Chapter 12 - A Tax Reform Designed to Reduce Hoarding

The task here is to adjust the tax system to encourage economic activity and to reduce hoarding. We need to ensure that the government collects adequate tax without damaging the prosperity of the citizens. Money hoarding needs to stop for the economy to thrive. Hoarded Money is left entirely untouched and escapes taxation. Money that plays truant escapes taxation. The entire society suffers by not allowing citizens the benefit of the potential transactions. There are tax regimes that encourage trade and economic activity that provide plenty of revenue for government. You will be unlikely to see them in your lifetime because of the scaremongering by those with enough money to modify Public Opinion. It is very likely that your opinion has been modified. How much of your opinion has been modified by those with the ability to modify your opinion?

Our money system is also incredibly expensive. Here is a silly calculation. At a velocity of two, $1000 in circulation requires $6000 in Money Supply which holds $18000 in debt, which at 5% interest costs $900 in interest per year. [Assuming that for adequate circulation, money needs to change hands once each month.]

A diagram showing the cost of money by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au

Here is an even sillier calculation. At a velocity of one, $1000 in circulation requires $12000 in Money Supply which holds $36000 in debt, which at 5% interest costs $1800 in interest per year. Interest exceeds Circulating Money.

New Messiah says: “Low velocity in a nation is a very serious problem.”


Hoarded Money is static and is owned by persons with ‘more money than they need’. You have to be very inventive to get this off the hoarders. They will already have adjusted the thinking of the political parties to tax anything else but their Hoarded Money.

Our taxation system stifles trade. Under a Sales Tax regime, a percentage is removed at each transaction which heavily damps trade and real wealth creation. The same happens with Income Tax. It rapidly destroys trade and wealth creation. The problem of taxing transactions is visible in this graph. This is not proof that increased Income Tax decreases tax collection, but it is enough to seriously challenge the talking heads that believe that an increase in Income Tax rate will result in greater tax collection. You should be able to find the points in this graph where decreased Income Tax rate increased the tax collected.

The influence of taxation rate on the taxation collected. https://stats.oecd.org/Index.aspx?DataSetCode=REV and LibertyWorks.com

Please do not move on until you have found the two points on the graph where tax rate reduction increased the tax collection. The reverse is not so clear.

I start with the smaller side issues before tackling the big issues:

1: Minor Items

Abolish Fossil Fuel Subsidies

Cut subsidies to polluting industries. It is appropriate to put a price on pollution, but a start is to cut rewards to polluters in the form of tax breaks and subsidies. Subsidies directed towards the discovery and exploitation of new fossil-fuel reserves are particularly wasteful and damaging. Governments of the G20 countries are estimated to be spending $88 billion each year in subsidies for exploration for fossil fuels. [3] Every G20 country is participating in the exploration subsidy fest. Australia spends some $4 billion annually in the form of direct spending and tax breaks. [14] The US has increased funding for exploration to more than $5 billion. [4] Britain provides around $1.2 billion, mainly as tax breaks for North Sea oil exploration. [4]

State-owned energy companies in India, Brazil, and China, are active in exploration. Gazprom in Russia gets tax breaks to support investment in the delicate ecological areas of the Arctic. [4]

Fossil fuel companies are benefitting from global subsidies of $5.3trillion each year, according to a working report by the IMF. [5]

Super Profits Tax on Banks

The large banks make big profits thanks to a lack of competition. A tax on these super profits would help.

The Buffet Rule for the Rich

With the use of tax loopholes and clever accountants, Kerry Packer reduced his effective tax rate so he paid a lower tax rate than his gardener. “The Buffet Rule” would put a cap on loopholes for high-income earners. According to data released by the Australian Tax Office, 55 people earning more than $1 million per year paid no tax for the 2012-13 tax year. [7] This is from the White House website:

“The Buffett Rule is the basic principle that no household making over $1 million annually should pay a smaller share of their income in taxes than middle-class families pay. Warren Buffett has famously stated that he pays a lower tax rate than his secretary, but as this report documents, this situation is not uncommon. This situation is the result of decades of the tax system being tilted in favor of high-income households at the expense of the middle class. Not only is this unfair, it can also be economically inefficient by providing opportunities for tax planning and distorting decisions. The President has proposed the Buffett Rule as a basic rule of tax fairness that should be met in tax reform. To achieve this principle, the President has proposed that no millionaire pay less than 30 percent of their income in taxes.

The average tax rate paid by the very highest-income Americans has fallen to nearly the lowest rate in over 50 years. The wealthiest 1-in-1 000 taxpayers pay barely a quarter of their income in Federal income and payroll taxes today – half of what they would have contributed in 1960. And, the top 400 richest Americans – all making over $110 million – paid only 18 percent of their income in Income Taxes in 2008.” [6]

Effective Income Tax rates for high-income earners by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au

Many rich citizens hire lawyers and accountants to take advantage of loopholes and procedures to minimize their tax. No household with an annual income exceeding $1 million should pay a smaller percentage of income in taxes than a middle-class family. The President has proposed that no millionaire should pay less than thirty percent of their income in taxes.

