Tags: Elias | taxes | currency | reserves

Currency Reserves Will Save Our Economy

By    |   Friday, 21 September 2012 07:51 AM

Our economy does not have adequate financial reserves backing the currency used in our transactions. This has wreaked havoc on our economy and financial institutions for many decades.

This lack of reserves has permitted excessive credit and debt. Total debt (public and private) as a percentage of gross domestic product grew fourfold during the previous four decades. Increasing the reserves is essential before we can restore fiscal and monetary stability.

In 1792, 95 percent of the federal budget was derived from tariff revenue. Today, that figure is approximately 1 percent. In 1900, federal, state and local tax revenue accounted for 7 percent of GDP. By 1920, it was 15 percent and today it is nearly 40 percent.

Since World War II, federal income tax revenue has ranged between 15 percent and 20 percent of GDP. This seems to be the level society is comfortable with. From 1900 until now, tax rates on labor, corporations and capital have varied, along with income thresholds and deductions. Despite it all, federal government tax revenue has remained in the range of 15 to 20 percent of GDP.

A more fair and efficient construct is required to collect the tax revenue.

I propose eliminating all income deductions except for one: the federal poverty level of income per family. Any income above this amount would be taxed at the same rate for everyone. This would eliminate the nearly $400 billion annual compliance cost of tax filing, and it would permit a more effective use of resources, since our efforts would be dedicated toward innovative, creative and productive endeavors, not tax compliance and tax liability minimization.

According to the Bureau of Economic Analysis, annual personal income is roughly $12 trillion. The Department of Health and Human Services estimates the federal poverty level for a family of three is $20,000. With 100 million families in the United States, this translates to $2 trillion in income deductions, leaving $10 trillion in taxable income.

If the current annual government spending of nearly $4 trillion were maintained, a 40 percent rate of taxation would generate the necessary revenue (this figure includes the 15 percent payroll tax). Naturally, this rate could be reduced if we reduce federal spending and increase income. In 2009, President Barack Obama enacted an $800 billion stimulus plan. Subsequent years have included this $800 billion level of spending in other areas, thereby increasing the annual deficit and debt. Government spending as a percentage of GDP has reached 25 percent, much greater than the 15 to 20 percent historical range for tax revenue.

How will this impact the average family that earns $50,000 annually? The first $20,000 would not be taxed, leaving $30,000 taxed at 40 percent, generating $12,000 in federal income tax. This translates to a tax rate of approximately 25 percent. This figure includes the 15 percent payroll taxes for Social Security and Medicare, leaving 10 percent for federal income taxes.

Clearly, this level of taxation is too high. Instead, tax rates could be reduced by increasing the level of reserves that back our currency. Increasing currency reserves would reduce excess credit and debt formation while increasing creative, innovative and productive investment — thereby increasing income.

Since investment expenditures occur at the beginning of the production process, not the end as with consumption, greater income is generated due to the economic multiplier. That is, the income earned by each production worker throughout the cycle can be used to purchase products from others, increasing their income, as well.

In addition, the collection of this tax revenue would be much less costly. Currently, we spend nearly $400 billion to comply with the tax code. Much of this expenditure could be averted, freeing these resources for more productive endeavors.

Adequate currency reserves can be provided by gold and silver to back the entire monetary base (physical currency and excess bank reserves), which is roughly 20 percent of the total money supply and credit. These metals would provide monetary stability due to their diverse usage in consumption, industry, investment and transaction exchange.

Over time, the price of these metals would rise, such that their market values approximate the value of the global monetary stock. In the following decade, gold might rise two to three times and silver might increase even more. This construct would provide us with stable, sustainable long-term growth and a greater quality of life.

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Our economy does not have adequate financial reserves backing the currency used in our transactions. This has wreaked havoc on our economy and financial institutions for many decades.
Friday, 21 September 2012 07:51 AM
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