Yesterday we noted that there is one key factor that cannot
be omitted from the proposed program to put Greece on an even keel
economically. Regular readers of this
blog already know what this is: an aggressive program of expanded capital
ownership. Why?
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| Ancient Greek democracy...for the élite. |
We could list the reasons forever, but the most immediate
selling point is that Greece, the home of political democracy, should also be
an exemplar for economic democracy, without which political democracy is a
hollow shell. The most important reason,
of course, is that the program simply won’t work for any length of time unless
it includes equal opportunity and means for every child, woman, and man to own
capital so that they can produce with labor, capital, or both — as long as they
produce.
Thus, we recommend (a weak word) that Greece immediately
institute a Capital Homestead Act — or, better, an Economic Democracy Act. They mean the same thing, really, but
probably “economic democracy” is a concept more people in Europe will grasp
easily than “homesteading.”
The whole discussion on reforming the money and credit
system leads right in to this, as does the tax reform. Again, let’s take taxes first.
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| No escaping debt and taxes. |
Four principles must guide the tax reform. 1) Efficiency: the tax system raises enough
money to run the government without giving too much disincentive to
produce. 2) Understandability: people
should be able to pay their taxes without having to become an expert. 3) Equitability: people must be taxed in
accordance with their ability to pay. 4)
Benefit: people who receive the benefit should pay for it.
When any one of these principles comes in to conflict with
any of the others, common sense should resolve the issue. For example, you don’t tax the poor to
provide emergency relief to the poor, even though that seems to violate the
fourth principle. Instead, you provide
emergency relief on the basis of equitability: the rich who have the money are
taxed to assist the poor who do not have money.
At the same time, however, you reform the system so that the
poor do not require the assistance of the rich.
Continuing to tax the rich for the ordinary maintenance of the poor
changes it from justice to injustice.
Thus, the fairest tax given these principles is a single
rate imposed equally on all income above an exemption sufficient to enable
people to live in reasonable comfort. In
addition, the tax laws must permit a tax deferral on income used to purchase
capital assets, up to an amount sufficient to generate an adequate and secure
income.
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| Homesteading is the backbone of true democracy. |
Thus, every citizen should have a Capital Homestead or
Economic Democracy Account in which he or she can accumulate a reasonable
ownership stake of income-generating assets on a tax-deferred basis. Now — how do they buy the assets in the first
place on which to defer the taxes?
That’s where the money and credit reforms we described in
the last couple of postings kick in.
Obviously, if a rich person or a corporation can finance new capital
without using past savings, so can everyone else — and it’s better for the
economy. The fact is, the more people
who are productive, the more income there is, and the more income there is, the
more demand there is, and the more demand there is, the more people can produce
and sell, making a . . . well, we’re not sure what the opposite of a vicious
circle is, but this is it.
Thus, every child, woman, and man can open up an Economic
Democracy Account in which every individual can accumulate up to €1 million on
a tax-deferred basis. That’s a nice
round number, and at a ROI (“Return On Investment”) of a conservative 20%,
would generate taxable income of €200,000 every year.
How could it be so large?
Simple. Most companies today don’t
pay out very much in dividends because they retain earnings to finance capital
growth and expansion. If they can
finance capital growth by selling shares instead of retaining earnings, they
can pay out earnings to the shareholders — who have a natural right to them,
anyway.
Further, companies can be encouraged to pay out all earnings
as dividends by making dividends tax-deductible by the corporation — and
raising the corporate tax rate to give more encouragement. That way a corporation has a choice: avoid
all taxation of income by paying it out to the shareholders (who can pay taxes
on their dividends the same as any other income), or pay even more taxes than
they do now.
Besides, if they finance growth by selling new shares
instead of retaining earnings, the new shareholders are going to need the full
stream of profit attributable to their shares to pay for those shares. Issuing shares instead of retaining earnings
to finance growth will create a lot
of new shareholders, and create a lot of new demand to justify more growth.
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| Less crime and poverty. |
Thus, if everybody has the right to borrow money to purchase
new shares that pay for themselves out of future dividends — and all profits
are paid out as dividends — ordinary people can become capital owners without
risking anything they might have at present . . . although the problem is that
most people in Greece don’t happen to have anything to lose at present as it
is. If the money is created as described
previously in this series, there will always be enough money for new capital
formation — and for creating new owners without taking anything from anybody
else.
What about security for the loans? What if the borrower defaults, i.e., doesn’t make the loan payments?
Well, what about it?
There’s an entire industry that already exists to help people handle
risk. It’s called “insurance.” Using the risk premium on all loans as an
actual insurance premium (and just why do you think they call them “premiums”?),
a borrower or lender can take out a capital credit insurance policy that pays
off in the event of default. Not in
full, of course — we don’t want lenders to make bad loans just to collect
insurance on them. A loss should hurt,
but not really harm a lender.
That, in brief (no, really) is a possible solution to the
Greek debt crisis. It beats expecting
other people to pick up the bill for all eternity.
#30#