. DeVries

I don’t know about you guys, but for me, the more I’m taxed the more enthusiastic I get about going to work every day and the more I produce.

My cousin on the other hand, who dropped out of college and is something of a surfer boy in Santa Cruz California says that the more help he gets from the government (my money essentially) the more motivated he feels to leave the beach and get a real job instead of getting by on temporary part time assignments and government help. He actually says that once 2014 comes and the government (i.e. the rest of us) finally start paying his health insurance premiums then, for sure, he’ll finally get serious about finding a full time job.

Roger D

6 days to construct a building? In America, and even more so in Europe, in 6 days you would not even have found the contractor to start compiling the environmental report. It takes years just to get to the point where you can finally bring your proposal to city hall so that the public can have a pitchfork session and, in most cases, cancel your project. Eventually, you succeed and pass the cost of all past failed attempts to those who buy your building. GDP and growth galore...

Jack

Gary! A near perfect description of excess government borrowing starving out private investment!

Consider: On day one neither CA nor its citizens had any (monetary) capital. After a while by dint of labor some capital was in private hands. Then bonds were sold to pay for a park, a bridge and city hall. All great projects but when the private railroad company tried to sell its bonds, they were too late as all of the investment capital had been loaned to the state. Later, to be sure the coupons paid out some interest but! by then schools were needed for the new crop of kids and more non-revenue bonds had to be sold.

BTW have you ever read the Grimm's Fairy Tale about the guy whose blanket was too short to cover his feet? and he craftily solved the problem by cutting some off the top were it was not needed and sewing it onto the bottom?

B. Devries! I'm glad someone is still surfing the chill waters off Santa Cruz which may well be a more productive use of one's time than prosecuting a "pre-emptive" trillion buck war halfway around the world and expecting hundreds of thousands to fight it and hundreds of millions to pay interest on the borrowed trillion. Perhaps the old saying "Better a million surfers than one war....."

BTW your cuz, in normal times, is deeply engaged in fighting another "war", that is helping whoever is Fed Chief fight inflation. As you likely know, we've an economic system that requires a 5% unemployment rate and the valves in DC are adjusted accordingly. Today? he's on furlough from that war as inflation has been conquered and he's just another one of the faceless unemployed of which it's difficult to tell which of the 10 -20% would rather not work.

If Cuz is something of a patriot he should heed the pleas of our past President and "go shopping" as our economy is starved for DEMAND. Trouble is demand differs from "wants" by requiring discretionary coin of the realm to deploy and I doubt surfing Santa Cruz pays much better today than it did when I surfed the much warmer waters of So Cal.

A true dilemma! But does is the boy sociable or have a feel for "banking?" I recall one of our more "successful" purveyors of derivatives getting there by being a tournament bridge player or some such, and the great thing about selling D's is that of not having to know your product. In fact it's better if you can prove ignorance of them.

Jack

John: Thanks for putting numbers to what I've thought during this era.
With the feedback loop of rising house prices, no down or less, the junk being sold and the harmonic continues, why risk capital on research or industry?

If tax cuts are continued for upper incomes, why not via investment tax credits?

But then, is something else wrong? Are we such a mature and mechanized society that there are too few worthy investment opps to go around?

The public "debate" is only "too much tax" or "too little" but let's hope SOMEONE is discussing right tax and wrong tax. If there is not the will to raise taxes to, say halve the deficit, why not tie them to investing in our infrastructure needs or energy conservation and alternatives, or private industry -- that is here where we need the jobs.

Gary Marshall

Hello Jack,

I read through your response. I love children's fables because they always have a sharp and profitable message for adults too.

Suppose a government spends $200 billion. Its deficit position is $200 billion regardless of whether the money comes from taxation or borrowing. If the government taxes the full sum, then the taxpayers are out $200 billion. If the government forges some combination of taxation and borrowing, the taxpayers and lenders are out $200 billion. If its all borrowing, then the lenders are out $200 billion.

Whatever the plan, the government is taking $200 billion.

I fail to see the crowding out effect caused by government borrowing. Do you see it?

Now if you meant that the Government should not have spent $200 billion in the first place, I might agree. Then one's pursuit is restraint in government expenditures, not in government borrowing. To say that a government spending $500 billion solely through taxation is benign whilst the same government spending $200 billion, $100 billion of which is borrowed, is detrimental seems strange, do you not think?

