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Just as I was in the beginning of my professional career in Washington
in 1960 and remain a supporter of a negative income tax as an expedient
for closing the purchasing power gap in society, I would not oppose Rodney's
Step 4 (the Social Credit tool of "debt-free
money in a counter-inflationary situation for public basic income")
as a temporary but less
attractive expedient for raising the purchasing power of the unemployed,
the disabled and the poorest members of society. Binary economics
and the Capital Homestead Act involves radical bottom-up transformation
of the legal, finance, tax and monetary systems to make such expedients
unnecessary. Thus, I wholeheartedly endorse all Rodney's other six
"Steps To Justice".
Control over money and credit is
the key over who will enjoy economic independence and a definable share
of economic power in the future. Thus, decentralized control over
money and productive credit is the key to a more humane, peaceful and just
global economy that will sustain freedom, democracy and individual well-being
for every member of human society.
To achieve these goals in a politically
realistic manner, here is a brief proposal to inject bottom-up binary monetary
reforms (through individual Capital Homestead Accounts in local banks and
financial institutions) into the soon-to-be-bankrupt America social security
and medicare system:
SAVING THE SOCIAL SECURITY SYSTEM
By Norman G. Kurland
May 13, 2001
Social Security is a system built
to collapse. The Capital Homestead Act (CHA), a new, comprehensive national
ownership strategy proposed by the non-partisan Center for Economic and
Social Justice, would save the system, directly addressing three of the
system’s most serious structural flaws:
(1) Social Security is a pay-as-you-go
system and has no productive assets to stand behind the government's mounting
promises. As such, it is frequently compared to a Ponzi or pyramid
scheme.
(2) An unhealthy generational political
split is inevitable between workers and Social Security recipients.
Potential beneficiaries are growing larger in number. 75 million
baby boomers will soon join their ranks. The working population who
pay into the system (and whose payrolls are taxed from dollar one) is shrinking
in proportion to the recipient population. In 1935, when the program
was first launched most Americans died before reaching the eligible Social
Security age of 65, and the burden ratio was roughly 25 to 1. Now
the burden ratio is about 3 to 1, putting more and more dependents on fewer
and fewer backs.
(3) The rich are largely exempted
from sharing in this mounting burden. Not only is there is a cap
on salaries taxed for the so-called trust fund, but also there is no tax
on incomes from dividends, interest, and capital gains to support social
security. The present program is a good example of regressive taxation.
A disproportionate burden falls on the poor, relieving high-income workers
and the wealthiest Americans of the responsibility to meet the nation's
promises to poor and middle-class workers.
How would the Capital Homestead Act
(CHA) address these structural flaws in the system?
First, under the CHA we would keep
all benefit promises previously made. We would take measures to increase
the sources of taxes to cover the promises. The CHA would also offer
an asset-backed supplement for retirement incomes not dependent on redistributive
taxation or the Wall Street gambling casino. It would stabilize any
future promises made at present levels. This would tend to “flatten
out” the rate of increases in benefit levels, while increasing funding
for current promises. Revenue sources would be shifted from the regressive
12.4% payroll tax on all wages below $72,600, to general tax revenues paid
from all sources of consumable income over a poverty level. Incomes
below $10,000 for each adult and $5,000 per child would be exempt.
Incomes from dividends, interest and inflation-indexed capital gains would
be fully taxed at the same rate as wage and salary income. Above
the poverty level, the rich and non-rich would pay a single rate calculated
to balance the budget and perhaps pay down a portion of the national debt
over 20 to 30 years. Thus, property incomes and a removal of the
income cap would help increase revenues to prevent bankruptcy of the social
security system.
Second, the Federal Reserve System
would employ its Section 13 discount powers so that member banks could
make low-interest, asset-backed, “non-recourse” Capital Homestead loans
to enable every U.S. citizen to invest in newly issued, full dividend payout,
full voting power shares of "eligible" private sector corporations.
Such shares would finance the nation's annual growth needs for new technologies,
new plant and equipment, new rentable space and new infrastructure.
Democratized capital credit would also free economic growth from the “slavery
of past savings” or government subsidies. Over two trillion dollars of
new productive assets were added to the U.S. "capital tree" in the year
2000, or over $7,500 for every man, woman and child in America. Let's
see what would happen if the Federal Reserve System "monetized" that growth
through insured Capital Homesteading loans. Each citizen could borrow $3,000
yearly from local banks and financial institutions to invest in private
sector shares representing about one-half of the real productive growth
of the economy. Under this national strategy, a child born today
could retire at age 65 with a Capital Homestead equity stake of about $200,000,
yielding a "second income" of $30,000.
This scenario assumes no increase
in America's capital growth rate, $3,000 borrowed annually from local banks
at an unsubsidized 3% “pure credit” borrowing rate for purchasing the newly
issued Capital Homestead “growth” shares, no increase in share values,
and a 15% annual pre-tax, pre-dividend return on investment as the sole
source for repaying the stock purchase loans. When the trillion dollar
capital “growth pie” is spread among all citizens, however, growth rates
will probably increase. This would lift the American economy from
the inherently inflationary and feudalistic "wage system" to a more inclusive
and more participative market economy, with much less pressure for redistributive
taxation.
