Tuesday, April 12, 2011

How To Balance the Budget in One Easy Step

How To Balance the Budget in One Easy Step

We are living in tight economic times. Banks are tight with their lending -- for most people. Interest rates not controlled by law are pretty high. Money flows to where it can be the most productive, and these days that seems to be in oil speculation, in derivatives, the stock market and other speculative interests.

The speculation markets are hot. Factories and sales are not. Employment is down, and while businesses keep lobbying for tax breaks to make them willing to employ more people, the fact is that unless sales go up, they won't employ anyone else. Consumption goes before hiring.

This turns the Republican model on its head. Trickle-down economics has become trickle-on economics as the middle and lower classes seem to be getting the wastes from the upper class. As the lower and middle classes get poorer and the rich get richer, adding tax burdens to the lower and middle classes makes no sense. They *can't* pay it.

So we need to go to where the money is.

The Bush tax cuts did not go to hiring, they went to the speculative markets causing the oil bubble (among others). The success in the oil market has speculators bidding on wheat, corn, and other products they don't intend to actually buy, but control and sell for large profits.

If we can't stop the speculation, we can at least tax it.

I propose a 1% Financial Transactions Tax. You buy stocks worth $10000, you pay up front 1% of that, $100. You sell the stock for $12000, the buyer pays up front $120 to do it. As with a sales tax, the FTT is buyer-oriented. Buy a house for $100000 and you owe an FTT of $1000.

All derivatives would have to be declared. All securities would have to be declared. The purchaser of insurance would have to pay a 1% FTT. If the premium for life insurance is $60 per month, add 60 cents for the FTT.

No FTT would apply to depositing money into a bank account or withdrawing money from a bank account. But if you use an ATM that charges you $2.50 to access your money, an extra 3 cents charge would apply.

For most people whose lives aren't caught up in currency trading, playing the markets, etc. the tax would bother us very little. The rising price of food affects us a lot more. But the FTT would make those who play with their money in the market instead of making their money work in increasing production of goods at home and hiring people pay just a little bit more for their fun. They borrow the money short-term anyway. 10% down leverages a large contract. A 1% additional cost would not be a great burden to such players.

We need to understand that there are trillions of dollars worth of transactions in American markets. And no, a 1% tax would not drive away investors out of the US. US laws are relatively lax compared to many other markets, and while you can bet that Wall Street would scream and howl, they can easily afford this.

America needs the revenue. We need to go where the money is.