Back to the Grimm tale. Let us suppose the frigid fellow rejects the cutting and piecing together of his blanket. Suppose he runs off to the local banker and borrows a few pennies for some cloth. He then knits a section of blanket and appends it. Without the discomfort of the invasive cold, he sleeps more soundly and produces more in his daily labours. Or he puts less wood on the nightly fire that heats his room. With the resulting increase in productivity or decrease in heating costs, he quickly pays off the small loan and lives a better life.

Gary Marshall

Hello Mr. DeVries,

You said, "I don’t know about you guys, but for me, the more I’m taxed the more enthusiastic I get about going to work every day and the more I produce."

If that is not some typo, I would conclude that when taxation takes 100% of your property and income you would be at your most productive.

Regards,
Gary Marshall

Hopefully Anonymous

I think it's unhelpful to ignore obvious constituencies for two groups who live less long: black men and poor men (I'm not sure how black women or poor women fare relative to middle class men).

Perhaps raising the retirement age would be easier to achieve with a policy buyout/exception for these two groups, or at least for poor men.

If you pretend these constituencies don't exist, you turn this from policy optimization to conflict theatre, which I think is unhelpful and thus untechnocratic.

Jack

Gary: You get closest in this paragraph:

Now if you meant that the Government should not have spent $200 billion in the first place, I might agree. Then one's pursuit is restraint in government expenditures, not in government borrowing. To say that a government spending $500 billion solely through taxation is benign whilst the same government spending $200 billion, $100 billion of which is borrowed, is detrimental seems strange, do you not think?

... I see that you're trying to sell a cute deal, but truth is the art is that of balance and not killing the golden goose. I do kinda like your scheme though. As young marrieds we're typically indebted as we're broke but need home, appliances et al so your deally would be a great help, we'd all borrow to buy the full kit at 21 and pay the interest to ourselves, thus leaving us to party on our youthful wages. Great!

I liked the banker version of Grimm but suspect it ends with the tired fellow snuggling in, oversleeping, and not paying the the daily vigorish on his CC .....well you've seen the rest in the paper or on Cspan? the poor fellow ends up with $30k in fees and interest with his bed being taken under the new "improved" bankruptcy laws. But there IS the fairy tale ending of his being homeless in the dark forest until he comes upon Robin Hood and they all ride off to 'DEAL' with Wall Street.

Gary Marshall

Hello Jack,

Well, I do pity the poor fellow who cannot come with a few pennies to pay off the banker. Dealing with Wall Street comes with an option. One can choose to buy their paper or reject it. Dealing with the government does not permit such a choice.

Below is the full borrowing idea in a short speech that I give at economics conferences. I offer $50,000US to the person able to find the flaw in my reasoning. No one ever has.

Regards,
Gary Marshall

There is a big problem in present economics. An assumption was made a long time ago that Taxation is the best means of raising capital for government expenditures.

I argue that it is not and never has been. By a very simple calculation, the financial costs of Taxation to a nation are incredibly great and the benefits nil.

To find the truth, all one need do is add up the financial costs and benefits of taxation. If benefits exceed costs, then one retains taxation. If not, then you discard it and choose an alternate method of funding Government expenditures.

I am not here talking about government expenditures or how the government empties its money bag, only about how the government fills up its money bag.

To add up the numerous costs of Taxation would be a long and difficult exercise. It may be easier to assess the benefits and then proceed.

So, what are the benefits of Taxation? What is the payoff that surpasses all costs?

For an answer, one may look to the commonplace purchase of a home.

To buy a $100,000 home, one may pay cash or like most borrow.

If the buyer pays cash, his personal financial assets will decline by $100,000, and he will obtain title to his new home.

If the buyer borrows, his financial debts will rise by $100,000, he will obtain title to the home, and he must then pay interest on the borrowed money.

Both buyers obtain title to the home. Both see their finances take a large hit. The only difference to be found between the two is that the borrower must pay interest on the loaned funds.

So, the financial benefit to one using personal funds to buy a home is interest savings; interest the cash buyer need not pay on money he chose not to borrow.