Reform the Capital Gains Tax

Concessions on Capital Gains Tax predominantly benefit the wealthy, who have a larger proportion of their income from investments. Capital Gains Tax is actually a discount on tax. Capital Gains Tax allows the tax on the appreciation in the value of a asset to be deferred until the asset is sold. If the sale is deferred indefinitely, then the tax on the appreciation is deferred indefinitely. When the asset is sold, the Income Tax is discounted so that the speculator pays a lower tax rate than someone who earns income through ‘sweat and toil’. Besides the considerable discount given to the privileged, there is a more serious consequence. Interest expenses are not delayed until the time of sale. Thus interest expense receives a taxpayer subsidy at the rate of the taxpayers top tax rate. The higher your marginal tax rate, they higher your subsidy. This phenomenal concession allows speculators to outbid young people. Thus the young are condemned to a life in properties rented from these sharks. The speculators are masked as real-estate investors.

The Australian Treasury reports that: “capital gains income is projected to average around 3.5 per cent of GDP.” [13] This suggests that without the discount, the tax revenue would rise by about 3.5%. However, if the appreciation was recorded each year, the tax revenue would be very significant, which would allow a relief in Income Tax to those earning though sweat and toil.

End The Diesel Rebate

The excise was originally intended as a tax on road usage. There is an argument that diesel used off-road on mining sites shouldn’t be taxed. However, we should tax all items that need to be minimized and conserved. Fossil fuel will not last forever. We need to minimize its use. It is inappropriate to sell fuel for little more than the cost of digging a hole in the ground. It is a naturally occurring resource that has taken millions if years to form and is being used faster than it is replenished. It can be used, but only by paying for its future replacement.

Stop Finance Influence in the Syllabi of Economics Courses

The best explanation of this is given by ‘Kick It Over’ at kickitover.org Here is the:

Kick It Over Manifesto

We, the undersigned, make this accusation: that you, the teachers of neoclassical economics and the students that you graduate, have perpetuated a gigantic fraud upon the world.

You claim to work in a pure science of formula and law, but yours is a social science, with all the fragility and uncertainty that this entails. We accuse you of pretending to be what you are not.

You hide in your offices, protected by your mathematical jargon, while in the real world, forests vanish, species perish and human lives are callously destroyed. We accuse you of gross negligence in the management of our planetary household.

You have known since its inception that one of your measures of economic progress, the Gross Domestic Product, is fundamentally flawed and incomplete, and yet you have allowed it to become a global standard, reported day in, day out in every form of media. We accuse you of recklessly projecting an illusion of progress.

You have done great harm, but your time is coming to a close. Your systems are crumbling, your flaws increasingly laid bare. An economic revolution has begun, as hopeful and determined as any in history. We will have our clash of economic paradigms, we will have our moment of truth, and out of each will come a new economics - open, holistic, human-scale.

On campus after campus, we will chase you old goats out of power. Then, in the months and years that follow, we will begin the work of reprogramming your doomsday machine.

Ignore the Myths

Stop Financial Influence in Politics

Lobbying is legalized corruption.

Change Government Accounting

When a government sells a national asset, the proceeds are treated as income. It is the type of idiotic accounting that not even the smallest business would use. If a $4 billion asset is sold for $1 billion, it is treated as an income of $1 billion not a loss of $3 billion. The private interests then take advantage of any monopoly arrangement and adjust the situation to take maximum advantage, sometimes billing items back to the government, seeking concessions or hiking prices to the public. Sales of public assets may be against the wishes and interests of the citizenry.

Speculation Loans

Restrict the availability of loans for speculation. This can be done by regulation or through the tax system. Tax on unearned income should be far higher than on earned income, perhaps by a factor of three.

Lobbying

Make lobbying a crime. Lock up politicians accepting sweeteners. Ban ex-politicians from lobbying on behalf of the industries they controlled. Ban politicians from receiving time delayed bribes from corporations.

Regulatory Agencies

Government tends to group the legislative, executive and judiciary functions of an authority into one regulatory agency. This makes it easy for it to become influenced and corrupted by the industries it regulates. Regulations are given complexity which allows loopholes to be hidden within the text. There are too many avenues for industries to influence the agencies that are supposed to regulate them. William Sanjour has written a good article on this topic. I class it as essential reading: “Designed to Fail: Why Regulatory Agencies don’t Work” [9]

The School Mathematics Syllabus

Change the school mathematics syllabus. Include the observation that compound interest creates debt that is impossible to pay.

When I was a mathematics teacher, I taught compound interest, but I did not spot that compound interest was biblical usury renamed. The textbooks do not teach the mathematical logic that the debt becomes unpayable when aggregated for the whole nation. It is not payable, partly because there is less money than debt and also because any attempt to repay the debt would cause the removal of the essential circulating medium.

