The 2% Policy is not designed to reduce billionaires taxes. The objective of the tax policy is to reduce the number of buyers in a market economy that is experiencing price increases of more than 2%. When prices are increasing more than 2% annually, people move from fixed income securities to hard capital assets. These new buyers increase demand in a market that already has too much demand. Excess demand is why prices are increasing.
The Idea of the tax policy is to encourage the holders of fixed income investments to stay in the debt securities so production has the time, and the money, at the lowest possible interest rate to increase supply to balance normal demand with supply. In this way we contain inflation expectation without raising cost. When the Fed causes, interest rates to rise, to encourage people to stay in fixed income securities, higher interest rates raises the cost of production and consumption. The Fed's monetary policy raises cost, slows down the economy, which creates unemployment, and less consumption from the bottom, and the middle of the economic ladder. The 2% Policy only stays in effect until the economy is experiencing 2% annual appreciation/inflation rates. After the economy returns to 2% annual appreciation/inflation rates, the tax rate on interest income automatically returns to it's previous rate, and the tax deduction of interest paid returns to 100%, to maintain demand.
You might think of the economy as an engine in a car. To make the car go faster, or slower you would give it more gas, or less gas. The amount of gasoline is the incentive for the motor to speed-up, or slow down. You would not raise the price of gasoline to slow the engine down.
Raising the cost of money to slow down an economy is also wrong. To slow down an economy that is overheating you need to reduce the number of buyers that are in the market place, and increase supply. You do not want to reduce buyers from the bottom, or from the middle of the economic ladder. You would want to reduce buyers from the top of the economic ladder first, because you want to maintain employment, to increase supply and maintain normal consumption.
The extra demand is coming from the top of the economic ladder when the economy is in the high appreciation/inflation cycle. Not from the bottom, or the middle of the economic ladder. We currently reduce demand from the bottom of the economic ladder first. There is a reason why this is occurring. It has to do with the income tax code. The tax code is structured to encourage people to hold their wealth in capital assets, and not in money (debt). This is fine during the recession cycle, or when the economy is in near balance, but if the tax incentives are continually applied to encourage people to hold capital assets as a store of wealth, the economy becomes too unbalanced, and then too much credit (money) is created in the private sector. High appreciation, and inflation rates begin to occur. And then inflation psychology is created (people protecting their money from inflation and taxation).
The more the economy becomes unbalanced, the more buyers from the top of the economic ladder enter the market place to increase their paper profits, to protect their money from inflation, to use the lower long term capital gains tax rate to lower their interest income tax bill, and to get a better return on their investment money. If this process continues for too long the banks start to make loans to unqualified buyers. The financial sector begins to make loans to unqualified buyers. Because of the high appreciation rates of the collateral, financial sector feels their loans are secure. They continue making riskier loans as prices increase further. It all comes to an end when nobody will increase the debt on the collateral, or people realize prices are not going to continue to rise.
The speculation and short term investment continues, because interest income is continually taxed at the highest tax rate, currently approximately 39.6%, and long term capital gains is taxed at 20%, or at a lower tax rate. Also interest remains 100% tax deductible for businesses, investors, and homeowners. And there is easy "paper profit" money to be made which is taxed at the lower tax rate if the investment is held for one year.
The 2% Appreciation/Inflation Taxation Policy would correctly stabilize the value of money (debt). The 2% Policy would decrease the ability of banks, and other financial institutions to create too much money (debt) during the high appreciation/ inflation cycle, because the 2% Policy would automatically change tax policy, thereby reducing the number of people that want to obtain more debt during the high appreciation/inflation cycle.
Instead of encouraging people to increase their debt, and reduce their savings rate during the high appreciation/inflation cycle, the income tax code would encourage people to save money, and hold debt as an investment, thereby reducing the amount of money being created during the high appreciation/inflation cycle, without creating more unemployment and a recession, or raising the cost of production and consumption, as the higher interest rate monetary policies of the Federal Reserve do now.
The lower long term capital gains tax rate also devalues money (debt) in the domestic economy. When you continuously tax high appreciation/inflation derived profits at a lower tax rate than interest earned on a money investment (debt), money becomes worth less and less, because of the return on investment. Money is worth less, because of the higher tax on interest income, and the purchasing power that the money (debt) is losing as prices increase during the high appreciation/ inflation cycle. Less and less people are willing to hold money as an investment, so they become a buyer in the economy, increasing demand in an economy that already has too much demand in it. When the Fed raises interest rates, the value of all the debt (money) that was created at a lower interest rate loses value, which can make a long term money investment risky. Because of interest increase risk, this requires long term debt (30 year mortgages, and other long term debt) to have a higher than necessary interest rate.
When the high appreciation/inflation cycle is occurring in an economy, money (debt) is losing purchasing power. The 2% Policy is a way for borrowers, and the government to partially maintain the purchasing power of money (debt) without raising interest rates excessively. If the private sector, and the government create too much money (debt), which creates inflation, and unsustainable asset prices, the debt investor, or the saver will pay a little less income tax, with the 2% Policy in effect, at the end of the year. At the end of the year the borrower will pay a little more tax, with the 2% Policy in effect. There will be no loss of revenue to the government, because the exchange in value will take place between debt investors/savers, and borrowers.
With the 2% Policy enacted, employment will be maintained while the economy balances itself, therefore the States and Federal Governments will have less social expenditures maintaining the safety net, such as unemployment insurance, welfare, medical payments, food stamps, and many other programs that help people when they become unemployed, or if they cannot earn enough money to maintain a reasonable standard of living.
All people and businesses would be included in the 2% Policy. The same as they are when interest rates change. All debt investors, savers and borrower would be affected by the 2% Policy. It is more important for a capitalist economy to have stable interest rates than the tax deduction of interest cost. After the economy slows down, all the stimuli the tax code has in it, to invest in capital assets, will return as the tax rate on interest earned on savings, and money investments increases to their previous tax rate, and the interest deduction becomes 100% tax deductible again. The tax code could include a tax credit equal to the tax deduction if the interest paid on the loan is paid on a loan used to increase the supply of a product, or housing during the high appreciation/inflation cycle.
If we want to make the financial sector more stable, the interest deduction, for lenders, should be reduced as the appreciation rate increases, so they will do less short term loans to finance long term loans. This change in our tax code will encourage the financial sector to make more loans by using capital obtained by stock sales. Using short term loans to finance long term debt can cause a financial crisis, as short term interest rates rise higher than the interest rate the long term loan is earning.
The debt investor, and the saver is as important as the borrower in a Capitalist economy. They both should be taxed appropriately depending on which cycle the economy is experiencing. It is important to note in which economic cycle people are saving and investing in money (debt) and then automatically have the tax code change.
As the high appreciation/inflation cycle progresses there is an exchange of value between the asset purchaser and the debt investor. The debt investor is losing purchasing power and the asset purchaser is gaining purchasing power.
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