Some may argue that the borrower must also repay the principle. This is correct, but it does not alter the resulting benefit. The cost to the borrower would be any amount of principle paid down, and the benefit would again be the consequent interest savings.

By equating Taxation with using personal funds, the benefit of Taxation for a nation becomes interest savings. When the Government funds expenditures through taxation, the nation is freed from having to supply money to pay interest on funds otherwise borrowed.

Suppose the Government needs $1000 for some service. It can borrow the funds or tax.

If the government tax, then the people and corporations of the nation are out $1000, and the nation receives its service.

If the government borrows the $1000, from US residents and in US currency, the nation's debt will rise by $1000, and the nation receives its service.

However, in borrowing, the nation’s financial assets will also rise because US resident lenders now hold an IOU for the $1000 loaned.

If the government were to borrow $100 to pay interest to its resident bondholders, the national debt would rise by a further $100.

And so would the financial assets of the nation because the new lenders of the $100 would receive a note for exactly the same amount.

If the creation of a debt for a nation also creates an equivalent asset for the nation, and the payment of interest also, the financial benefit of Taxation, that is interest savings, is nullified

If the government were to borrow every penny it spends from resident US citizens and the interest as well, the wealth of the nation would be unaltered in the transaction. A rise in the nation's debts would always perfectly balance with a rise in the nation’s assets.

Therefore, Taxation has no benefit, financial or otherwise. In fact, for a nation, any nation, Taxation is all cost and no benefit. That is if the cost of borrowing for a nation is in effect zero, taxation has not benefit.

What would happen to the finances of nation were the government to abolish taxation and begin borrowing all of its expenditures?

Two important obligations now come into play:

One: that Government will now have a capital charge. In the present, when government furnishes a good or service, one is never sure the money expended in the effort bears a calculated return, a return that surpasses all costs. With taxation abolished and a market borrowing rate of 7%, the government will have to earn at least that rate of return on its expenditures.

Two: the government will have to face the nation every time it requires funds. Under Taxation, it can take the funds and do as it pleases. With its abolition, needy government will learn very quickly not to mistreat its petulant banker.

These 2 factors will create a revolution in how government operates.

The costs of government would certainly contract.

Wasteful expenditures would decline rapidly as the return on any expenditure must exceed the capital charge. There would be no more tax collection, no subsidies to favoured industries or persons, far less corruption, far fewer regulators, far fewer and much smaller government departments, far greater controls on enduring expenditures, and the use of service fees to curb abuse of public resources.

In a government with annual expenditures of $300 billion, savings of $100 billion could easily be had.

And what would happen to the other side, to the financial assets of all US citizens and corporations:

Taxation is a deterrent. It deters one from doing what he would normally do were there no taxation. Without this burden, there will be all lot more worthy economic activity and far less of the other kind.

There would be no taxes to pay and no papers to file, no taxes in the prices of goods, no tax distortions or burdens in the labour, financial or commercial markets, far less needless regulation and interference, more open and competitive markets, few inequities,

In my home country of Canada, with savings from annual government expenditures combined with the increased assets of the taxpayer, over 4 years, I estimate very conservatively the accumulation of $1 trillion in wealth with the abolition of taxation.

Cumulative Liability $200B $430B $ 694B $ 986B
Cumulative Asset $400B $880B $1443B $2076B

In the US, you can multiply everything by 10, which means a conservative increase in wealth of about $10 trillion in just 4 years.

Over those 4 years, the nation through its government will acquire a much greater financial debt, but it will create financial assets that at least double that burden.

In conclusion, I want you to remember 2 things:

The cost of borrowing for a nation is zero if it borrows from its citizens. Therefore taxation is all cost and no benefit.

The nation is wealthier everyday subsequent to the abolition of taxation.


Jack

Gary: Thanks, and am I eligible for the prize for having "found" the flaw before it was offered? As Alaska IS an exciting place with FEW flying mouths like The Palin, I could do with just $49,000 reflecting our being the 49th state so you'd have the other thou to fly up and present it.

But seriously, did you have to drug folks to get em to sit still through the spiel?

Oh! and today's fairy tale is that of the man who saved the beautiful princess from a fire breathing dragon, where upon the king said name your reward. He humbly asked for a single grain of rice for the first week and that amount to be doubled in succeeding weeks. The hero lived happily ever after although the king's treasury ended up something like that of our own.

