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Radical idea – Abolish all taxes and print money!

September 24, 2012

The Constitution should prohibit all taxation, govt. debt and allow government to finance itself by regular money printing. Limit the money printing to an annualized 10% of GDP/money supply – some thought needs to go on deciding this limit…but should be a STRICT LOW limit. (socialists won’t like this idea since this is only compatible with a small govt.)

This can totally eliminate the HUGE wasteful effort that goes into levy, collection, calculation, evasion and payment of taxes. Not all spending or GDP is desirable…digging holes and re-filling them add to GDP but is clearly a waste…so, govt. should only do/encourage activities that help its citizens / improve life in some way.

Let’s be clear – just like income tax is a tax on income, printing money is a tax on cash holdings, bank deposits, bond holdings or any asset with fixed dollar value.

Printing money will result in inflation (a form of tax) that will be partially offset by continuous deflation caused by increased productivity. Assuming inflation remains within control, nominal interest rates also won’t rise too much.

IMPACT of high inflation rates/interest rates if the money printing limit is too liberal i.e. if we allow, say, 20% money printing to enable a welfare state:

  • people will shun cash and use debit cards for payment
  • currency might gradually depreciate vs. foreign currencies (if foreign govts are not printing as much as us)
  • people will not just HOLD physical assets / other currencies but also try to TRANSACT using barter/other currencies
  • high inflation will cause inconvenience by requiring frequent price changes
  • high nominal interest rates might hurt businesses?

Net net, sounds like a good idea to me. Thoughts?

p.s.

  • closing down the tax industry will massively affect employment (only in the short run though)…but, to be fair to people employed there, they need to be adequately compensated so that they can spend time and money on acquiring new skills. EASIER SAID THAN DONE
  • money printing is happening even now under the garb of monetary policy….the biggest advantage of this proposal is it will bring  everything in black and white and limit the scope for bad behavior by politicians/bureaucrats/corporates
  • Asset sales/leasing of assets/advertisement income, etc. are other possible sources of govt. revenue but I prefer a small govt with very few assets and little participation in commercial activities
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From → Tax Reforms

14 Comments
  1. didn’t understand a damn thing.. really!!
    i’ll revisit a few days later 😉

  2. when u said u r a big fan of arthakranti guys …..i checked out their plan…..n to be honest that did made sense….so whose plan is better according to u….arthakranti or urs……

    • both proposals have their pros and cons…net net not much difference i think…..

      i wholeheartedly support the arthakranti proposal since they have thought about it a lot and are very actively trying to implement it. my post is just a random thought

      but your question has given me this idea of discussing this powerful thought with the arthakranti guys…thanks very much!

  3. Just read the arthakranti plan .. pretty stupid I must say .. Your plan is much better, though not without implementation issues.

    • thanks Kunal.

      why is the arthakranti plan stupid? my main issue with their plan is that they do not envision a small govt. So, they suggest a obscenely high 2% transaction tax…we could possibly afford a small govt with even a 0.2% transaction tax and that would make the plan quite acceptable in my view. Not the best but a whole lot better than the mess that we have now.

      can you quickly point the key implementation issues in my plan?

  4. There have been others who have advocated your plan, I am sure (L. Randall Wray perhaps). Try to find them and share the links, if you can!!

    • yes Kunal…this is a globally relevant issue and I am sure numerous people would have suggested this…..pls do share if you find something relevant..

      surprisingly, my very quick search only found an essay by Randall Wray with a similar title (i didn’t read it since it cost $30). I also glanced thru another article by Randall Wray…quite unimpressive to me….so, its POSSIBLE that our ideas MIGHT be different 🙂

  5. Pranav permalink

    82% of Government’s revenue receipts come from taxes (Rs7711bn as per 2013 budget estimates). How will government pay salaries and run the government if it does not tax? Also, government’s revenue expenditure is more than 10% of GDP. Then how can their be a limit on money printing?

  6. Printing money is a tax on cash holdings just like income tax is a tax on income. So, I am just saying that govt should use the most efficient way to tax – print money. You can refute this argument only by arguing that a tax on cash holdings is somehow worse than tax on income or tax on production, sales, etc.

    How much to tax? I have a very strong preference for low taxes. Low taxes and low govt interference will help the GDP grow so much that even 5 or 10% tax to GDP ratio will be sufficient to fulfill govt’s role.

  7. I like your idea but another thing that is important with money supply is the value of money. I am sure you have read Rothbard’s stand on 100% gold backed money. I think, if not gold, we should have at least some valuable commodity backing the money that can not be created from thin air. Now, if a nations currency is backed by gold and the GDP increases and Money supply doesn’t increase crazy ( no fiat money ), prices will fall. Increase in GDP will also make economy and hence currency stronger. My question is – If we print 10% of GDP for current year( and I totally agree that it reduces the purchasing power of people and in a way is a tax on them ) , what commodity is backing that money? How will you deal with large increases( I am not worried about decrease as such at this point ) in GDP ? Are your working off of assumption that economy has fiat money vs. money backed by Gold or some commodity. Just trying to understand how this can be actually implemented as I am not a big fan of fiat money, and I feel you are not either.

    • yes, i hate fiat money the way we have now.

      Requirement for commodity backing is mainly a way to limit fiat money. Constitutional limits do the same. the KEY is to ensure those limits are honoured (that’s why this post suggests STRICT and LOW constitutional limits). Once you have those limits and they are honoured, then a lot of the problems of fiat money diminish.

      I think the GDP is wholly irrelevant. if you are questioning my suggestion of ‘10% of GDP/money supply’, then yes, 10% of money supply (i mean narrow money i.e. just notes in circulation) is more sensible ….i wrote that without thinking about what’s a good measure..i just meant to have a measure that the govt. cannot manipulate too much

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