RE: Volatility

[Brian Considine <bconsidi@xxxxxxxxxxx>]

		The idea of using taxes to regulate the economy certainly is
not new.  'Sin taxes' try to steer consumption away from 'sinful' industries
presumably to promote growth in the more 'God fearing' industries.
Likewise, the US Income tax has numerous deductions designed to promote
assorted industries, charities and even lifestyles (example promoting home
ownership over renting etc.).

		I don't understand why it would be necessary to destroy
money collected by the suggested taxes.  If the goal of the tax is to
regulate a certain area of growth, it would seem more logical to use the
taxes from 'bad' growth to lower taxes on 'good' growth....or to lower the
general overall tax rate.

		Brian



		-----Original Message-----
		From:	Harry Veeder [mailto:veed0001@xxxxxxxxxxxxxxxx]
		Sent:	Wednesday, April 05, 2000 1:06 PM
		To:	POST-KEYNESIAN THOUGHT
		Subject:	Re: Volatility


		----------
		>From: GGard97342@xxxxxx
		>To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
		>Subject: Re: Volatility
		>Date: Wed, Apr 5, 2000, 2:11 pm
		>

		>In a message dated 03/04/2000 15:52:44 GMT Daylight Time,
		>veed0001@xxxxxxxxxxxxxxxx writes:
		>
		>> Why does nobody (in government) ever consider taxation as
an instrument of
		>>  stock market regulation? A system of stock market taxes
would be effective
		>>  if they used the speed of electronic feedback rather
than relying on the
		>>  speed of human (eg. the FED) feedback. Such taxes could
deflate "bubbles"
		>>  before they "burst".
		>>
		>>  Harry Veeder
		>
		>
		>They do. In Britain it was called "stamp duty", but now has
another name as
		>well as  there is an electronic variety. The rate is
currently one half of
		>one per cent, and is on most transactions other than
government issues.
		>
		>May I remind you that in 1767 the American colonies
developed a strange
		>aversion form stamp duties. Do I take it that that aversion
is crumbling and
		>that we can expect a penitent US to apply for admission to
the Commonwealth
		>which has Queen Elizabeth II as head?
		>
		>Joking aside, I really think the colonists were right, and
stamp duties are a
		>hindrance to capital markets, and probably cause, not cure
instability.

		Yeah, economists must not waist their time considering such
an option.
		After all who can doubt the economic wisdom of a bunch of
American
		patriots with guns, not that the Crown was anymore
enlightened at
		the time.

		Joking aside, I doubt the stamp tax is designed to do the
thing
		I suggested because from what you say it sounds a) too broad
		and b) like it requires much human deliberation before an
alteration
		is considered. This is not how electronic feedback works.


		>In
		>Britain they are now in essence a tax on the savings of
ordinary people and
		>make the provision of pensions more expensive. But our
current Chancellor is
		>unlikely to abolish them as taxing the elderly has been his
ploy to eliminate
		>the government deficit.
		>
		>Geoffrey Gardiner

		I am forwarding some more thoughts on this subject
		that I exchanged with Henry C.K. Liu off line. I hope Henry
does not mind.
		The point is taxation can be designed to improve the quality
of growth
		without being an *overall* hinderance to the level of
growth.


		--------------------
		>
		>
		>Harry Veeder wrote:
		>
		>>
		>> Why does nobody (in government) ever consider taxation as
an instrument of
		>> stock market regulation? A system of stock market taxes
would be effective
		>> if they used the speed of electronic feedback rather than
relying on the
		>> speed of human (eg. the FED) feedback. Such taxes could
deflate "bubbles"
		>> before they "burst".
		>>
		>
		>Henry C.k. Liu:
		>
		>Interesting notion.  The politcal resistence would be
almost
		>insurmountable. In recent
		>decades, American phobia against taxes has become
bipartisan.  Secondly, tax rates
		>changes are much more cumbersome to effectuate than
interest rates in the
		>US system of
		>government.  Or are you talking about a new tax in addition
to income and
		>capital gain?

		No, I'm thinking of new taxes. Taxes aimed at certain areas
of the stock
		market which would automatically decrease or increase as
conditions
		improved or declined in the stock market. The government
would debate
		the purpose and design of a tax program but once implemented
they would
		be monitored by an independent body and their day to day (or
hour to hour
		or even minute by minute) adjustment would be largely
		automatic.

		The trouble is most contemporary economist simply don't even
consider
		taxation as a tool to regulate and promote growth. It is
simply a
		mechanism for legally taking money from people so that it
may be
		redistributed and reinvested.

		Taxation has become nothing more than a necessary evil and
economists
		spend their time advising goverment how the burden should be
distributed
		so that it will minimize harm to the economy and
individuals. Today, the
		idea that somes forms of taxation (without redistribution)
could promote
		growth would, at first, sound strange to workers, almost all
businessman,
		most politicians and many economists.

		For *these* taxes to implemented successfully, I believe it
is
		essential that the taxes not be kept as government revenue.
The money should
		simply be destroyed after being collected. It is only the
records of
		taxation that are important to keep. That way the tax has a
singular
		purpose.

		>The fact that the real cost of high interest rate falls
unevenly on
		>citizens, banks and
		>businesses is well observed by economists.  Generally,
under the US tax
		>structure, the
		>rich and the successful suffer least while struggling
businesses and low income
		>families suffer most through higher prices.
		>
		>The most structural aspect of economic inequality in the US
is the way Fed policies
		>interact with the US Tax code. Taxes are generally
deductable from income taxes and
		>interest deductions are more valuable to those with higher
income and
		>therefore higher
		>tax rates. A high income individual can recover as  much as
50% of his/her interest
		>payments in tax savings (70% if all his/her income is from
stocks and bonds
		>or incomes
		>from K-1 partnerships.)  The poor pay full freight on their
18% installment
		>interest
		>payments.  This problem becomes magnified as interest rates
rise.
		>
		>Obviously, the rise in interest rate adversely affects
those businesses
		>that are rate
		>sensitive, which exclude those in the new economy whose
funds come from
		>interest free
		>IPOs.  Most consumers are not deterred by interest rates in
their consideration for
		>major purchases, including homes, as current data show.
They look only at monthly
		>payment amounts.  The poor are priced out of the market
before the rich by rising
		>rates.  This is in fact a discrete system of rationing,
dictated not by the
		>unseen hand
		>of the market but by the unseen hand of policy.  This is
the most powerful
		>argument in
		>exposing the inconsistency between market fundamentalism
and monetarism.
		>The use of
		>high interest rates to moderate econmic growth is nothing
short of market
		>manipulatuion.  It is no different than price control or
demand rationing.
		>
		>The free market ethos of American politics considers
repugnant the idea of
		>government
		>ration of any commodity, in this case credit, and a system
that rations
		>credit in favor
		>of the rich and powerful is particularly offensive to
American populism.
		>It would seem that an alternative system to allocate credit
according to
		>need and/or
		>national piorities would reflect more truly the American
spirit, but alas, the US
		>political system is designed to discourage politicians from
taking on the rich and
		>powerful.

		I agree with everything else you say. Monetarism is a very
blunt instrument
		and too much is expected from it.

		Harry Veeder