What about no taxation at all ?

[Hazir]

With all the QE going on a simple idea all of a sudden hit me over my hot cup of coffee. So what if we radically changed our fiscal system to one where we no longer have a tax-code, no revenue service, no loopholes and where government simply finances the budget by increasing the amount of money in circulation?

İt would make the psuedo-tax base the broadest imaginable and it would give us a very easy metric for government effectiveness and efficiency; the lower the inflation ensuiing from the printing presses being used the more effective a government. İ'd say that a 15% rate of inflation would be entirely acceptable in such a system.

Would you like such a system? What you think we need to put in place to make it work?

[RandBlade]

Without fundamentally altering our economy there is no way that the government would just increase the money supply by 15% pa

[Hazir]

Why not? İf it is done with a simultaneous abolishment of all taxes the net result may be zero.

[RandBlade]

Government expenditure can be upto 50% of GDP, with no revenue source that money would have to be printed every single year. Taxation recycles existing money, but this would have to be entirely new money - on an on-going basis.

[Aimless]

Ha, I love it, the taxes would never go down and money would always rapidly decrease in value

Would this scheme complicate pricing of goods and services? Or would it instead simplify things for everyone esp. Businesses who would thus be more likely to stick around?

[wiggin]

Not to mention that this is highly regressive, I can imagine all sorts of problems. The biggest being, that you'd eliminate having two levers to control the economy - monetary policy would cease to exist, effectively, and fiscal policy would have essentially no constraints. I imagine it would fuck up international trade to no end, would lead to wage-price spirals all over, and be a generally poor idea. But that's just IMO.

[earthJoker]

Greece actually had that before introducing the Euro, no one paying taxes and founding by devaluating the currency. Ok I am a little sarcastic here.

[Lebanese Dragon]

What we should do.. is just print a bunch of money, don't put it in circulation, just store it. Then at the same time just buy a ton of crap with it. Companies, islands, factories, entire industries and we'll get it at price before the market reacts to our inflated money. Abuse the lag time.

Then we can sell it back to them or keep it.

[Lewkowski]

So basically inflation would be the tax? I guess commodities would have a lot of demand...

[CitizenCain]

So basically inflation would be the tax? I guess commodities would have a lot of demand...

Ding, ding, ding, give the Lewk a prize.

Personally, I am 100% in favor of such a system and would sacrifice the left half of my body to make it happen... because the consequence of such a system is no more government-controlled monetary system, and an overnight collapse in the power and reach of government, when everyone stampedes to use tax-free, inflation-free currency options, such as commodity-backed money (gold/silver/platinum coins or bills backed by platinum/gold/silver), non-government issued fiat currencies and crypto currencies.

No taxes, no more Leviathan government.... God damn, it'd be like dying and going to heaven. But better, because unlike dying and going to heaven, this way, I'll be the most heavily armed entity in the tri-state area on top of everything else, w00t w00t.

[LittleFuzzy]

Ding, ding, ding, give the Lewk a prize.

Personally, I am 100% in favor of such a system and would sacrifice the left half of my body to make it happen... because the consequence of such a system is no more government-controlled monetary system, and an overnight collapse in the power and reach of government, when everyone stampedes to use tax-free, inflation-free currency options, such as commodity-backed money (gold/silver/platinum coins or bills backed by platinum/gold/silver), non-government issued fiat currencies and crypto currencies.

No taxes, no more Leviathan government.... God damn, it'd be like dying and going to heaven. But better, because unlike dying and going to heaven, this way, I'll be the most heavily armed entity in the tri-state area on top of everything else, w00t w00t.

Uh Kane? Why are you attempting to claim a commodity-based currency system would be inflation free? I have a fairly limited imagination but I can't think of a single commodity that comes even close to meeting that criteria. Ditto for any non-government fiat currency.

[Loki]

With this kind of a system, no one in their right mind would hold money in a bank, which means there won't be any money to borrow. That means no investment, and ultimately no jobs. Most people would spend money as soon as they get, since it loses value every day. The result would be 1920s Weimar Germany. The rich would either move (best option) or avoid this currency at all costs. With no attempt to rein in inflation, the inflation wouldn't be limited by the increase in money supply. The money supply would increase each year, while economic output would fall. The uncertainty over the size of these two factors would likely mean that inflation would spiral out of control. This would require the government to print more money to pay for the same programs it wants to fund. No sane outside institution or government would lend money to this government, because they'd know they're never getting back. The value of the currency would plummet, which means imports would become prohibitively expensive. Foreign investment would certainly be out of the question. In summary, this would be insane and someone I would only wish on countries I loathe.

