

H.R. 4646 Debt Free America Act - devmonk
http://www.govtrack.us/congress/bill.xpd?bill=h111-4646&tab=summary

======
Construct
I always wonder if bills like this one which radically alter the structure of
our government are proposed in seriousness or merely as a distraction to
please certain voters.

Obviously, adding a 1% tax on all financial transactions, as this bill
proposes, would drastically change how our economy operates. Keeping the
markets efficient and accurately priced becomes much more difficult when any
trade comes with a 1% cost. Especially when the 1% is imposed whether it
results in a profit or a loss. From what I see in this bill, even selling one
stock to purchase another would incur a 1% fee on the first sale and a 1% fee
on the purchase of the second stock.

1% may not sound like much, but as money continues to change hands the
government's take grows significantly. Let $100 change hands 10 times, and
you're left with $90.44 of the original money. Let $100 change hands 100 times
and you're down to $36.60.

Of course this scheme would transfer money to the government to pay down our
debt (in theory, if the money is used as the bill intends), but at what cost?
This additional financial friction could seriously slow down the economy and
disrupt efficient market pricing. Finding the proper balance of taxes, debt,
and economy growth is a very, very difficult problem, and this solution is not
well thought out at all. Furthermore, eliminating our national debt is not
going to solve all of our problems, as many would like us to believe.

Throwing ridiculous bills like this in the mix only serves to muddy the
waters. It distract us from the real problems and the potentially viable
solutions. Let's make small, incremental changes within our current tax
structure to fix our problems in a reasonable manner.

~~~
hga
Forget about friction: how much money would this really bring in? Some time
ago I read that Switzerland instituted a stock market transaction tax ... and
their market quickly lost a very large fraction of its business. US based
multi-nationals would e.g. follow all those oil services companies that have
moved their headquarters outside of the country (curiously, to Switzerland
(and note that this happened before the BP spill)).

Obviously there would be a mass exodus out of instruments that are taxed in
this way. People and companies would game the system like mad, descend upon
D.C. for exceptions for their "critical" industries, etc. etc.

And destroying or chasing out of the country a large fraction of the US
financial sector---which all too many people unwisely desire---could easily
result in a net loss to the government, especially when you count secondary
effects like a decreased ability to raise capital and vastly less efficient
capital markets.

My favorite not so quick fix is the government selling off a very large
fraction of the land it owns. What's the compelling reason for it owning this
much of these top ten states I just randomly found on the net:

    
    
       1. Nevada        84.5%
       2. Alaska        69.1%
       3. Utah          57.4%
       4. Oregon        53.1%
       5. Idaho         50.2%
       6. Arizona       48.1%
       7. California    45.3%
       8. Wyoming       42.3%
       9. New Mexico    41.8%
      10. Colorado      36.6%

------
emilepetrone
"This is an idea originally floated in 2004 by a single member of Congress,
Democratic Rep. Chaka Fattah of Pennsylvania. So far it has attracted little
support and gone nowhere. The White House has not endorsed it."

<http://factcheck.org/2010/09/1-transaction-tax/>

~~~
h3h
I should hope that we're not all waiting with bated breath for the White House
to endorse every bill that substantially alters the structure of government.

------
teilo
This would be like cutting out a cancer that, while killing you eventually, is
presently keeping you alive.

Anyone who thinks that eliminating the national debt will fix our financial
woes does not understand how our current debt-based economy, built around a
central bank, works. If the national debt were retired in this way, our
financial problems would become much worse than they already are.

~~~
swaits
How so?

~~~
teilo
This is Keynesian economics 101. I will not attempt to pass judgment on the
wisdom of this system, but it is what it is.

In our current system, and that of almost every national economy in the world,
debt = cash. That is is a vast simplification, but it boils down to this: The
dollars which circulate in the economy (whether paper or electronic) are
dollars which are created by various types of bank loans, treasury
instruments, etc. When these obligations + interest are repaid, money is taken
out of the economy that was previously in circulation. If the entire national
debt were somehow repaid, then trillions of dollars will be removed from
circulation. If all personal, corporate, and national debt were paid off, we
would have no currency left. In fact, because principal on debt is created by
said debt, but interest is not so created, it is not even possible to pay off
all the debt. There is literally not enough cash in existence to do it.

This is why it is truly a crisis when the lines of credit get "clogged up", as
in the present crisis. If the loans don't start flowing again, we are looking
at deflation. One can argue whether deflation is good or bad, of course. As I
said, it is what it is.

~~~
devmonk
_If the loans don't start flowing again, we are looking at deflation._

But, if the dollar tanks in worth, couldn't that cause inflation? The cost of
most of our goods and services in the U.S. are based on goods and services
overseas which would go up if the dollar devalued by 20% as some say it might.