A graph showing the magic of compound interest by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au

Reform Negative Gearing

Reform tax concessions for negative gearing. Negative gearing allows persons to defer tax on the profit from the rise in the value of a property to a future date. No tax is payable on the windfall gains until the date the property is sold. If the property is never sold, no tax is ever paid on the increase in wealth of the citizen. This concession allows speculative purchasers to outbid potential homeowners (which usually means young couples). This has numerous consequences beyond the lack of revenue for the government and the profits available to the speculator. It creates a class of renters. When I arrived in Australia in 1976, 96% of home loans went to owner-occupiers which basically means young couples. In 2015, the figure was 64%, which means that over one-third of home loans go to persons purchasing their second, third, fourth, fifth, sixth … house. These speculators get a tax advantage, the magnitude of which increases with their tax rate. The renters become a class that is more dependent on government. These renters have little hope of supporting themselves into retirement. This is altogether a huge loss to the government and the citizens all for the gain of those on higher tax rates. Speculators with the highest income receive the highest subsidy through the tax system.

Home Ownership

Home ownership brings substantial social benefits, not only for the family but also for the local community and the nation. Tenants are temporary by nature. A stable home environment influences the performance of children in schools, physical health, psychological health, personal satisfaction, self-esteem, happiness, house maintenance, district maintenance, tidiness, family stability, reduces inequality, lowers housing costs in retirement, is an asset that can be liquidated in retirement and more. Homeownership will bring less dependence on the state and can be considered one of the essential elements of freedom. It gives a sense of personal ownership and a sense of ownership into the nation.

A high homeownership rate should be a national policy of high priority. Situations where the houses are owned by private or publicly owned enterprises will result in less than ideal neighborhoods. It is inappropriate that some own extra houses to the exclusion of others. It is a house that is effectively priced out of the reach of a prospective house owner by the superior buying or borrowing power of speculators and this often occurs because of advantaged tax arrangements granted to investor-speculators. A house should not be used as an item to make a personal profit. A house should become a home for a family and become a physically and financially secure and safe environment to raise children. We can never be a prosperous, safe and trouble-free nation whilst houses are owned by other than those who are living in them. Homeownership is the key factor to make quality neighborhoods.

I have met and spoken with many 23-year-olds and one memorable comment was: “Andy, we despair at the thought that we may never be able to buy a house.” Homeownership was always part of the ‘Great Australian Dream’. We are failing our young by allowing houses to become unaffordable. You can blame the young for whatever you like, but it is not their fault that the adults have priced houses out of the reach of the young. I take two months off each year and make a lap of the world using cheap air tickets using skyscanner.net. I often ask the young in their twenties: “Can you buy a house in the town in which you were brought up?” The answer is always negative. This is wrong. This issue has been one of the driving forces in my study on what has gone wrong in economics. It is difficult to respect an economic system and those that gain a living from it when the next generation cannot buy houses.

Buying houses on favorable tax arrangements is the very essence of exploitation by those that don’t even realize they are exploiting those who don’t even realize that they are being exploited.

The restriction on foreign ownership is not done on the basis of discriminating against foreigners, but on the basis that houses are homes for people residing in the nation. It must not be forgotten that houses are homes for people, not investments for gain.

God or nature created land for all living things to share. No-one should have more than their share even if they have superior borrowing power.

Stop Corporate Avoidance of Tax

Almost a third of large Australian private firms paid no tax in 2013-14. [8] [10] Many companies exploit loopholes in tax laws by shifting profits and losses to overseas companies. Make it illegal for companies to pay bribes in any other country in the world.

Transfer Fees and Stamp Duties

Remove land transfer levies. They are taken from the transaction involved with the selling of land. The downsizing by elderly persons assists the availability of housing to the young.

Keep The War Industry At Bay

Here are excerpts from the Military-Industrial Complex Speech given by Dwight D. Eisenhower in 1961:

“We now stand ten years past the midpoint of a century that has witnessed four major wars among great nations. Three of these involved our own country. Despite these holocausts America is today the strongest, the most influential and most productive nation in the world. Understandably proud of this pre-eminence, we yet realize that America’s leadership and prestige depend, not merely upon our unmatched material progress, riches and military strength, but on how we use our power in the interests of world peace and human betterment. ...

We face a hostile ideology -- global in scope, atheistic in character, ruthless in purpose, and insidious in method. Unhappily the danger is poses promises to be of indefinite duration. ...

A vital element in keeping the peace is our military establishment. Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction. ...

Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations.

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the militaryindustrial complex. The potential for the disastrous rise of misplaced power exists and will persist.

We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.

The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present and is gravely to be regarded. ...

As we peer into society’s future, we -- you and I, and our government -- must avoid the impulse to live only for today, plundering, for our own ease and convenience, the precious resources of tomorrow. We cannot mortgage the material assets of our grandchildren without risking the loss also of their political and spiritual heritage. We want democracy to survive for all generations to come, not to become the insolvent phantom of tomorrow. ...

Down the long lane of the history yet to be written America knows that this world of ours, ever growing smaller, must avoid becoming a community of dreadful fear and hate, and be instead, a proud confederation of mutual trust and respect.

Such a confederation must be one of equals. The weakest must come to the conference table with the same confidence as do we, protected as we are by our moral, economic, and military strength. That table, though scarred by many past frustrations, cannot be abandoned for the certain agony of the battlefield. ...

