Wednesday, May 8, 2013

To the Wall Street Journal (Again)


Back in early April (the fourth, to be exact), we sent yet another letter to the Wall Street Journal about one of their editorials.  There seemed to be some little confusion between the role of taxes, and the role of financial institutions in funding economic growth.  Naturally we put in our two cents:

Dear Sir(s):

In “Beware Tax Reform That Raises Taxes on Capital,” Margo Thorning stated, “Investment, growth and job creation should be the cornerstones of any tax-reform effort.”  On the contrary, the sole legitimate purpose of taxation is to raise revenue to defray the costs of government, not engage in social engineering.

“Investment, growth and job creation” are concerns of the private sector financial system: commercial banks backed up by the Federal Reserve, not government.  Attempting to do the job of the private sector has loaded governments throughout the world with massive unproductive debt and left the global economy in shambles.

As Dr. Harold G. Moulton, president of the Brookings Institution from 1928 to 1952, explained in The Formation of Capital (1935) and The New Philosophy of Public Debt (1943), rapid and sustainable economic growth was historically financed by the expansion of bank credit based on the present value of future marketable goods and services produced by the new capital by discounting and rediscounting bills of exchange, not past savings or increases in government debt.

As Louis Kelso and Mortimer Adler explained in The Capitalist Manifesto (1958) and The New Capitalists (1961), the mass purchasing power essential to sustain economic growth can be achieved by vesting formerly propertyless people with capital ownership financed using such “future savings.”

By making dividends tax deductible at the corporate level but fully taxable as ordinary income at the personal level unless used to make debt service payments on capital acquisition loans, profits from production can be used for consumption, not reinvestment.  This is consistent with Adam Smith’s dictum from The Wealth of Nations (1776) that “Consumption is the sole end and purpose of all production.”

Yours, blah, blah.

#30# 

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