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Revival of an Economic Debate From 100+ Years Ago

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The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

By Steve Brown…

Article is light on detail:

https://www.foxbusiness.com/politics/billionaires-tax-would-take-aim-at-unrealized-gains-on-assets-most-profitable-corporations

.. but signals a potential revival in the populist ideal recommendation to tax Economic Rents.

What does taxing economic rents mean? It means taxing the difference, for example, between Amazon’s book value and its market value. Amazon’s book value is about $200 per share but its share value is $3.5K per share. So under the plan, billionaires and corporations will be taxed on the difference between Amazon’s book value and its share value, ie taxed on $3300 approx per share, as it presently stands… even when those gains have not been realized. Sort of like capital gains without seeing the gain.

The prospect for taxing economic rents was controversial over one hundred ago, and a major topic of public debate coincidental with the Free Silver Movement, and William Jennings Bryan’s socialist movement, which ended with the onset of World War 1. There has still been an underlying debate about economic rents among economists (or those who call themselves so) and lawmakers ever since, argued over many years.*

In other words, MMT Democrats are reaching back to the ancient days of William Jennings Bryan to revive the old debate about taxing economic rents. Sure, we all know about capital gains. But the move to tax billionaires (not that I have any sympathy for them) on their unrealized profit takes capital gains tax to an entirely new level. And where would that end? Such a tax could eventually extend to all of us, regarding unrealized gains on property such as homes and land, or even owning a valuable collector car! Although bitcoin profits are largely opaque, taxing crypto for unrealized gains could be included. Whether billionaires are targeted or not, in a strictly moral sense, it seems unfair to tax anyone on unrealized gains.

As for the possibility of this tax measure passing in an oligarchic plutocracy? Not bloody likely. Appears this is grandstanding and show by Democrats…. as impressive as AOC parading around in a $250K ‘Tax the Rich’ frock. Even so, such grandstanding may spook the markets. Such a measure, if passed, will likely engender a stock market crash, which is being forecast by some doomsayer analysts.

Question as always is: in a REAL stock market crash, where will trillions upon trillions in liquidated US share dollars go? Of course into cash, and perhaps some into crypto. In bonds, the US bond market will be skewed to nominal negative rates** if trillions in inflationary dollars go there, but perhaps provide relief to banks’ need for overnight repos. But the Fed cannot allow liquidated Wall Street share trillions to suddenly flood an already QE’d MMT bond market, unless the Fed hopes to reduce its bloated balance sheet. But for the Fed to reduce its balance sheet (sell bonds to liquidate cash) would panic share markets even further. And precious metals/commodities of course cannot and will not be allowed to absorb suddenly liquidated share trillions.

So, one potential for a market crash might result in a somewhat juiced treasury market, with the bulk of liquidated funds remaining in Primary Dealer cash. In that case the Fed must take extraordinary measures to prevent liquidated share dollars from entering general circulation. What measures can the Fed take? Crypto could accept trillions in liquidated share dollars but that will provoke questions about who and whom is truly behind crypto, and that is a question Max Keiser is certainly not willing to ask!

Bottom line, is that a seriously wayward administration is apparently looking at seriously wayward ‘solutions’ to rescue its chestnuts from the fire. At the age of 78 — but clearly not functioning well — Joe Biden does not seem to be in charge. Such complex decisions about such complex monetary issues that stretch back to antiquity are clearly not within the realm of the current US administration. And with ever-deepening financial waters, it is unclear that any subsequent one may address this ongoing MMT disaster either.

*A contemporary expert on this subject is Paul Craig Roberts

**real rates already negative

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of this site. This site does not give financial, investment or medical advice.

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