As one who has witnessed the horror and the lingering sadness of war -- as one who knows that another war could utterly destroy this civilization which has been so slowly and painfully built over thousands of years -- I wish I could say tonight that a lasting peace is in sight.”

This man was no angel. Look up ‘Eisenhower’s death camps’. However, this speech was good.

Justice

Stop the use of lawyers as a means to destroy and ‘wear-down’ smaller entities through corporate warfare. The legal system is designed to ensure justice, but it is being used for gain.

To live in communities, it is necessary that people act in a cooperative manner towards each other. A sense of common decency is needed. This was encapsulated in the approach that was taught by Jesus. “Do the right thing.“ “Be good to others.“ The Christian requirement is to be your own judge. If you are good, you go to heaven. If you are bad you go to hell. You are the best judge because you know all your wicked actions. It is a marvelous system and it relies on a single positive rule: “Do the right thing.“ However, the nation-state cannot match this approach. The nation-state uses thousands of rules all of which are negative. It is a system of vengeance. If you break the rules, you go to jail. This was the system of vengeance as taught by Moses. The problem with the rules of the nation-state is that people try to get around them. They believe they are ok if they do not get caught. Bad activities occur if the person avoids getting caught, pays a lawyer to get him off or arranges for the law to be changed to make the activity legal. You can fleece someone provided it is legal.

The church itself strayed from the teachings of Jesus. Jesus preached peace and goodness, however, he was nailed to a scaffold because he objected to the controlling authorities that allowed the poor to be fleeced. The Church adjusted this to encourage peace and goodness in a subservient manner. It then said that Jesus died to ‘save our souls’ and to ‘atone for our sins’. Jesus was not hanging from rusty nails to cover for the sins of generations yet to be born. When the church teaches this, it makes the people feel guilty for the death of Jesus, which is very convenient if you are trying to control the people. The Roman Catholic Church was effectively a nation and empire pretending to be a religion. At times, elements of the church were preaching that “faith alone will get a person to heaven“. The church at times also allowed a person to pay money to get forgiveness for sins which opened the way to heaven. To this day, the church offers forgiveness. If you sin, you ae responsible for the sin. You cannot absolve past sins. The things that you do wrong are forever a blot on your reputation.

The making of money from money is wrong as is any abuse of money. Because nation-state law allows the activity,does not make the activity correct.

Superannuation

Be aware that superannuation funds and compulsory savings are slush funds for corporations whilst small entrepreneurs have no access to this compulsory saving.

Compulsory savings can be used as collateral for house loans and business development. What is the point in a compulsory savings scheme when the best thing to have at retirement is your own home?

Alternative Currencies

This is a side-line and non-essential component of the solution. It is not reasonable that an entity outside government control should be given a monopoly on money creation. The central bank likes to avoid scrutiny by squawking “Keep the central bank free from political interference.” This is a euphemism for let private industry influence the central bank for the benefit of a private consortium acting as a monopoly.

Alternative currencies are currencies that have restricted usage in a local area or in a restricted environment. They go a little way toward providing an alternative. Alternative currencies aid local business by allowing the local currency to flow freely around the local district. Never forget that the value of a $20 note is not the face value of the note, but is the sum total of all the transactions enabled by the note. Money flowing around a local community aids the local community. National currency does not always spread evenly throughout the nation, creating a money shortage in some areas. Local money can be useful to fill this shortage. Local money can only be used locally, as it does not affect the nation but allows local trade, thus filling up the local void.

Alternative Currencies also act as a buffer when a national currency collapses. To this end, the currency may be linked to the national currency, but better is might be linked to some other measurable value which might be hours of work or energy or any commodity that has a meaningful value. This value could even be a dozen eggs or a loaf of bread or a combination of items. In the event of a collapse of the national currency, the Alternative Currency needs to be decoupled from the national currency. Legislation needs to be added to facilitate any local area wishing to create its own local currency.

Bank Transparency

Increased transparency is needed so that bank clients can see what industries their bank supports. Customers may wish to know whether they are assisting in unwanted wars or inappropriate industries. Many would wish their money to be lent locally so that it enhances the local area and creates employment.

Suicide

Make financial institutions liable for damage, hurt, and suicide on farm enterprises. This includes farm suicide through the recall of loans and business failure through the modification of loans.

Speculation

Restrict the availability of loans for speculation. This can be done by regulation or through the tax system. Tax on unearned income should be far higher than on earned income, perhaps by a factor of three.

Institute Homeowners Protection

In 1933 President Roosevelt introduced legislation to stop home and farm foreclosures, with the reasoning that homeownership was needed as a ‘guarantee of social and economic stability’ The Australian Federal Government passed the War Precautions Act 1916 to stop foreclosures. Every state in Australia enacted legislation during the Depression to stop home and farm foreclosures. The Federal Government passed the Farmers’ Relief Act, which provided money to the states for the relief of farmers. The intent was to protect the Common Good by ensuring debtors were not crushed by creditors.