Which reminds me were Reagan, Bush the Elder, or Bush The DEBTmaster in your seminar? And what went wrong? Should the WS thieves have allocated the D E B T and interest coupons more ......... democratically?

Jack

H. Anonymous: Yep! you do identify one of the problems of pushing up the SS retirement age. While an attorney might be just hitting his stride as 65 or in a better time, be considered for appellate judge or the Supreme Court those driving truck 150,000 miles a year are pretty weary.

It's "puzzling" that the suggestions for raising do not zoom in closer as I suspect that many in recent years are choosing delayed SS retirements as those of pro-wages would have the benefits taxed completely away. Today, I suspect that economic desperation is creating a "run" on SS as those (jobless) nearing the age "retire" in order to pay the house payment.

Gary Marshall

Hello Jack,

And before I present the cheque, what was the flaw that you had actually found? 'Trust me I found it', just does not suffice.

Like so many, you concentrate upon the debt values a la "Reagan, Bush the Elder, or Bush The DEBTmaster." I might as well include Obama in there as well as he has surpassed the achievements of all others.

IBM is in debt, Intel, and most of the Fortune 500. The banks are in debt and some of them at this time actually possess inferior assets to their debts.

I'm in debt, you're in debt, the US is in debt, the whole world is drowning in debt.

But does debt equate to financial ruin? If so, then we all are ruined.

But debt does not equate to financial ruin. Any child understands this fact.

What matters most to any clear thinking investor, banker, or depositor is the answer to the question, does the borrower have the assets to cover his debts?

So I shall ask you a simple question: would you lend money to a corporation that can create $2 in debt for every dollar borrowed?

Would you invest in or lend to a corporation that counted $2 in assets for every $1 in debt.

In this day, who wouldn't?

So if a nation manages to create $2 in assets for every $1 borrowed, would you not lend money to that nation? Would you fear insolvency?

I certainly know the simple answer to that question.


Regards,
Gary Marshall

Jack

Gary: The "cheque" eh? Will you be traveling from nearby Vancouver? London? or Paris? Ha! I thought you were joking, but you really believe your stuff?

Well, you mention Intel as small fraction of which I owned for quite a rewarding time. I note that despite their debt they've some $40 billion in equity, however when I invested by hard-earned retained capital, truth is I cared little about their break-up value, which appears not to even monetize their intellectual capital, branding, and overall excellence in the field in which they choose to compete and at times buy out pesky "competitors". No, I really chose them on a basis of their rapidly accelerating income stream which I was sure would be more than enough not only to cover their existing debt service, but to give them a large margin with which to invest in other profitable ventures along with the market power to cold-cock any competitors or start-ups that might threaten their near monopoly.

In the matter of public indebtedness, I've long supported reasonable amounts of debt for projects that either had a viable income stream, or that would be and investment that would return dividends to our once fine society in the future, such as education, and the infrastructure that improves our standard of living and enhances commerce.

Obviously, something has gone badly wrong since about 1980 as we've a couple trillion in needed infrastructure maintenance and upgrades, mediocre achievements in education, a CRUSHING level of DEBT and seemingly no one who wishes to ante up the debt service, be it to ourselves -- as in paying back SS funds or to the Chinese and others who were nice enough to delay their own gratification in order to SAVE and loan the proceeds to we who like to party long into the night with little regard for the inevitable credit card bill.


And........ indeed! Amongst your others fantasies you do ask a pertinent question:

"What matters most to any clear thinking investor, banker, or depositor is the answer to the question, does the borrower have the assets to cover his debts?"

Ahh yes! And it USED to be the banker asking such questions, however the recent crop of swinging moneychangers in the temples seem to "feel" that's way too stodgy and seemingly quit asking.

But! I suppose your question is more directed to the public sector and I don't quite have an answer for you. While I KNOW the real or phantom equity once owned by our citizens took something like an $8 trillion drubbing in the recent crash, still, I think that were we to hock everything in an orderly sale that wouldn't depress the market down to our wives rings we could pay off our public and private debt with enough left over that we'd be just as wealthy as the citizens of other third world nations.

