While Harold Meyerson properly castigates the Republicans for their lack of a feasible economic program ("Economy? What Economy?" Washington Post, 09/03/08, A15), he fails to take into account the fact that the Democrats are, within the ubiquitous Keynesian framework, even worse.
The Republicans, consistent with Keynesian theory, are pushing tax breaks for the rich. Economic orthodoxy dictates that the rich provide the financing for capital formation that supplies the non-owning majority with jobs to generate effective demand.
The Democrats are pushing tax breaks for the middle class that is in danger of losing jobs as the rich lose the incentive to reinvest by having their tax breaks taken away. This means greater reliance on foreign investment, accelerating globalization on unfavorable terms, and a consequent dependency of a debt-ridden United States on other, more financially sound economies.
Both parties are dead wrong, but the Republicans are at least consistent with the bizarre demands imposed by slavish adherence to Keynesian theory. The fact is that if a program such as Capital Homesteading were to be implemented, capital formation would be financed by monetizing the productive capacity of the United States through proper use of the Federal Reserve System, as originally intended by the Federal Reserve Act of 1913. By opening up democratic access to capital credit so that every citizen has the right to borrow money to purchase qualified equity shares or other self-liquidating assets, the rich would be free to spend their income, or use it to provide reinsurance reserves for capital credit insurance — and be taxed at the same rate as everyone else, above a generous personal exemption sufficient to cover common domestic needs adequately.
We estimate that, under the current federal budget (including entitlements), a typical family of four would pay no income tax of any kind — including payroll taxes — until aggregate income exceeded $120,000. Under Capital Homesteading and an annual capital credit allotment conservatively estimated at $7,000, an individual would by age 65 have accumulated $500,000 worth of capital generating $50,000 per year, and have enjoyed total dividend income of $1.6 million.
Further, by merging Social Security and Medicare into the general tax rate and basing the social safety net solely on need after keeping all existing promises made under Social Security and Medicare, entitlements would be greatly reduced from the current two-thirds of the $3 trillion federal budget at the same time benefits to individuals could be increased. The funds formerly used for entitlements could be applied to reducing the nearly $10 trillion in current outstanding federal debt, to say nothing of eliminating the looming $74 trillion projected deficit in Social Security and Medicare.
Senator Obama has, to our certain knowledge, been provided with an outline of these proposals more than once. He responded by ridiculing the idea of an ownership culture in his acceptance speech at the Democratic Convention. In that, at least, he is one up on Senator McCain, who has surrounded himself with people who seem intent on raising barriers against his hearing anything innovative.
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