Could you reiterate that again?
I commented on Aquinum's:
Okay. Say your proposal had been set up 20 or 30 years ago. Say it was in place and working....
But Vince batted that back to me:
Say your proposal had been set up 20 or 30 years ago.
Oh. Well, I put an answer together. A satisfying answer. (You know how it is.) Anyway, I thought my economic proposal ought to be on this blog. So, here it is:
Me? I'm not big on making proposals. My interest is to understand the past or, rather, to understand the process. If we understand *how* the economy works, solutions will present themselves. However...
#1. The use of credit adds to the quantity of money in circulation. Therefore, the repayment of debt is a way to fight inflation. I would set up tax incentives to encourage people (and businesses) to pay off their debt a little faster than we have done since the 1970s say. Accelerated repayment of debt would fight inflation and reduce debt at the same time. Sweet.
#2. Taking that a step further, I would change the income tax. (I'm not talking about the LEVEL of taxation, but the EFFECT of it.) When a person (or business) borrows, his/her debt-to-income ratio increases. I would make the TAX RATE vary with the debt-to-income ratio. Your tax rate would become variable, like the rate of interest. You could reduce your taxes by reducing your debt!
#3. The variable rate of taxation would *replace* the variable rate of interest in our economy. And the Federal Reserve would therefore be able to keep interest rates permanently low. This would be beneficial for economic growth.
#4. In the long view, I foresee that the "credit cycle" would become a thing of the past. Indeed, everyone would have his own credit cycle. But the economy as a whole would see no cyclic pattern. Thus, the major force that drives the business cycle would be eliminated. Economic growth would be driven by low interest rates and other factors, but there would never be an accumulation of debt that leads to recession or depression. Long view, of course.
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In regard to using tax rates that vary with a taxpayer's indebtedness, here is a note about using interest rates rather than taxes in another application. From SRW at Interfluidity in
https://www.interfluidity.com/v2/8930.html
"If we want to finance a large benefits program but offset the pressure it puts on prices and therefore the risk of inflation, one way we can do that is to not tax at all, but raise interest rates. It’s pretty clear that this can work in the short-term, but it’s a conceptually messy business, since high interest rates are usually bundled with injections of cash (from interest payments on government debt), which might contribute to pressure on prices over a longer term."
he considers consequences. This may be useful.
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