But..! as with Intel it's our income stream that is more valuable in monetary terms than say Yosemite, trouble is that it's but $2.5 trillion while the partying and mindless warmongering is costing some $3.5 trillion, with, as seemingly has been the case since 1980 with FEW exceptions those "running the show??" not having the jam to pass the hat.

Question: Does your wild-eyed scheme have a (viable) solution? If not? I'd welcome you to bring the aforementioned "cheque" and share in the lean, moose and omega III's laden wild salmon we'll be serving while others are dining on turkey's whose ranges do not extend this far north. Up for it?

Jack

Intel's quite lovely balance sheet:

http://finapps.forbes.com/finapps/jsp/finance/compinfo/FinancialIndustrial.jsp?tkr=intc&period=qtr

Debt Settlement affiliate

Wow its wonderful stuff, i like it.It was very interesting for me to read this blog and I like such topics and everything that is connected to this matter.

Gary Marshall

Hello Jack,

So you bought Intel for its income stream. Good going.

Now you said,"But! I suppose your question is more directed to the public sector and I don't quite have an answer for you."

Well, I have an answer...Remember this little bit from above.

****When you say that deficits do not matter, you imagine that the taxing authority actually generates some of its own revenue. But Governments do not generate revenue. Governments do not pay taxes. They never have and they never will. When the bill for public expenditures arrives, the various levels of government simply pass it along to the taxpayer.

What I am saying is that the whole of public expenditures is deficit financed. If the government spends $200 billion on various public investments, then the deficit is actually $200 billion. It does not really matter if the tax financed portion of this deficit were $180 billion and the borrowing financed portion were $20 billion. Its all deficit.
*****

Now, Jack, if you wish to know whether a government can raise $1 million through taxation, do not bother looking at the finances of the needy government. You will have to outside that pathetic scope to the financial assets of those that are to supply the funds, not at the assets of the entity expending them. It is the same for a borrowing government. To assure the lenders of repayment you point to the assets of the citizens and corporations within the tax jurisdiction that shall eventually satisfy the lenders, not at the rather pitiable assets of the hopeful borrower.

The debts incurred by government are not to be repaid by government because government does not generate any funds. Government invariably hands the bill to someone else, the taxpayer. Those debts will be satisfied by the citizens and corporations within its tax jurisdiction.

If you agree, fantastic. If not, then this is going to be extremely difficult.

Now, if you agree, then suppose a government were to borrow exclusively from those taxpayers, citizens and corporations, within its jurisdiction. The debt incurred by the government, or rather the community because this is who shall repay the debt, would be $1 million. The asset acquired by the community lenders would be ...$1 million, as they would now have an IOU for the same amount. If the government borrows interest from the community to pay its bondholders, the debts of the government would rise by say $100,000, but so would the financial assets of the community as its resident lenders would now hold an IOU for the same amount.

Is the community worse off or better off financially? Neither, because its a wash.

The real question becomes, What did the government do with the money and what was the payoff?

Nobody asks this question today of government. Why? Because it and its employees just take the money. Got a complaint, take it up with your representative who is too busy trying to get re-elected, trying to win some money for his constituents in competition with all the other representatives, and by himself cannot summon the votes needed to defeat one simple tax or spending measure.

Now, if the government must borrow directly from its citizens and firms with a capital charge, I can guarantee that the expenditures of government will be freed generally from corruption, waste, extravagance, stupidity, political bias, and so many other ill influences that arise and persist with direct confiscation or taxation.

Why? As I have said...

******

Two important obligations now come into play:

One: that Government will now have a capital charge. In the present, when government furnishes a good or service, one is never sure the money expended in the effort bears a calculated return, a return that surpasses all costs. With taxation abolished and a market borrowing rate of 7%, the government will have to earn at least that rate of return on its expenditures.

Two: the government will have to face the nation every time it requires funds. Under Taxation, it can take the funds and do as it pleases. With its abolition, needy government will learn very quickly not to mistreat its petulant banker.
*******

Now, if the costs of government are going to contract with the abolition of taxation and drastically, and the community's former taxpayers now have no tax imposed constraint upon income or property or business affairs, what do you think will happen to that community's income stream?

It is going to grow substantially, don't you think?

I would love to join the meal, but I don't think I shall be bringing you a cheque. Msybe some really fine moose meat though.

