Well it is a new benefit of an already proposed tax reform that doesn’t appear to be getting serious consideration. And just so that conservatives will continue reading, it is actually a reform proposed by Bush.
First off this a new idea that came to me today and has not always been opinion. Prior to this I was in favor of a progressive tax rate and I would have made the argument of who benefits the most from government, the wealthy or the not so wealthy/poor? Many are quick to say the poor because of welfare and government support. But I present this argument; who would lose the most if government ceased to exist, that means no law enforcement, no legal system, no political system, no way of enforcing personal/private property. I say the wealthy would, and should therefore for pay for more of it. HOWEVER; like I said I came up with a new idea today. Continue to find out.
So not necessarily related to the topic of this post but I thought I might as well give insight into how it came to me. I was looking into the whole money creation theory of the fractional reserve system, and I came across that an explanation that money multiplier concept is not really money creation and that it is instead a measure of currency circulation (since its not the topic of this post I’ll just give you the link if you are interested http://www.ied.info/articles/an-honest-bank-is-so-simple-you-can-run-it/logical-reasons-proving-private-banks-do-not-create-money). Also whether or not I agree with the article is irrelevant as it doesn’t really apply to what I am about to say. As I was reading, the phrase rate of currency circulation stuck with me and I knew from economics that it is a basic measure of economic activity. A basic example is you have country consisting of 2 people, a farmer and a mechanic, with 50$ between them. The farmer pays the mechanic 50$ for tractor repair, mechanic pays farmer 40$ for corn, and then another 10$ for tomatoes from the farmer. From that 50$, 100$ worth of goods and services have been exchanged. So it shouldn’t be hard to infer the implications that the rate of currency circulation has on total value of goods and services exchanged, and therefore GDP. If that process between farmer and mechanic happened 4 more times in the same time frame than a value of 400$ would have been created from the original 50$.
So then I started to think about the U.S. tax and government revenue system. How much money is paid out every year by government during tax return season I wonder? I imagine that it is a very handsome amount that is just sitting there every year until everyone files their taxes. And there’s no disputing the fact that come tax return season, there is a very significant and very temporary surge in consumer spending. There’s not much value creation going on from currency circulation while it’s just sitting there. If the government was instead able to CONTINUOUSLY reinvest its revenue back into the country, it would allow for a higher rate of circulation for the money that would have otherwise not circulated at all.
I think an appropriate and effective compliment to this would be a national sales tax. For one, if the government were to do away with the income tax return, it would likely have to get rid of the income tax. Second, the money being continuously re-injected into the economy would help to promote consumer spending, and therefore continue to regenerate government revenue, and therefore continue to being re-injected again for a cycle that would optimize the rate of circulation and therefore total value created. The argument might be made that the sales tax would offset what incentive to spend is provided by the government funds, however I would say that would only be the case if the sales tax rate was set high enough. Research and insight greater than mine would be required to find the optimal level of sales tax percentage, one that is low enough to where the extra injected offsets the urge to not buy but increases the circulation of currency enough to make up for any trade off in the tax rate.
Please provide thoughts on this as this is a new idea and have not researched or spent adequate time thinking of the flaws. Nothing I see in favor of a national sales tax presents this as an argument in favor of it, nor is it mentioned in arguments against it.