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Edition 01 :16 May, 2013.

(VERSION EN FRANÇAIS PAS DISPONIBLE)

Summaries of monetary reform papers by L.F. Manning published at http://www.integrateddevelopment.org.

NEW The Chicago Plan Revisited Version II: An insufficient response to financial system failure. (Posted 11 May, 2013.)

NEW Analysis of Jackson, A., Dyson, B., Hodgson, G. The Positive Money Proposal – Plan for Monetary Reform,

Capital is debt.

Comments on the (Jaromir Benes and Michael Kumhof) Chicago Plan Revisited Paper.

DNA of the debt-based economy.

General summary of all papers published.(Revised edition).

How to create stable financial systems in four complementary steps. (Revised edition).

How to introduce an e-money financed virtual minimum wage system in New Zealand. (Revised edition) .

How to introduce a guaranteed minimum income in New Zealand. (Revised edition).

Interest-bearing debt system and its economic impacts. (Revised edition).

Manifesto of 95 principles of the debt-based economy.

The Manning plan for permanent debt reduction in the national economy.

Missing links between growth, saving, deposits and GDP.

Savings Myth. (Revised edition).

Unified text of the manifesto of the debt-based economy.

Using a foreign transactions surcharge (FTS) to manage the exchange rate.

(The following items have not been revised. They show the historic development of the work. )

Financial system mechanics explained for the first time. “The Ripple Starts Here.”

Short summary of the paper The Ripple Starts Here.

Financial system mechanics: Power-point presentation.

This work is licensed under a Creative Commons Attribution-Non-commercial-Share Alike 3.0 Licence

WHAT ABOUT A TAX CUT FOR THE POOR?

By Lowell Manning

Sustento Institute,

Christchurch,

New Zealand.

16^th May 2013.

Email: manning@kapiti.co.nz or bakensverzet@x4all.nl

Edition 01 :16 May, 2013.

“Trickle down” has long been the catch-cry of the world’s rich and powerful – the “1%” of the “Occupy” movement. “Reduce our taxes”, they say, and everything will be just fine. More consumption and productive investment by the rich will lead to more growth, more employment and more taxes paid by the “99%” .....

After 30 years of failure, just about everyone knows from experience that “trickle down” doesn’t work.

It’s a crying shame nobody has tried “trickle up”. It would literally make a world of difference.

“Trickle-down” was a lie from the beginning. The rich are already “consumption saturated”. They don’t consume more because they get another tax break. They don’t invest in more production when there’s no new consumption. There are no new jobs. There is no new income growth. There is no new tax revenue. Just more government deficits, more price manipulation, more tax havens and trillions more dollars of tax evasion.

“Trickle down” was designed to enrich the “1%” and bankrupt government. The conservative US lobbyist tax reformer and founder of Americans for Tax Reform Grover Norquist is said have claimed the purpose was to make government so small “it can be drowned in a bathtub”. Smaller government means more corporate power, more corporate profit and more inequality. It means more corporate ownership of the commons and of our children’s future.

Could “trickle up” be the opposite of “trickle down”? Could “trickle up” do what “trickle down” failed to do? “Trickle up” might be a bit more difficult to implement in the US that has, to paraphrase film maker Francis Megahy (2009), the “best government [for the rich] that money can buy”, but it should still be possible in countries like New Zealand that retain some semblance of democracy.

To picture what “trickle up” might look like in New Zealand, imagine that everyone earning less than $15/hour (all dollar references here are to the New Zealand dollar) gets a $1.25/hour tax rebate and everyone earning between $15/hour and $22/hour gets a lower tax rebate, starting at $1.25/hour at $15/hour and reducing to zero at $22/hour, which is 80% of the median wage. That would “cost” the New Zealand government about $1.25 billion/year. And suppose, at the same time, the New Zealand government gave a similar wage-based tax rebate to businesses to invest in new productive capacity. $1.25 billion might not sound like much for that purpose but it would have added 60% to New Zealand’s net new capital investment in 2012. The total “cost” of the rebates would then be $2.5 billion/year.

That “cost” is not a business cost so it does not add to prices. It is a tiny amount compared to the vast sums already given to the rich whose top tax rates have fallen steadily in New Zealand in recent decades. And it is infinitesimal compared with the staggering amounts used for “quantitative easing” around the world (but not in New Zealand) that have gone into the pockets of the banks and the rich without doing anything to get the world economy back on its feet.

In New Zealand the “trickle-up” rebates would be paid out by slightly amending the existing ongoing Pay as you Earn (PAYE) tax returns and could be funded from taxation or even by printing new money as major countries like US, Japan and the EU are now doing to the tune of trillions of dollars each year. Other countries may need to find alternative solutions.

The rebate given to businesses in New Zealand would create about $1.25 billion (0.6%) of new GDP but the “trickle-up” rebates provided to low-income earners would truly be magic. If just one quarter of them were used for spending and the other three quarters for paying down debt or for saving, the little bit left over would still increase New Zealand’s gross domestic product (GDP) by $6 billion or about 3%. For full details on the recirculation of funds in the productive sector to form GDP see DNA of the debt-based economy at www.integrateddevelopment.org.

Here’s the secret.

Economic output forming GDP is produced using a very small amount of the total money supply that is recycled many times a year. All the rest of the money supply in the banking system, about 95% of it, is either hoarded in bank accounts or used to buy and sell existing assets. In New Zealand, about $11 billion is used about 18 times a year to generate its $ 200 billion GDP. For more details on this see the interest-bearing debt system and its economic impacts at www.integrateddevelopment.org

A net amount of $0.33 billion circulating 18 times in productive transaction accounts will produce $6 billion or 3% of new GDP. Togther with the $ 1,25 billion from business investments that’s an increase of $7.25 billion/year altogether compared with the nil result from “trickle down”.

But there’s more.

In New Zealand, income tax, company tax, Goods and Services Tax (GST) and excise taxes together come to about 40% of GDP. 40% of $7.25 billion new GDP (the $6 billion from the tax rebates plus the $1.5 from new productive business investment) is $2.9 billion. The government would get back more in new taxes than it initially pays out for the rebates.

“Trickle up” costs the government ......... nothing.

The country gets 3.6% extra GDP and about 600,000 New Zealanders, which is the number of full time equivalent (FTE) income earners in New Zealand earning less than $22/hour, together with nearly all businesses are better off.

There’s still more!

Assume just for a moment the 3% new GDP growth from the individual tax rebates is “jobless” and arises from “slack” in the economy and from improved productivity. The remaining 0.6% new GDP from business investment would still create jobs, reducing unemployment by roughly 0.6%/year. New Zealand’s unemployment rate is a little over 6%. There would in any case be little unemployment left over in New Zealand after 10 years.

“Trickle up” would go a long way towards eliminating unemployment in New Zealand. In principle this would cost nothing, though the situation is more complicated than that in practice because people have to be matched with jobs, and that would take training and time.

Usually, if something looks “too good to be true” it is “too good to be true”. In this case, the whole world has been brainwashed for decades into thinking “trickle down” when it should have been thinking “trickle up”.

There’s a new world waiting out there. All it needs is a tax cut for the poor.

Let’s trickle up!