[CitizenCain]

Uh Kane? Why are you attempting to claim a commodity-based currency system would be inflation free?

Compared to Hazir's proposal of taxation through currency inflation? Sure, almost any commodity-based currency system would be [practically] "inflation free," in comparison. What would we be looking at roughly, something on the order of 30% annual planned inflation in the government fiat currency? Yeah, so no one would actually use that currency and would instead use say gold or silver (or BitCoin or CainCash or moonshine or whatever) or a combination of other "currencies" that comparatively don't have inflation.

That's been the historical experience of what's happened when governments have tried to enforce taxation through currency devaluation. From the classic European monarchs minting gold and silver coins with lesser precious metal content that by law had be accepted at the same value as a greater weight of those precious metals... and the people switched to salt, spices, grains and whatever else as the day-to-day standard medium of exchanging value to the American example that lead to moonshine "whiskey" being used as the primary currency in much of Appalachia and the South in various time periods, that's just what happens. Government-issued currency that is deliberately devalued as a means of taxation or income generation by the government... goes largely unused, and people use an [comparatively] "inflation free" alternate currency of one form or an other.

I have a fairly limited imagination but I can't think of a single commodity that comes even close to meeting that criteria.

Gold does, as does silver, when viewed in the historical long-term against high-level measures of productivity/average income. If you graph out such a comparison, and this has been done by economic historians, you'll see that going back about as far we have such data available (post Black-Death) until "today," you a see a very flat trend line, with occasional large spikes and dips representing major supply/demand curve distortions for those metals (the initial influx of gold from the New World to Europe via the Spanish empire, exhaustion of the Venetian silver mines, Great Depression, etc).

"Inflation free" isn't the same as "stable valuation," but correcting for supply/demand curve distortions, and looking at the long-term historical view, gold and silver do not suffer the effects of inflation, as their historical use [in West, at least] has been the definition/standard of money. "X labor productivity* == Y ounces of gold or Z ounces of silver."

*productivity as the economic definition of "productivity"

[Hazir]

So basically inflation would be the tax? I guess commodities would have a lot of demand...

Yes, inflation would be acting as a pseudo-taxation. Wiggin pointed out that it would be sort of a flat tax situation where everybody, regardless of income would pay the same 'tax' through the devaluation of their money. People might be tempted to spend their money, but that would also mean a faster growing economy, it could even reach the point where growth of the economy offsets the growth of the money supply (that would be the equivalent of a balanced budget under present circumstances).

I'm surprised that nobody sees how under such a system the bite government could take out of the economy would be very much reduced.

Loki pointed towards one issue that would need to be addressed under such a system; it should be the law that no commercial contracts in the country are valid that are expressed in other currencies than the one that has been designated legal tender.

P.S. as things are in the real world today people living in countries with any type of QE are paying this tax already anyway.

[RandBlade]

P.S. as things are in the real world today people living in countries with any type of QE are paying this tax already anyway.

No they're really not. I get taxed nearly 50% of my marginal income from income tax alone, how much do you reckon someone in any nation with QE (like the UK) is paying in "tax" due to QE?

[Hazir]

The amount of money 'printed' in the UK is getting close to the entire budget of the UK government. You can consider it a bloody miracle you don't have hyperinflation yet in your country, but CPI stands at like 5% or so now? That's coming out of your pocket Rand, whether you like to admit it or not.

[RandBlade]

Direct taxation of nearly 50%
Sales taxation of 20%
Inflation of 5% [actually its 4.2% and falling]

No, I don't think that's at all comparable. I have no problem right now with 4.2% inflation and don't see how that is coming out of my pocket* or remotely comparable to half my marginal income being directly taken by the government, or 20% on everything I spend from my already taxed income etc, etc, etc

* In fact, given that my mortgage interest rate is 2.99% and will be falling to 1.99% if base stays at 0.5% then moderate inflation like that is a good thing for me. My debt is getting slowly devalued, that is good for me.

[LittleFuzzy]

Compared to Hazir's proposal of taxation through currency inflation? Sure, almost any commodity-based currency system would be [practically] "inflation free," in comparison. What would we be looking at roughly, something on the order of 30% annual planned inflation in the government fiat currency? Yeah, so no one would actually use that currency and would instead use say gold or silver (or BitCoin or CainCash or moonshine or whatever) or a combination of other "currencies" that comparatively don't have inflation.