~~~
teilo
There are really two kinds of deflation. Servicing a debt and paying off a
debt. Paying off a debt early causes LESS money to be sucked out of the
economy in the form of interest, and increases the intrinsic value of one's
financial assets. This increases the value of the dollar both by decreasing
its supply, and increasing its perceived value internationally. In this
scenario, bank loans are continuing to be made because the financial health of
the nation, in general, is good.

However, deflation can also be caused servicing loans when no further loans
are being made. Interest is sucking cash out of the economy, and loans are not
being made to replace it. Because much of our productivity is based upon the
ability to acquire easy credit, such deflation causes a halt to productivity,
which leads to a further inability to service existing loans. Default follows,
with the flotsam of toxic assets in its wake. Very bad news.

In a central bank system, both forms of deflation inevitably lead to
inflation. The hope of central bankers is to control the currency supply such
that just enough cash is added in the form of loans to keep the system
solvent. However, central planning of an economy never works, and thus we come
to the latter form of inflation, which is what we were experiencing just
before the bundle of bailouts from the lest several years.

In the latter form of deflation, not only is the dollar perceived as
worthless, but it is further devalued by the reactionary inflation which is
invariably used to "solve" the crisis. So as you can see, inevitably it is
inflation that causes the cost of overseas goods and services to increase.

You have to consider why exactly it is that the cost of goods and services
overseas would normally be going up:

China is holding has bought vast sums of US Dollars in order to keep their
currency low in relation to the dollar. By buying lots of dollars, China
exchanges dollars for Yuan. Yuans flood the market, but China locks up the
dollars in the bank. Yuans are inflated. The Dollar is deflated. The Dollars
still exist - but they are not in circulation. If China were to liquidate
their reserves of US Dollars, this would result in massive inflation. But
China can only keep this up for so long. If we flood the market with dollars
faster than China can buy them relative to its own currency, this strategy
will fail, and eventually China will be forced to liquidate its dollar
reserves. This will have the effect of driving the price of the Yuan up, and
the Dollar further down.

~~~
devmonk
The last part looks a little scary: "If we flood the market with dollars
faster than China can buy them relative to its own currency, this strategy
will fail, and eventually China will be forced to liquidate its dollar
reserves. This will have the effect of driving the price of the Yuan up, and
the Dollar further down."

The problem I see with this is that when the U.S. pumps more money into
circulation by buying up U.S. treasury bonds, etc., it further devalues the
dollar. The Chinese (and Russia, India, etc.) know this well, and are
perfectly happy with this. They'll continue to watch us devalue the dollar.
Later, if we try to pull anything, they'll use the money they've amassed to
buy up an overwhelming military force. But obviously, they'd rather own us
than fight us. Not that they are set on world domination, but when the idiot
on the block keeps lowering the cost of his mansion, and you'd like to have
that mansion, you'd be stupid not to let him lower the cost until you can buy
it for 20% off (or more).

------
hendler
Is this a correct summary?

A national sales tax of 1%, no income tax, and 7 years to pay the debt?

~~~
lucasjung
My understanding is that this is far more than just a sales tax: it is a 1%
tax on ALL financial transactions. Other proposed sales taxes to replace the
income tax, such as the fair tax, generally only apply to retail sales of new
consumer goods. This would go way beyond that.

Write a check to your nephew for his birthday? 1% tax.

Buy something used on eBay and pay for it on paypal? 1% tax.

Support a project on Kickstarter? 1% tax.

Get paid by your employer? They pay a 1% tax.

Sell some shares of stock A in order to buy stock B? 1% tax on the sale and
another 1% tax on the purchase. This one is HUGE: consider how many such
transactions occur on Wall Street each day. Such a tax alone could quite
likely destroy the high-speed trading industry. I'll let smarter people decide
whether that's good or bad.

Also consider that all of these cascade. For example: you buy a table and pay
a 1% transaction fee. The store paid a 1% transaction fee when they bought the
table from the manufacturer, a 1% transaction fee on the shippers who brought
it to the store, and a 1% transaction fee on their rent, utilities, and other
overhead. The manufacturer paid a 1% transaction fee on their raw materials,
1% to have those materials shipped, etc. I would imagine that this would
strongly encourage vertical consolidation in order to avoid these intermediate
transaction fees. Again, I'll let the economists figure out how good/bad that
is.

~~~
tptacek
Take the words "high-speed" out of that sentence and it will probably be more
accurate.