Logo for Unhappy Banking by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au

It is still necessary for homeowners and farmers to be protected from the predatory actions of banks. Banks can increase interest rates at will and cause farm foreclosure. The farm is using land provided by nature to produce food for the city folk. Under a private bank dominated money system, the viability of a farm depends on its ability to pay interest to a bank rather than its ability to produce food. The price of houses is dependent on the availability of work in the region, so work is the factor that determines whether one can move into a town. The availability of work depends on the economic activity of the nation which depends on the Money Supply of a nation which is dependent on the lending habits of the banks. Thus, a cutback caused by banks allows banks to foreclose. It is not in the nation’s good to allow bank initiated evictions that were caused by a bank-induced recession.

Derivatives

For the most part, derivatives are unnecessary and allow banks to use devious deceptive practices that are not to the benefit of society. Derivatives should be banned.

Ban Short Selling

A person that is ‘Short Selling’, sells a stock that they do not own. They buy the stock at a later time when the stock has fallen in price. They are betting against a price rise. They are anticipating a fall in the stock price. To achieve this the ‘Short Seller’ borrows the stock from a broker and purchases a replacement stock when the price falls. This practice should be banned.

Banks Should Not Invest For Their Own Profit

Banks should lose their banking license if they invest for their own profit. If a bank wishes to trade for its own profit, it should be split off into a separate company which does not have a bank license.

Tax on Circulating Money by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au

2: Reduce Economy Damaging Taxes

Sales Tax

Sales Tax for most items should be reduced to zero. Sales Tax should only be used to discourage pollution, degradation, and wastage. Sales Tax on labor should be reduced to zero. Many businesses supply services to the government, yet they have to pay Sales Tax before the government has paid the business. Tax collection times must be in line with government payment times. There is a bizarre situation under accrual accounting where tax is due to the government before the government has paid the money on which the tax is due.

They are queuing to get into this church in Lviv. There is a stall selling Christian literature outside.

Depreciation

Depreciation of business assets turns an Income Tax into a Profit Tax. The problem here is that an expanding business that reinvests part of its income into new plant and equipment has its tax deductions for its expenditures delayed into the future. This is a disincentive to expansion and pushes expanding businesses towards the money lenders. At a nation level, the sum total of all business equipment suffers a depreciation treatment causing a severe hampering of the nation’s business viability.

I just saw two people fishing through a round hole in the ice from this train window. I have never seen that before. They have just switched the heating on in the carriage. That is much better. Typing in the cold does not work so well.

Inventory

The inventory of a business is treated as an asset. However, inventory does not produce income until it is sold. Money spent on trading stock is not available for feeding the family. This money has been spent but has not created any income. This expenditure is not treated as an expense for tax purposes. Inventory should rightly be treated as an asset for purposes of calculating profit but not for purposes of calculating the income that the businessman had to feed the family. This is a disincentive to expansion and pushes expanding businesses towards the money lenders. Under this arrangement, the GDP will not rise without an increase in debt. Much of our debt in society is because of inappropriate Income Tax arrangements for inventory and depreciation. If one thinks at nation level, the total trading stock of all businesses combined has never been given a favorable tax treatment.

Income Tax

Income Tax needs to be reduced for individuals. Tax on ‘earned income’ needs to be taxed at a lower rate than ‘unearned income’.

Current business Income Tax is calculated as a profit tax rather than the income the business owner removes from the business for the purpose of feeding the family. The main culprit is the depreciation of purchased assets. Money has been spent to magnify the business, but tax mercy is not allowed until many years in the future. This pushes expanding businesses to the moneylenders. The tax laws are working in the favor of the banks.

Businesses with fluctuating annual income have no method of smoothing the cycle. If a business owner makes $50 000 one year and $0 the next year, the business pays a higher tax than in a situation where he earns $25 000 each year.

Give business flexibility in paying tax. Encourage business to expand and employ through the tax system.

Expanding businesses need to delay tax or be excused of tax.

Be aware that reducing the Income Tax rate often increases the amount of tax collected.

The influence of taxation rate on the taxation collected. https://stats.oecd.org/Index.aspx?DataSetCode=REV and LibertyWorks.com
Taxation Australia. Almost all taxes are taken from Circulating Money by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au

You might see, in the above graph, the inappropriate way that tax is collected. The first four taxes are an impediment to the ability of money to perform transactions. These four need to be progressively reduced and other taxes introduced and increased. Currently, we tax very heavily on transactions that involve goods or labor but charge no tax on transactions that involve speculation or hoarding. We need to bias our taxes towards the hoarding, speculation and the use of resources including land and minerals. Remember that mining depletes a resource, quality farming without pesticides, chemicals, and land degradation, does not deplete the land.