That's been the historical experience of what's happened when governments have tried to enforce taxation through currency devaluation. From the classic European monarchs minting gold and silver coins with lesser precious metal content that by law had be accepted at the same value as a greater weight of those precious metals... and the people switched to salt, spices, grains and whatever else as the day-to-day standard medium of exchanging value to the American example that lead to moonshine "whiskey" being used as the primary currency in much of Appalachia and the South in various time periods, that's just what happens. Government-issued currency that is deliberately devalued as a means of taxation or income generation by the government... goes largely unused, and people use an [comparatively] "inflation free" alternate currency of one form or an other.



Gold does, as does silver, when viewed in the historical long-term against high-level measures of productivity/average income. If you graph out such a comparison, and this has been done by economic historians, you'll see that going back about as far we have such data available (post Black-Death) until "today," you a see a very flat trend line, with occasional large spikes and dips representing major supply/demand curve distortions for those metals (the initial influx of gold from the New World to Europe via the Spanish empire, exhaustion of the Venetian silver mines, Great Depression, etc).

"Inflation free" isn't the same as "stable valuation," but correcting for supply/demand curve distortions, and looking at the long-term historical view, gold and silver do not suffer the effects of inflation, as their historical use [in West, at least] has been the definition/standard of money. "X labor productivity* == Y ounces of gold or Z ounces of silver."

*productivity as the economic definition of "productivity"

So when you remove all the value changes, it doesn't change in value. 's what I thought.

[earthJoker]

No they're really not. I get taxed nearly 50% of my marginal income from income tax alone, how much do you reckon someone in any nation with QE (like the UK) is paying in "tax" due to QE?

50% either you earn really much or UK taxes are higher than I thought.

[agamemnus]

It's not just regressive, it's a tax on savings. Very bad for economic growth/stability.

[Hazir]

It's not just regressive, it's a tax on savings. Very bad for economic growth/stability.

A tax on savings is highly stimulative for the economy. People are encouraged to put their money to use where it is most effectively used. You also seem to forget that the flipside of this coin means; no more taxation and a state that doesn't have to spend tons of money to collect those taxes, the administrative burden on businesses would drop dramatically, and there would no longer be a difference between above the board economy and under-the-table economy as there would be no taxes to avoid.

In the US the Government would save 13bn dollars in direct costs if the IRS were abolished. People and businesses would no longer need tax lawyers and/or consultants.

[Loki]

Yeah, you'd have 100% consumption and 0% investment. Where will the accumulated capital come from?

[CitizenCain]

Yeah, you'd have 100% consumption and 0% investment.

Worked great for the Wiemar Republic, didn't it?

[RandBlade]

50% either you earn really much or UK taxes are higher than I thought.

I think I may have double-counted NI, its about 33% marginal income tax + NI.

I earn about average wages, am not in the high tax threshold. Either way, far higher than 4.2%

[Hazir]

Yeah, you'd have 100% consumption and 0% investment. Where will the accumulated capital come from?

Sorry to break your bubble, but saving money does not equal investing. Rich people anywhere do not have big bricks of banknotes under their mattresses.

[CitizenCain]

Sorry to break your bubble, but saving money does not equal investing. Rich people anywhere do not have big bricks of banknotes under their mattresses.

No, they put their six-figure value stacks of banknotes in a wall safe, obviously.

[Aimless]

Sorry to break your bubble, but saving money does not equal investing. Rich people anywhere do not have big bricks of banknotes under their mattresses.

But all investments would immediately lose value and companies would perish immediately because they'd get no breaks while trying to become profitable :'( And how would companies be able to buy other companies?!

[Loki]

Sorry to break your bubble, but saving money does not equal investing. Rich people anywhere do not have big bricks of banknotes under their mattresses.

I'd hate to break your bubble, but savings = investments. No savings means there are no sources of investment.

http://wfhummel.net/savingandinvestment.html

[CitizenCain]

I'd hate to break your bubble, but savings = investments.

With the exception of cash "saved" under the mattress or in the wall safe, etc, which Hazir seems to think don't exist on any meaningful level anyway.

[Loki]

With the exception of cash "saved" under the mattress or in the wall safe, etc, which Hazir seems to think don't exist on any meaningful level anyway.

It wouldn't make much sense to put cash under the mattress in Hazir's system since it would lose all value in short order. More money for fast food I guess.