Regards,
Gary Marshall


Jack

Gary --- I've made a fatal error in not asking you to deposit the $50k offering with an objective fiduciary. Obviously you've been so oversold on your cute scheme by someone? or yourself to ever admit the obviously duplicitous "accounting".

Further? "With taxation abolished and a market borrowing rate of 7%, the government will have to earn at least that rate of return on its expenditures." You appear to be fairly unaware of the legitimate function of government and the innate difficulty of determining a "return on investment" though if you are suggesting the Bushies should have called for shared sacrifice to prosecute their frivolous (at best) M/E warmongering I'd certainly be there with you.

Trouble is "user fees" for education or libraries are bound to lessen their use and result in even more ignorance than America is drowning in today.

Well, let's give you an E for effort in your attempt to pawn off a goofier scheme than anything that might be dreamed up around the Paul family dinner table and let it go at that. Truth is I'd not spend the %50k rapidly, so in order to spur as much as possible I'd recommend a spending spree of your own, or handing it out to some enthusiastic holiday shoppers with an admonition to Buy American, perhaps even Union Made thus creating two holiday gifts for the price of one.

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Free Giveaway

Hi just drop by reading this post. I appreciate that you have post this interesting feature of our economic growth. Thanks so much for this one.

Gary Marshall

Hello Jack,

I do not mind appointing a fiduciary for the purpose of dispensing the money, but your family members, friends, and psychiatrist are not eligible.

My accounting is solid. The worthy accountants who attend my presentations admit it and even supply novel comments to further the idea.

However, since you are not pointing to any particular flaw I shall just designate your griping as rhetorical or pride. But if anything specific does come up, do let me know.

Now you do state, "You appear to be fairly unaware of the legitimate function of government and the innate difficulty of determining a "return on investment"

This is a frequent response among the lazy and those without vision or determination. Most persons tend to work in small government offices counting paperclips and making photocopies. 'We have not the means to perform these calculations and the intellectual effort is beyond us, so please let it drop.'

There is at present no accounting of the costs and benefits of government expenditures because, as I keep saying, government just takes the money by force or penalty through taxation. It justifies nothing because there is no capital charge attached to the use of its taxed funds. Whatever ends up in its accounts is spent good or ill, often the latter.

With the nation's direct control over Government finances and the imposition of a capital charge, Government expenditures will change and for the better.

Let us say that an unemployed person or one on welfare needs money to escape their condition. Instead of handing them a pittance that changes nothing and only enhances their hopelessness, perhaps the state could lend them the money to overcome their idleness. Perhaps training or education could be provided with charge. Who knows, but the loan would be repaid and a formerly unproductive person becomes productive. That is a return and far better than the return garnered from one perpetually languishing.

The government has deemed it necessary to screen all passengers heading onto planes. Is this necessary? Pilots fly all the time. So do some passengers. Should families boarding flights be sexually assaulted by the TSA attendants? Terrorists usually do not come with families?

What about all the money spent on the drug war that has not stopped drugs from flooding the streets and pharmacies of the country?

What about subsidies to favoured industries or persons that only serve to increase costs for the consumer.

I can go on a long time.

Now the government may not be able to work out to the nearest penny whether every project is profitable or not, but it can certainly solve the majority of them. Time is needed to develop those absent skills. A road may be necessary to service 13000 commuters daily from A to B, but need it be a 6 lane highway or just a paved 2 lane secondary road? Government devoid of taxation will soon have those skills.

There is another consideration. The people will also act as direct arbiters of a project's worthiness. If a governor proposes to build a vacation house for himself and his family in Australia, I am sure the people will have none of it.

There are many ways to determine the eligibility of a public investment. All you need is the desire or the compulsion.

Whatever happens and however it is done, the abolition of taxation will lower the costs of government and remove any impediments to productivity and the creation of wealth, a self-evident fact. Government borrowing to fund its expenditures will not cost the nation a penny as I have proven.

Now perhaps you could explain where I have gone wrong. Is my proof invalid? How so? Will the abolition of taxes not unleash the unrestrained creative economic power of a nation's citizens or would higher taxes do the trick? Do explain or maybe you should just set up an appointment with your psychiatrist to discuss why you still think you are entitled to possess things you have not earned and are not yours.

Regards,
Gary Marshall

belstaff

good post,so smar boy!

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