Taxation Components USA by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au
USA Government Revenue by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au

Land Taxes, Local Government Rates, fuel taxes, resource taxes generally, taxes on things that are harmful to the economy, taxes on items that are harmful to health, taxes on Hoarded Money, all need to take a far greater share. A minor Transaction Tax needs to be introduced to capture all those hoarding and speculation transactions and replace the harmful Sales Tax. A generous government retirement plan would help reduce the need to hoard. Death and inheritance taxes are needed, but not in a manner to damage family farms and businesses. Before you shout at me, consider if, for most people, the tax on income reduces by $10 000 and tax on sales is reduced by $3000 but the tax on land and rates is increased by $7000. Besides an overall decrease in tax, the rate of transactions will increase dramatically, enabling all to have greater prosperity.

Tax and Business

Businesses that purchase assets used to expand their business are required to claim the expense over numerous years in a process called depreciation. An example: A small business purchases a sausage machine for $10 000. The business has spent $10 000 but can only claim it as a tax deduction over numerous years. That is $10 000 less the business owner has to spend as income. This tends to push expanding businesses towards bank borrowing. For example: A business has a profit of $30 000 and pays $10 000 tax (33% tax rate). The business used $10 000 from the $20 000 to buy the sausage machine late in the year. The business owner only has $10 000 to feed the family, yet he is trying to expand the business to feed the village. The current Income Tax is misnamed and is actually a ‘profit tax’. This stifles small business expansion and thus employment opportunity. The reverse needs to happen. Not only should the expanding business be able to charge the $10 000 sausage machine immediately, the business should get a tax deferral to encourage expansion and thus employment. The government nor the people gain by destroying the hand that feeds them and in this case, it is the village butcher who will not expand in line with the needs of the village. The sausage machine is counted as profit by bean counters and those walking zombies who sit in tax offices destroying businesses. I used to express this as ‘You cannot eat wheel nuts.’ to people working in the transport industry. When I had an expanding business, I was always short of money. As soon as I got older, and wound things back somewhat, I had spare money. Quite ridiculous. It effectively means that the only businesses that expand are the ones playing tricks with their profit tax, misleadingly called Income Tax.

The government also suffers. If SME’s are not encouraged to be vibrant, grow and employ, the government receives less tax. Besides tax sensibilities, other assistance should be given to young entrepreneurs by way of older retired business people. The whole society gains when there is plenty of work for the young and the government gets to claim more tax and pay less welfare. The whole attitude of government toward SME’s is wrong.

Tax and Individuals

Progressive Income Tax is a strange beast. It is almost as if it was designed to be corrupted. It ensures that the poor and middle class will pay tax, whilst the affluent will find ways to pay little tax. The tax rate is so high that it spawns an army of bean counters to find ways of avoiding the tax. The affluent consistently encourage political concessions on their speculations. The most glaringly obvious is negative gearing. This is a procedure where land and property appreciation is ignored until well into the future, which gives investors a large taxpayer subsidy to their speculative and hoarding activities. They are then given a significant tax concession on the resulting unearned income. The same concession is not given to the egg and carrot merchants as their assets only get tax deductibility in the future, forcing expanding businesses to the moneylenders. So the affluent manage to accumulate great wealth with minimal taxation to any increase in their wealth and the wealth itself is completely untaxed. This not only creates a large and increasing inequality in the nation, it also means that a very large quantity of money tokens are hoarded by the affluent. This is reflected in the very low velocity of money. A very low wealth tax is required on all wealth not being used in the Real Economy.

Tax Rates

Users of simplistic logic might assume that an increase in a tax rate would increase the tax collected, but this is erroneous thinking. Common sense should tell you that raising Income Tax rates or Sales Tax rates is more likely to cause the opposite. I shall divide the Money Supply up into two parts: the Hoarded Money and the Circulating Money. The Hoarded Money that is parked in bank accounts will stay hoarded for a long time. The Circulating Money is the money that is constantly moving. We shall assume that small quantities of Circulating Money will become Hoarded Money and vice-versa. This will not affect the study. The only money available for egg and carrot transactions is Circulating Money. Money removed from the egg and carrot transactions will immediately adversely affect egg and carrot trade. Income Tax and Sales Tax rapidly destroy trade because they tax Circulating Money. On the other hand, reducing Sales Tax rates and Income Tax rates will encourage trade and will be likely to increase tax collected.

When income or Sales Tax rates are increased the Real Economy is damaged and tax collection will likely decrease.

