Overtaxation or underspending?
>Article #102700 (102743 is last): >From: Edward Flaherty <email@example.com> >Newsgroups: sci.econ,alt.politics.economics >Date: Wed Feb 3 14:09:13 1999 >Republicans generally want to use the budget surplus to fund a tax >cut. Their reasoning is that Americans have over-paid their tax bill >and are due a partial refund (I happen to agree with their proposal, >but for different reasons). >Curiously, back in the big deficit era Reagan and other Republicans >said the deficit was due to government spending too much, not >because Americans weren't paying enough in taxes. >Republicans appear to have changed their tune. Applying their >eighties logic to today, the government is not spending enough. If >deficits were caused by over-spending, then surpluses are caused by >under-spending. >Applying their current logic retroactively to the eighties, Americans >were not paying enough in taxes. If a surplus is over-payment of >taxes, then a deficit is under-payment of taxes. So which is it? JCT: A few years ago, I wrote an article titled "The Third Way" which deals not with spending or taxing but debt service. The whole debate is at http://turmelpress.com/thirdstr.htm
The Third Way "CUT DEBT SERVICE, NOT PEOPLE SERVICE" We are told there are only two ways out of our financial mess: 1) Raise taxes after paying the debt service; 2) Cut social service after paying the debt service. Never suggested is a third way: 3) Cut the debt service.
The Fraser Institute estimates Canada's total government-incurred debt at $1.8 trillion. $60,000 per head. To service the debt in 1994, we were all taxed about $180 billion. $6,000 a year each. $500 a month each. Our efforts to pay interest dwarf all other of our other financial enterprises.
If a way can be found to reduce debt service by ONE POINT from 10% to 9%, that's WORTH $18 BILLION. ONE POINT WORTH 18 THOUSAND MILLION with which to use in other ways. With two points, the deficit is wiped out. Three points, we have payment on the principal, increased social services and tax cuts. Four points or more, we'll climb out of debt very quickly.
The largest drain on our economy must be dealt with first. The solution is not to keep coming up with ways to pay for it or then make do without essential services. It is to come up with a way for Canada to get cheaper money. The Oct. 4, 1993 article by Walter Stewart in the Toronto Sun explains how cutting debt service has worked before:
"The way it works today, almost all of our money supply is created by the banks as interest-bearing debt, with them on the receiving end. We can't solve the deficit crisis thus created by slashing expenditures or raising taxes, because these measures bring the economy crashing to a halt. The idea is that central governments should take back from the banks the crucial role of creating money, thus restoring sovereignty to the state. The government should direct the Bank of Canada to issue credit at low- or no-interest for building capital projects. This is what the Bank of Canada did during World War II with great success. The solution, then, appears to be to substitute low- or no- interest public funds for high-interest private money. Various levels of government could borrow this newly-created money to retire high-interest loans."
So it can and has been done before. The Bank of Canada may directly issue new loans for government bonds or private property at very low or even no interest. Housing presents zero risk if properly insured. But we all need a direct account at the Bank of Canada if we are to cut out the money middle-men and cut debt service from the budget. We can cut spending, lower taxes, have a balanced budget. But only if we tackle debt service first. The Abolitionist Party promises that with everybody having a direct Bank of Canada account, sovereignty on government spending will be restored to the State and you'll never have to deal with a money middle-man again.
The Toronto Sun, Monday October 4, 1993. "NO INTEREST LOANS MAY SAVE US WATERLOO -- At the risk of introducing a new idea during an election campaign, two professors at the University of Waterloo want to revive the Canadian economy by using a scheme that has worked on Guernsey. The Island, not the cow. The professors are Jack Kersell, who teaches political science, and Robert Needham, an economist and director of the Canadian Studies Program at Waterloo. Their idea is that the government should direct the Bank of Canada to issue credit at low or no interest for building capital projects -- roads, schools, hospitals, bridges, railways, airports. Actually, this is what the Bank of Canada did during World War II with great success and without causing undue inflation. In addition, various levels of government could borrow this newly created money to retire high-interest loans. The result would be a vast improvement in Canada's employment, a sharp drop in the deficit, and a return to stability and prosperity. At a theoretical level, the proposal has some impressive academic backers, including William Henry Pope, co-author of the classic Canadian text "Economics," used in every university in the country, John Hotson of Toronto, founder of COMER, the Committee on Monetary and Economic Reform, and economist Allan Schmid of Michigan State. There is even a lobby group, called "Sovereignty" which has headquarters in Freeport, Ill., and which has drawn up a piece of legislation to "direct the US Treasury to issue such funds as interest-free loans to state and local governments." The idea is that central governments should take back from private banks the crucial role, which they had until recently, of creating money for the economy, thus restoring sovereignty to the state. The theory has been put into practice on the isle of Guernsey, since 1816, with, apparently, overwhelming success. I am not sure, given the differences between Canada and a small island state in the English Channel, whether this lesson means we ought to copy Guernsey or move there but the "Guernsey Experiment" is worth a look. In 1816, Guernsey was in a hell of a mess. The seawalls were crumbling, there was no market-place, roads were muddy and horrible, and the local government was 19,000 pounds in debt. Revenue came to about 3,000 pounds annually, 2,400 pounds of which went to pay interest on debt. Sounds like us except that, unlike us, the Guernsey folks did something about it. They created and lent to the government 6,000 pounds of interest- free money, and used it used it to fix up the seawalls. This worked so well that they went on doing it -- and are still doing it -- to create an economy with zero unemployment, a high standard of living, low taxes and very low inflation. Gasoline, for example, costs about one third of what it does in England, about 120 km away. What worked in Guernsey may not work here, in a much more complex and more exposed, economy. Canada has long since lost control of its own economic destiny. We traded it to the U.S. for hamburger and to the Japanese for VCRs, long ago. Just the same, the idea of looking at debt, and the way debt is created, is a worthwhile one, if only because it will drive our bankers crazy. The way it works today, almost all of our money supply is created by banks as interest-bearing debt, with them on the receiving end. We can't solve the deficit crisis thus created by slashing expenditures or raising taxes, because these measures bring the economy to a halt. The solution, then, appears to be to substitute low- or no- interest public funds for high-interest private money. The approach can hardly be any more misguided than the pointless lashing around that is all conventional approaches have to offer us today.
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