One method for democratizing access
to Capital Homestead loans is to allocate to each citizen and every member
of his family an equal amount of Capital Homestead loans periodically (e.g.,
quarterly) based on periodic estimates of real demand for capital credit
from private enterprises. The citizen could then go to his or her
local bank, where the citizen would receive investment advice. The
bank would set up a “Capital Homestead Account” (similar to an IRA).
This would receive on the citizen’s behalf periodic loans from the bank
for the purchase of “eligible” full voting, full dividend payout shares
issued by “qualified” private sector enterprises in need of capital for
expansion, modernization or for purchasing outstanding shares from present
shareowners. The citizen would have the choice to invest his allotment
of credit among shares of (1) the company for which a member of the family
works, (2) a company, like a utility or transit system, in which he is
a regular customer with a regular billing account, (3) a Community Investment
Corporation for developing land and infrastructure in his local community
or region, or (4) a diversified blend of mature companies with proven records
of profitability and sound management. Before taking the loan paper
to the discount window of the regional Federal Reserve Bank for monetizing
at a discount rate of 0.5% (representing a Fed service charge), the local
bank would have the option of self-insuring the loan or insuring against
loan default with a commercial insurer of Capital Homestead loan paper.
Loan default reinsurance, preferably offered by the private sector, would
further spread the risk of default. Debt service, including risk
premium charges, on each loan received by the citizen’s Capital Homestead
Account would be repaid from future pre-tax dividend distributions paid
by each of the companies that issue the Capital Homestead shares.
The projected annual yield from the
proposed Capital Homestead program requires no reduction in take-home pay,
savings, or consumption incomes to purchase "eligible" shares from "qualified"
companies. No taxpayer subsidies would be required. All borrowings
could be insured privately against each issuing company’s risk of default,
using the “risk premium” included within each individual loan to sustain
the insurance pool. Such insurance represents a private sector solution
for overcoming the collateralization barrier for the poor and middle-income
borrowers who have no assets to pledge and who would otherwise have no
access to capital credit on the same basis as the rich and super-rich.
It should be noted that this alternative
for financing America's future investment assets would produce higher annual
incomes than most Social Security beneficiaries earn today. If properly
implemented within economically feasible ventures, there would be no harmful
inflationary effects to the economy, and future prices of U.S. goods and
services would be more price competitive in global markets because of the
"new social contract" offered workers under Capital Homesteading.
In fact, these reforms would stabilize the value of the U.S. dollar since
there would be real productive assets backing the U.S. currency, rather
than non-productive government debt paper as is the case today. Applying
the political and economic wisdom of Abraham Lincoln’s Homestead Act to
the development of America’s 21st century technological frontier, Capital
Homestead reforms would level the playing field for all citizens to gain
a real opportunity to acquire income-producing capital assets.
For more details, see “The Capital
Homestead Act: National Infrastructural Reforms to Make Every Citizen a
Shareholder”, an occasional paper published by the Center for Economic
and Social Justice, P.O. Box 40711, Washington, D.C. 20016, Telephone:
(703) 243-5155. This and other relevant papers of CESJ can be retrieved
from CESJ’s web site at http://www.cesj.org.
Rodney Shakespeare wrote:
Dear
Monetary Reform members, Dan
Parker says that Thoren advocated private production investment through
the private banks (which have borrowed the money from the government at
low rates). This has
some similarities to binary economics EXCEPT that the biggest thing of
all is missing -- widespread private ownership. This sort of
omission always amazes me becasue it assumes that jobs are sufficient,
reliable and everybody can work (which is all untrue). When will
people understand that, since jobs are never enough and taxation redistribution
will always be strongly resisted, the only way forward is by wide capial
ownership? I have to say bluntly to Dan that reading alleged outlines
of binary economics is not satisfactory -- indeed, they are often put out
by opponents. He should get a copy of Binary Economics -- the new
paradigm from Amazon.com for $25.50. Dan
also says that Thoren also advocated direct government spending on public
production investment. Again, this is interesting and may (but I
cannot be sure) be similar to Step Two in Seven Steps to Justice by Shakespeare
and Challen. The book includes binary economics as Step Three, interest-free
loans for small business as Step Four; debt-free money (in a counter-inflationary
situation) for public basic income as Step Five (similar to Social Credit
dividend); special attention to the position of the world's women as Step
Six and Norm Kurland's Abraham Federation plan for the Middle East and
Kashmir as Step Seven. The
Seven Steps contains a complete solution containing the Social Credit proposal
as a part of the whole. Dan
is also misunderstanding completely binary economics and the Seven Steps
in that he does not realise that, in practical terms, they ensurte that
all individuals (whether in the 'work' eocnomy or not) have individual
ownership. I an only conclude that, in reading, say, a summary of
binary economics, he has read something put out by those who are determined
to retain the present narrow distribution of ownership. I
should also add that A lot of COG discussion is about employee ownership
BUT binary economics and the Seven Steps contain the proposals and mechanisms
for enabling EVERYBVODY to have two basic ioncomes, one of which comes
from individual cpaital ownership whter or not the person is in the 'work'
economy. Rodney
Shakespeare.
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