Government Revenue Details: Federal, State, and Local for 2014

United States Federal, State, and Local Government “Revenue”
Fiscal Year 2014 in $ billion
       FedState and LocalTotal
Income Taxes 1 716 392 2 108
        Individual Income Tax 1 383 339  1 722
        Corporate Income Tax 333 53  386
Social Insurance Taxes 1 031 499  1 530
Ad valorem Taxes 195 1 073  1 268
        Excise Taxes 53 53 106
        Sales Taxes 0 444 444
        Property Taxes 0 447 447
        Transportation 52 70 122
        License 0 47 47
        Other 90 12 102
                Customs Duties and Fees 39 0 39
                Estate and Gift Taxes 13 0 13
                Other Receipts 38 0 38
                Tax - Death and Gift 0 5 5
                Tax - NEC 0 7 7
Fees and Charges 0 440 440
        Education 0 118 118
        Health 0 132 132
        Transportation 0 42 42
        Natural Resources 0 12 12
        Utilities 0 63 63
        Other 0 73 73
Business and Other Revenue 92 368 460
        Utility and Liquor Store 0 162 162
        Other 92 206 298
                Federal Reserve Deposits (FFD) 92 0 92
                Miscellaneous – Special Assessments 0 7 7
                Miscellaneous - Sale of Property 0 4 4
                Miscellaneous - Interest Earnings 0 50 50
                Miscellaneous - Fines and Forfeits 0 18 18
                Miscellaneous - Rents 0 4 4
                Miscellaneous - Royalties 0 6 6
                Miscellaneous - Donations From Private Sources 0 21  21
                Miscellaneous - Net Lottery Revenue 0 24 24
                Miscellaneous - General Revenue, NEC 0 71 71
Total Direct Revenue 3 034 2 773 5 806
        Total Revenue 3 034 3 572 6 606
        Intergovernmental Revenue 0 -799 -799
Federal “Deficit” 744 0 744
Gross Public Debt 18 247 2 965 21 212
USA Population: 319.6 million        GDP: $30 565 billion
Source: www.usgovernmentrevenue.com/year_revenue_2014USbt_14bc1s_104046506063F0
Tax Take OECD Average by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au

3: Introduce Taxes That do not Harm the Economy

Implement Land Tax

Land Tax is a tax on the main natural resource of the nation. Land was created by nature or god (depending on your thinking) for all living things to share. Mankind has drawn lines on maps to give security of tenure. This has led to monopolization, abuse, and what I call the ‘usury of land’. Citizens use credit freely created by banks to purchase land and property which rapidly pushes land prices up to the limit of affordability. It is the affordability of the repayments to the moneylenders that determines the selling price of land. Land is essential to almost all activities and should not be monopolized by the portion of society with better access to finance. Land is extremely popular and citizens will pay high proportions of their income to obtain it. Land was provided free by nature for all living things to use in harmony. Our younger generation has been dispossessed of the opportunity to own land or property due to their lower income and educational debts. The young may be members of a nation, but they will never own one square centimetre of it. A Land Tax would take the advantage away from speculators. Because land is of limited supply, it makes an excellent commodity on which to speculate. Land Tax takes the profit out of the speculative investment and returns useful revenue to the government. The Land Tax can further be used to reduce the pressure to maintain high Income Tax and Sales Tax regimes that are damaging to the economy. Land tends to rise in value where there is employment. Where there is no employment, land prices are low. Land prices rise as the local amenities improve. As roads, bridges, water, and transport are improved, the surrounding areas become more suitable for business and home building. None of the improvement costs were borne by the landowner. But the landowner makes gains in asset appreciation and increased rental incomes as a result of others outlays. The value of land is not intrinsic to the land but in the ability to share the surrounding resources. Much of the expenditure on the surrounding infrastructure was borne by the government. The title holders of land have the duty to pay taxes to the government for the gains. Land with no local amenities has no value. The value of land lies in its proximity to other facilities including employment. A visit to Detroit taught me all about the relationship between available employment and land prices.

Create A Debate On Land Tax

We will be richer, more active and freer with a Land Tax. Every citizen should be able to enjoy the freedom, independence, and privacy of land ownership. It is effectively the birth right of all citizens to be a participant in the ownership of their homes. [Read more on this topic at: https://www.prosper.org.au/2015/03/30/treasury-unearths-a-beautiful-tax/#sthash.hAoBamCV.dpuf]

A Land Revenue Letter

A letter from Clyde Cameron regarding land revenue was sent to Hon Frank Crean when he was the Treasurer. Clyde Cameron had already developed a dislike for Treasury in 1973 over wage policy, because Treasury wanted the Labor Government to continue with the same hard line against wage rises as the previous Liberal-Country Party Government:

“The reintroduction of a Federal tax upon unimproved land for non-rural properties in excess of 100 thousand dollars unimproved land value, and a special tax upon any taxpayer owning more than his place of residence and one vacant block. As well as yielding several hundreds of millions of dollars in revenue, this tax would have the even greater advantage of easing pressure on resources caused by the rapacity of land speculators. It would reduce land values by taxing vacant building allotments and would be much more equitable than seeking to reduce demand inflation by such measures as, say, indirect taxation upon consumer goods and household appliances. Rising land prices have a greater inroad into the incomes of the ordinary wage earner than any other single factor. It not only directly affects the wage earner who is seeking to build a new home, but it directly affects the price of homes already built… You will recall that when the Menzies Government abolished the Federal Land Tax, the Labor Opposition then stated, quite categorically, that a Labor Government would reintroduce the tax.” [1]

Land Tax can be considered to be a charge to supply local government services. Land Tax tends to ensure that land is only held when it is going to be productive. Land hoarding will cease. Other taxes on employment and production tend to stifle enterprise. Land will tend not to sit idle ensuring that land is rented or put to good use. Land Tax is difficult to avoid and is fair and efficient. Land values reflect the toil of the citizens over centuries to create the local infrastructure and should not be used for gain by current titleholders. It is an appropriate area for taxation for numerous reasons.

