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Bradley Jansen “The Carry Tax Proposal” Austrian Scholars Conference Mises Institute March 14, 2009

What Is A Currency Carry Tax?

A carry tax is a penalty for anyone who prefers to hold money instead of depositing it in a bank. The longer money is held, the greater the tax burden. In order to impose such a tax, a form of data collection device must be attached to currency.

Implementation Of Carry Tax

Tax on holdings of reserves at banks and other financial institutions Tax directly on currency notes including those held by individuals

Origin of the Carry Tax Idea
John Maynard Keynes (1883-1946), included idea in General Theory Silvio Gesell (1862-1930), German-Argentine businessman/monetary author George Nordman, Swiss merchant

Irving Fisher
Stamp Scrips 1933 http://userpage.fu-berlin.de/~roehrigw/fisher/
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The Bankhead-Pettengill Bill Feb 17, 1933

Rebirth of Carry Tax Idea

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Marvin Goodfriend, Richmond Federal Reserve (1999) http://www.richmondfed .org/publications/research/working_papers/2000/pdf/w pdf Expounded in a later paper http://www.richmondfed.org/publications/research/wor pdf

US Rep. Ron Paul Reaction Against Goodfriend

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"Currency 'Carry Tax' Prohibition Act of 1999," HR 3399 (1999) & H.R. 2777 (2003) Dear Colleague letter, Feb 3, 2000 Hearing on the Production and Protection of the Nation's Money, March 28, 2000 http:// financialservices.house.gov/banking/32800pau. htm

George Selgin

Reaction Against Goodfriend
"This is going beyond taxing banks for holding reserves. It's taxing the public for holding currency too long. That's even more wild an idea. There are sweeping implications of these suggestions beyond whatever role they might play in thwarting a deflationary crisis... I think it's a very dangerous solution to what may be a purely hypothetical problem." http://www.wired.com/politics/law/news/1999/10/32121

Lew Rockwell

Reaction Against Goodfriend
“Really, this plan amounts to a kind of internal currency control--a tactic typical of totalitarian governments. In the case of FDR, his confiscation of gold nullified all gold contract and nationalized the money stock. As Thomas P. Gore told FDR at the time, ‘Why, that’s just plain stealing, isn’t it, Mr. President?’ It would be stealing, too, if the Federal Reserve taxed and penalized Americans merely for holding on to dollars for too long at a time. In the broader context, this trial balloon is all part of a long running war on bank privacy and cash, as explained by Richard Rahn in The End of Money and the Struggle for Financial Privacy. It is precisely the war on bank privacy that causes so many Americans and people around the world to want to hold and deal in cash, and long for the day when money goes completely cyber.” http://mises.org/story/324

Carry Tax Idea Percolating
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Bruce Champ (April 2008) Willem H. Buiter (June 2005); Willem Buiter and Nikolaos Panigirtzoglou (Oct 2003) Evan F. Koenig and Jim Dolmas (July/Aug 2003) Stuart Sayer (2002) Tony Yates (October 2002) Ralph C. Bryant (Nov 99)

Bruce Champ

Economic Commentary Stamp Scrip: Money People Paid to Use April 1, 2008 http://www.clevelandfed.org/Research/commentary/20

Willem H. Buiter

Overcoming the Zero Bound on Nominal Interest Rates: Gesell's Currency Carry Tax vs Eisler's Parallel Virtual Currency June 2005 http://hi-stat.ier.hit-u.ac.jp/research/discussion/2005/p

Evan F. Koenig and Jim Dolmas
Issue 4, Southwest Economy, Federal Reserve Bank of Dallas, July/August 2003 Monetary Policy in a Zero-Interest-Rate Economy

http://www.dallasfed.org/research/swe/2003/swe030

Stuart Sayer
Monetary, Financial and Macroeconomic Adjustment Policies: An Overview Journal of Economic Surveys, Volume 18 Issue 3 (2002)

http://www3.interscience.wiley.com/journal/118789548/abstra

Tony Yates
Monetary Policy and the Zero Bound to Interest Rates: A Review October 2002 http://www.ecb.int/pub/pdf/scpwps/ecbwp190.pdf

Ralph C. Bryant

Economic Policy When the Short-Term Nominal Interest Rate is Stuck at the Lower Bound of Zero Ralph C. Bryant, Senior Fellow, Economic Studies, Global Economy and Development, The Brookings Institution http://www.brookings.edu/papers/1999/11globalecon Abstract Nov 99

Current Environment
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Lack of fiscal discipline Federal Reserve Board Chairman enamored by Great Depression ideas President deferential to FDR Dismissiveness of free market critiques

Bank Reserves

TARP and other federal bailout money largely going to financial holding companies--not necessarily to banks to be used for lending PROBLEM: banks increasing reserves and not lending all of the bailout money POSSIBLE SOLUTION: introduction of currency carry tax

Federal Reserve Notes
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Potential for “hoarding” and not spending fast enough Impose "carry tax" on cash Imbed a magnetic strip as a tracking device Visibly record note when withdrawn from banking system Deduct tax when note deposited

Big Brother Surveillance Questions

Government could monitor private relationships through currency transactions Complement to Bank Secrecy Act anti-money laundering policies on checking, etc. Marketed as anti-counterfeiting measure

Why Current Concern
Advertised as solution in order to stimulate stagnant economic growth in an environment of stable or falling prices and nominal short-term interest rates at or near zero Technology now available to implement

Glass Half Empty?
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Lower reserves at banks Increase governmental control of economy and private sector New surveillance of money

Glass Half Full?
Reduce desirability of FRNs  Increase skepticism of Keynesian ideas  Increase desirability of government money alternatives such as gold

Bjansen@financialprivacy.org
202-742-5949 ext. 101 www.financialprivacy.org