Sat May 8 01:56:31 2021
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How To Save the Economy from the Coronavirus Depression. How to protect human life and the economy.
How a smart unspent income tax can stimulate economic growth, avoid recession and allow for temporary closures to stop virus spread while protecting businesses without
raising the national debt.
The world has been faced with an unprecendented threat from a deadly virus which does present a grave danger to the health and well being of millions. Multiple failures in response to the virus, and then response to the economic crisis, have worsened this situation well beyond what it should have been. What if there was a way to avoid the economic damage and allow a very fast recovery of the economy while at the same time allowing for measures that protect human life such as stay at home orders? What if there was a way to temporarily close stores etc to stop the virus spread while ensuring these businesses survive and the economy remains healthy? Thus helping to control the spread of the virus through gyms, theaters and so on, while at the same time ensuring these businesses remain health and survive? There is. If interested, read on.
The narrative has often been that dealing with the threat of the virus has involved a choice between protecting human life from the virus spread and the economy. That is, to stop the spread of the virus, had to involve damaging the economy with stay at home orders and business shut downs, and that it was an unavoidable situation that a stay at home order and a business shut down had to involve economic calamatity. There was no way to avoid the economic calamity, it has been shown. In response to this, many have therefore made the argument that the economic damage from business shutdowns would result in a worse economic effect than the virus. They argue it might be better to let the virus kill more people in exchange for less economic damage and people should tolerate such in order to prevent damage to the economy.
These narratives are oblivious to several key facts and seem to be mired in various limited assumptions and calculations.
As we will explain, it is importand and a key way to maintain the health of the economy is a Tax on unspent income. This tax will encoruage spending and allow the economy to recover at the same time allowing funding of programs to help closed businesses while not impacting taxpayers spending on essential goods and services. This simply involving taxing the income that people do not use for purchasing essential goods and services, rather than all of their income. It does not impact their spending on essential goods and services, or even a larger number of goods and services, thus it encoruages spending which will drive demand in the economy, thus counteracting a recession. It is NOT a wealth tax, just a tax on income however. We oppose wealth taxes, but this offers a better solution.
Such a tax involve withholding a certain percentage of income from paychecks on a weekly or monthly basis. But the withheld money would not be unavailable for spending. Instead, it would go into a special individual debit account. The previous weeks with-held income would go into a debit account. Individuals would recieve a debit card which they can use to spend money from that account on numerous goods and services, which could be food, medicine, and other goods and services. The remaining amount at the end of the next month after the month from which the income was withheld is then collected and can be used for various recovery programs such as to assist small businesses. The money provided to businesses from this tax, would also be subject to this scheme, either it must be spent or it is collected back to be recirculated through the program. This ensures money is constantly being recirculated. This program would assist businesses and their employees and would help to ensure their solvency while reducing the need for debt spending. The tax at the same time encourages spending, thus counteracting the effect of the recession, at the same time providing money to programs to aid and assist small businesses during social distancing shutdowns and recessions!
The effect this has is it encourages spending. This plan does not cut into the money that people are able to spend in the economy, it only reduces the amount of saving, which increases the amount of money circulating through the economy and increases therefore economic demand and activity.
How this plays into the virus situation is that this plan also could allow a way to be implemented to counteract the effect of temporary business closures. This program can be used to implement a scheme to maintain the health of employees and businesses during business shutdowns social distancing as long as necessary, protecting the economy without enormous deficit spending.
The businesses which people spend money at during a social distancing shutdown are closed anyway, so people generally will have less to spend on. Why not simply circulate the money through closed businesses, simulating the normal flow and action of money and spending in the economy? This could prevent and mitigate the effect of a shutdown, making it seem like it is not happening. The tax on unspent income used to fund such programs would help recirculate money through economy.
