Skip to comments.German economists: make the rich buy bonds
Posted on 07/17/2012 3:32:54 PM PDT by Lorianne
A respected German economics institute has suggested that wealthy people be hit with a capital tax, some of which they could get back with interest. Such a move could raise around 230 billion, it said.
The German Institute for Economic Research (DIW) suggested that those with a substantial private fortune be forced to hand over 10 percent of what they have over 250,000.
This would hit the richest eight percent of the population and would not lead to the feared reduction of consumer demand, it said.
The tactic could be adopted to raise money in crisis-hit countries across Europe, the DIW said in a statement.
Leaning on large private fortunes could stabilise state finances in Europe, said DIW expert Stefan Bach. The idea could be an important step towards consolidating public budgets, and make growth-promoting reforms easier, he argued.
Bach said private fortunes in the eurozone countries are greater than the state debts in Greece, Spain and Italy.
The DIW said fighting the current crisis with state money can only go so far, as most is tied up in infrastructure, the sale or privatisation of which only yields short term liquidity.
The private sector must become involved. There are many historical examples of mandatory bonds and one-off capital levies, Bach pointed out.
He said high personal allowances would be set to prevent people being impoverished and the fortunes of companies would be protected to ensure smaller firms were not left unable to pay bills.
The DIW has calculated that all personal fortunes above 250,000 per person in Germany equals around 92 percent of the country's gross domestic product.
"If the people deliver ten percent of this excess value, it could produce nine percent of the gross domestic product around 230 billion," he said. "With that one could bring the German debt down significantly closer to the Maastricht limit of 60 percent."
He said it was difficult to provide a clear estimate of what private fortunes would be worth for crisis countries because figures were not as reliable, but statistics showed they were clearly more than what the governments owe.
The advantage of a capital levy would be that those affected would find it more difficult to avoid than ordinary taxes. Combining it with mandatory bonds would also create the possibility of repaying some of the money, which would reduce opposition to the idea.
Particularly in European crisis countries, a levy and mandatory bonds would be a sensible option and a signal for lender countries and funds that one was trying everything at home to secure their state financing," the DIW said. "And at the end of the day it would also work against the inequality that has clearly increased.
So, what do they do next week when they’ve used up all these funds?
Whenever a German suggests that anyone be ordered to do anything, it makes me nervous.......
Is there any difference between forcing those with money to buy bonds, and the notion floated awhile ago for the feds to take over retirement accounts?
Okay, just checking...
You got it. Make “the rich” do a whole bunch of things that lead to them giving their money to the state rather than a flat out tax.
Next, they’ll move to what Emperor Justinian used to do — make the rich leave their fortunes to the federal treasury in their wills. And then kill them.
So...the Germans have never heard of Bermuda, Costa Rica, Jamaica, Palau, Antigua...or a dozen other warm, sunny places where they like to have rich people come and they let them spend their ample resources however they see fit?
If the rich people have a proportional say in government spending according to their bond purchases then this might actually be a good idea.
Run government like a corporation. Let the CEO answer to the share holders...ie the bond holders in this case.
Sometimes I amaze myself with what pops into my head. This might be one of those times. I’m still mulling it over.
Arthur Laffer must be shaking his head a lot right now, in utter amazement at the stupidity and foolish greed.
The Laffer curve states that when a form of taxation rises beyond a particular point, those who are taxed will divert their money to less taxed income.
I could add that the very worst, least effective taxes of all are “wealth” taxes. The last dictator foolish enough to do this was Mussolini. It causes economic catastrophe.
Conversely, it you want the wealthy to contribute more to the economy, as well as pay more in taxes, you must first care more for greater revenue than you do for punishing the wealthy.
The way to do this is to encourage investments that increase national productivity, like research and development, capital outlays for infrastructure and business expansion, etc. At the same time, discourage investment that is more like gambling and does not stimulate the economy.
This simple reason for this is that trying to squeeze money out of the wealthy, even if it works, is far less profitable to tax revenue than if that money is leveraged to improve the economy.
Wealth taxes do requires very heavy handed approach, a police state, because wealth is easier to hide than income. Governments can measure income relatively easily because most people are paid in registered money such as checks or direct deposit.
Wealth can be converted to less traceable stores of value such as collectables, gold, diamonds etc. When cash is used to purchase these type of assets, the paper trail fades. So, many EU governments have sought to restrict cash and the purchasing of gold. But ultimately, the elimination of cash and hard currency and its equivalents will take more agents and government informants.
As far as the SC ruling is concerned, I could see a requirement to hold a certain percentage of Treasuries in all pension plans. Even better reason to buy physical gold at a coin show with cash.
This is what’s going to happen to all the “rich” 401Ks in this country. They’ll give out “Patriot Bonds” in exchange for a promise of maintaining a “Patriot Trust Fund” of IOUs.