An open letter on a creative idea to get citizens and politicians aligned on the task of Deficit Reduction.
An open letter to: Representative Dave
Camp, Chairman of the House Ways and Means Committee
Here’s an idea that would get all the taxpayers focused on the
deficit. It might even
increase consumer savings, curb the inevitable inflation and get more and more
voters intimately involved in government finance and deficit borrowing.
How would any one idea create so many miracles? Read on, dear congressman.
First, the Republicans would have to agree to a 10% tax increase
for ALL tax payers. Don’t
choke. There is a redeeming
feature. The feature is this: The
taxpayer would receive a 30 year government “deficit bond” equal to the 10%
increase he is forced to pay in taxes, but the interest rate would be 0%;
however, the interest rate would increase by X
(say 1%) for every Y (say 4%)
that the deficit decreases.
After three years or so, the 10% tax assessment would fall in
some proportion to the decline in the deficit.
The program ends when the government deficit reaches a specified
% of GNP.
Banks will make a market for the bonds to create liquidity for
people who can’t or don’t want to keep the bonds to maturity. Each series (vintage year) of bonds ideally
would have different interest rates based on the year of issuance and how
much the government debt had declined since issuance.
Want to reduce taxes? Get the deficit down and taxes
automatically reduce. Want to stimulate the economy? Get the deficit down and the value of the Deficit bonds
citizens holds goes up making them feel wealthy and motivating purchases. Let politicians compete for ways to
reduce the deficit because the average citizen sees a direct, financial impact
in doing so.
And if you are looking for a catchy name for these bonds, play
off the bonds called TIPS and call theses deficit bonds DIPS.
