How To Pay For The Deficit

The Liberal-Tories say they had no alternative to swingeing cuts and attacks on the poorest to pay off the deficit. There is a simple solution that requires no such draconian measures, that meets the requirements for fairness, and that does not impose taxes that might choke off consumption or investment. It does not even involve printing money that might lead to inflation, and higher interest rates.

The total value of shares listed on the Stock Exchange is way over a trillion pounds, but let us take a trillion as a round figure. If the Government passed a measure requiring that Companies create 10% new shares, and hand them over to the Government, the Government would possess shares with a value of £100 billion. It could sell these shares on the market through the arms length body it set up to handle its shares in the Banks, as and when the best moments arose to do so.

Because, the Government would take payment of this Tax on Capital in shares rather than cash it would mean that the profitability of the comapnies was not affected, and nor would be their ability to invest, nor would be their cash flow. Of course, by creating 10% extra shares the value of these shares might fall, as and when the extra supply came to market. However, whenever there are periodic stock market panics resulting from some unforeseen event, we frequently see in the newspapers that tens and even hundreds of billions of poiunds has been wiped off the value of shares. If such events occur naturally with no benefit, then surely it is worth the risk that shares might fall by 10%, for the "good of the country", given that we are "all in this together".

Besides, it is not at all clear that share prices would fall. Because, using this method would mean that the deficit would be paid off without actually taking money out of the pockets of consumers or businesses, it would mean that economic growth would be that much higher than it would otherwise have been. Indeed, it might mean avoiding a serious recession. Higher economic growth under all economic models leads to higher rates of investment, and Capital Accumulation. That means that the underlying value of Capital Assets rises, it means that the discounted future earnings of companies, on which share prices are usually assessed, will be higher, thereby justifying higher not lower share prices.

Not, only would such a strategy mean that any pain was placed firmly on those that are by far the most able to bear it, but as demonstrated above, it is not clear that there is actually ANY pain that would result from it. But, why will the Liberal-Tories not pursue such a measure. The reason is simple. Unlike, Income Tax, VAT, or even Capital Gains Tax, which fall unavoidably on workers and the middle class, this measure falls directly on Capital itself. It represents not a transfer of income within the working classes as all redistributive taxes do, but a transfer from Capital to Labour. The Liberal-Tories are the political representatives of Capital, whatever they say about ruling in the name of the people, or about us all being in this together. They will not propose such a policy.

But, they have said they want us to tell them how to clear the deficit. This tax on Capital could do it quickly, and simply, and fairly, with little if any economic cost.