[Company Logo Image]

Home | What's New | Feedback | Help

National government debt thought model

Q. Why does the government carry a debt? If the government needs more money, why not just raise the tax rate? How do we determine how much government spending is the right amount?

A. There are two segments to the economy: the profit making segment which supplies products for individual consumption and the non-profit segment which is funded by government to provide services used in common by all citizens.

I believe the money used by government removes money from the profit making segment of the economy and therefore reduces the size of that segment. So, government should just print the money it needs rather than use tax money. But, that would increase the money supply which causes inflation. So, we can impose a national sales tax (Inflation Tax) to remove the excess money from the profit making segment of the economy when prices start to inflate above the target amount for any given product class. We just un-print the excess government money.

The majority of government operational funding would be derived from a Progressive Personal Income Tax for normal government operation and subsidizing low income workers to a Living Wage level. A National Sales Tax would be used in place of the national Business Tax to fund a Full Employment policy and to subsidize health insurance for low income workers.

The Inflation Tax would remove excess money from the economy whenever government spending exceeded the level required to ensure Full Employment. Whenever the Inflation Tax rate exceeds the National Sales Tax rate, we increase the Personal Income Tax rate structure to further remove excess money from the consumer segment of the economy.

Rather than print money, the Federal government would borrow from the Federal Reserve at a preferred rate. The Federal Reserve could use a dual rate structure to manage the ratio of the two segments of the economy: one for government loans and another for business loans managed by the banking system. Government would need to balance the budgets each year and keep interest on the national debt to a fixed low percentage of the operational budget (say 5%).

Send mail to webmaster@KwBSolutions.com with questions or comments about this web site.
Copyright © 2006 - 2015 Knowledge Based Solutions