Hello James. Have you perused this article yet?
Cash and the 'Carry Tax'
by Declan McCullagh
10-27-99
WASHINGTON -- US currency should include tracking devices that let the
government tax private possession of dollar bills, a Federal Reserve
official says.
The longer you hold currency without depositing it in a bank account, the
less that cash will be worth, according to a proposal from Marvin
Goodfriend, a senior vice president at the Federal Reserve Bank of Richmond.
In other words, greenbacks will get automatic expiration dates.
"The magnetic strip could visibly record when a bill was last withdrawn from
the banking system. A carry tax could be deducted from each bill upon
deposit according to how long the bill was in circulation," Goodfriend wrote
in a recent presentation to a Federal Reserve System conference in
Woodstock, Vermont.
The 34-page paper argues a carry tax will discourage "hoarding" currency,
deter black market and criminal activities, and boost economic stability
during deflationary periods when interest rates hover near zero.
It says new technology finally makes such a scheme feasible. "Systems would
have to be put in place at banks and automatic teller machines to read
bills, assess the carry tax, and stamp the bills 'current,'" the report
recommends.
Goodfriend said in an interview that banks might place a kind of visible
"date issued" stamp on each note they distributed. "The thing could actually
stamp the date when the bill comes out of the ATM," he said.
Congressional critics say they would oppose any such move.
"The whole idea is preposterous. The notion that we're going to tax somebody
because they decide to be frugal and hold a couple of dollars is economic
planning at its worst," said Representative Ron Paul (R-Texas), a
free-market proponent who serves on the House Banking committee.
"This idea that you can correct some of the evil they've already created
with another tax is just ridiculous," Paul said. Other economists say a
carry tax is not a wise plan.
"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," says
George Selgin, a University of Georgia economics professor who specializes
in monetary policy.
"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," Selgin
said.
Goodfriend discusses an alternative: The Fed should at times prevent
Americans from withdrawing cash from their bank accounts. "Suspending the
payment of currency for deposits would avoid the cost of imposing a carry
tax on currency."
But he concludes that such a move would have "destabilizing" effects, and
recommends that the Federal Reserve instead "put in place systems to raise
the cost of storing money by imposing a carry tax."
The idea has been discussed before. Economist John Keynes mentioned the
possibility, but dismissed it because of the administrative hassles
involved.
Silvio Gesell, a Keynes contemporary and like-minded thinker, also suggested
taxing money to allow lower interest rates.
But Goodfriend says that technology has advanced since then. "In light of
recent advances in payments technology and the less-than-satisfactory
alternatives, imposing a carry tax on money seems an eminently practical and
reasonable way [to proceed]," he writes.
He said the Federal Reserve has technology that would make it "feasible,"
but refused to give details.
One reason for a carry tax, he says, is the reduced influence of the US
central bank when prices are not increasing and inflation is close to zero.
During such a period, banks are less likely to make loans -- even if the Fed
tries to spur an economic expansion through open market operations.
But if the government taxes the currency holdings of individuals and banks
through an occasional carry tax, they may be inclined to lend money even at
a negative interest rate in order to avoid holding on to it.
"This proposal is made well in advance of any problem we have in the US.
It's not an emergency proposal at this point," he said. The report says
Congress would have to pass legislation allowing such a tax.
For those that don't know, the Federal Reserve, which
"coins" money is a PRIVATELY owned business, not a government branch.
According to the United States Constitution, that is ILLEGAL, as only the
U.S. Government is allowed to "coin" money.
Further information on Federal Reserve Notes (look on your any of your paper
money, that is what they are called, not United States Notes.) All Federal
Reserve Notes are printed with an interest rate on them that YOU the tax
payer MUST pay, to have this privately owned business.
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