Another effect of social distancing shutdowns is dislocation of spending. Money is still being spent, but at different places. The effect of this can still be damaging to small businesses and cause economic problems. The tax on unspent income can be designed to discourage this by reducing the number of things the with-holding debit account can be spent on, to basics such as rent, food, utilities, medical care, etc. This is based on the concept that consumers are spending less money at certain businesses since they are closed and the income which would have gone to those businesses should be with-held and recirculated through those businesses in such a manner that they are able to maintain the same level of solvency which they had before and to ensure the survival of their employees. The tax on unspent income can be adjusted to prevent dislocations of spending from happening based on limits on what the debit account can be spent on and applying those limits to a certain percentage of the amount in the account or the entirity of it.
The concept may seem strange, but it should not because if we are going to spend money, it is better to pay for the spending which is justifiable for the health and well being of the general public by maintaining the economic health, as well as the health of the people by allowing virus spread to be eliminated.
The result of business closures can be a reduction in consumer spending. Many of the things which people want to spend money on are not available. Technically, people may be spending less money and saving more, therefore. One can ask the question, what if there was a way that we could simply ensure that money continues to circulate through small businesses which are temporarally closed? Even if a good or service is not being produced due to the closure, this would be desirable given that it would help maintain the solvency of these small businesses. The mode of thinking has been to engage in deficit spending to provide loans to such businesses or grants in order to keep them afloat. But since consumers are spending less money anyway, potentially, with some of the things they spend money on being closed, why not simply engage consumers in recirculating money through these temporarally closed businesses anyway? One of the issues is that consumers are not used to simply giving money to a business they frequently go to without a good or service being provided in exchange. While the idea may be absurd in a normal time, in an extenuating circumstance such as a virus situation where social distancing is necessary, such can help keep the economy alfoat. Unusual situations require unusual solutions and doing things which might seem bizarre in normal conditions.
Again, with many businesses being closed, the money which was spent to those businesses is no longer being spent, so the program just simulates the spending that would have happened by recirculating money through them.
What if the economy could be protected and the economic effects mitigated and prevented, while allowing a prolonged hiatus of business activity? In order to look at the options for this and how this could possibly be done, we have to understand some very basic economic concepts and the mechanisms behind why recessions happen, what causes them, and so on. By understanding that, we can understand how to prevent, mitigate them and reverse them better.
Recessions generally involve a decline in demand and consumer spending. The causes of this can many and varied, which brings this on. It can involve a multitude of things including consumer spending cycles and business cycles, as well as other events. Recessions involve a decrease in monetary velocity. Technically the money is still in existance. However, it does not change hands as often so there is not as much demand generation from it.
Consumers, are driven by numerous psychological factors and when faced with prospects of job losses, tend to enter a spending rather than saving mode. At the personal level, saving can be a wise decision to prepare people for future job losses and allow them to pull through a recession. At the macroeconomic level, it is what causes a recession to snowball out of control.
As consumers spend less, and as fewer persons are employed, spending is reduced. More money remains in bank accounts rather than being spent and recirculating through the economy. It is the spending of money, its circulating through the economy, which is what helps to create demand and jobs. So maintaining and increasing the circulation of money through the economy is what can help with economic recovery and maintaining the economy.
The concept of a tax on unspent income may revile some. But it is important to consider some facts. Generally both parties have few qualms about massive spending based on debt. Considering irresponsibility, such massive spending places a burder on future generations and thus does not take responsibility for paying for it. There are reasons that paying for it in the future may be desirable as paying for it involves taxes, which are thought to place further strain on already taxed and scared consumers.
A tax on unspent income is not a wealth tax, and instead would both spur economic growth, and also contribute money to stimulus and recovery programs.
If a tax could be designed to not cause a negative effect on spending, therefore, but actually encourage spending, it could both spur economic demand and help recover from a recession, while also providing revenue for stimulus programs. With the tax on unspent income, as consumer spending decreases, the amount for stimulus would increase while as spending increases, counteracting the recession, the need for stimulus would decrease along with the revenue for it this tax generates, so the tax adjusts sort of automatically according to economic conditions.
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