A Land Tax Story

I often tell this story. You are given a block of land in the middle of the desert. This block is worth nothing. Someone finds some minerals nearby and the government builds a road to the area, along with schools, hospitals and other facilities. The land now has value. However, the value of the land was not acquired by anything the land-owner had done. The value of the land is derived from the proximity of facilities and employment. The value of the land did not derive from any activity of the land-owner and so the government should receive the money from the gain in value of the land.

Tobin Tax

A tax on financial transactions, known as a “Tobin” tax, could protect superannuation investors, improve the operation of capital markets and provide a significant source of tax revenue. Tobin taxes or some form of financial transaction tax are in effect in over a dozen jurisdictions internationally, including UK, France, Italy, Hong Kong and South Africa.

Transaction Tax

A Transaction Tax should be implemented on all transactions at about $1 per $1000 (0.1%) or less. This is much less than the current Sales Tax of $100 per $1000 and Income Tax of about $300 per $1000. Individuals already pay private transaction fees to banks on general transactions and credit card transactions at a higher rate than would be charged by a Transaction Tax. The Transaction Tax is same as a Robin Hood Tax except that it is applied to all transactions.

Tax Resources

It is better to tax that which occurs naturally. Taxes should have a higher bias toward taxation of land and resources. These taxes are more difficult to avoid, are less damaging to the real economy and tend to reduce speculation.

Wealth Tax

A Wealth Tax needs to be implemented. This draws money that is prone to be hoarded. The Wealth Tax rate could be as low as $1 in $1000 (0.1%) on assets. (A millionaire would pay $1000 per annum wealth tax.)

Demurrage Tax

A Demurrage Tax should be implemented on the holding of money. Demurrage Tax is a tax on anyone who holds money out of circulation. Demurrage Tax would commonly be a small monthly tax on money holdings at a low rate of between $1 in $1000 (0.1%) and $10 in $1000 (1%). It would apply to holdings above $1000 held for more than one month. It would be removed from bank accounts monthly. To stop persons screaming, just remind them that Income Tax will be reduced by far more than this amount and Sales Tax will be reduced to 0% for almost all items. (Sales will stay for chewing gum and jet fuel)

In historical times, rulers often renewed their currency every few years with periods between two and eight years. Over 150 years, Anglo-Saxon and early Norman rulers changed the design of their coinage at least 53 times. [2]

Rev. Henry Swabey “Much has been made of these bracteates of late, as well as of tallage – a medieval tax on coinage – on the ground that they prevented hoarding. The man with money was at no advantage over the man with perishable wares, and so the velocity of circulation was speeded. Yet only a few of this kind of Demurrage Money have been found, owing, doubtless, to their friability. Tallage, the other device that speeded the circulation of money and prevented hoarding, was imposed from 1140 onwards in England and elsewhere. The holder of coins would be eager to pass them on to avoid the tax.” [11]

The power of money lies in its ability to create transactions. Using it as a store of value is counter productive and destructive to its primary purpose. This is the primary imperfection of money. When money is used as ‘a store of value’ it is not lubricating transactions and has thus ceased to act as money. I have a very neat way of making the citizenry more affluent by charging a neat little tax. It is called a Demurrage Tax. It is a very small tax that discourages hoarding and makes money move much faster which makes everyone more affluent by more than the tax. I always thought that was the cleverest tax. A tax that makes you better off. The Demurrage tax is a small monthly tax on money holdings which encourages people to spend rather than hoard so they pay less of the economy-damaging Income and Sales Taxes and get much higher benefit from the greater flow of money. You will need Demurrage tax of some kind in your perfect solution. It will be an unpopular medicine that is needed to correct the misuse of money.

The miracle of Demurrage Tax by Andy Chalkley. Creative Commons Attribute. www.andychalkley.com.au

There is a need to reduce individuals Income Tax to 0% for about one-third of taxpayers. The Income Tax calculations need to contain a Wealth Tax component and also a saved (hoarded) money component. Each taxpayer should receive a work expenses allowance of perhaps $2000 to reduce tax paperwork. Earned income will need to be taxed at a lower rate than unearned income.

Reduce Government Inefficiency

The Grace Commission Report was presented to the U.S. Congress in January 1984. Amongst other items, the report stated that one-third of all Income Taxes were consumed by waste and inefficiency in the federal government.

National Debt

In January 1984, the Grace Commission Report was presented to Congress. It contained this information: “One hundred percent of what is collected as tax is absorbed solely by interest on the federal debt and by federal government contributions to transfer payments.” This means that all individual Income Tax revenue has been used before any money is spent on the services taxpayers expect from their government. [12] The Grace Commission found that Income Tax funds were being used to pay for interest on the federal debt and income transfer payments to the beneficiaries of entitlement programs like federal pension plans. President Ronald Reagan was lucky to survive an assassination attempt shortly after. He didn’t mention this issue much after that.

Grace Commission Report: One hundred percent of what is collected as tax is absorbed solely by interest on the federal debt and by federal government contributions to transfer payments.

[12]