Monday, March 18, 2013

Novel solutions

By Carl

Cypress, much like its neighbor Greece, is in a financial bind. Looking for a 10€ billion bailout package, it needs to show that it is taking steps necessary to balance its budget.

Now, you can go the austerity route, but indicators show that austerity is precisely the wrong message to send the markets these days: Euro Union countries who have tried that have ended up in deeper economic trouble than those who have managed to avoid trouble at all. So the alternative is to raise tax revenue somehow.

Income tax revenue raises would help, of course, but what if a country was to tax money that is taken out of the economy?
NICOSIA, Cyprus—Cyprus put off for another day a debate on a controversial bank deposit levy in the country's parliament—a precondition to receiving a €10 billion bailout—even as it proposed a new plan to ease the burden of that tax on small savers in a bid to win votes for the measure.
Speaking to reporters, Cyprus Parliament speaker Yiannakis Omirou said Monday that the debate and vote would be pushed back to Tuesday—now two days behind schedule—a move that would likely require the country to extend a bank holiday on the island for at least one more day amid fears of a meltdown in the island's financial system.

"The parliament will convene at 6 p.m. [1600 GMT] tomorrow," Mr. Omirou told reporters. "The reason is because there now exist amendments to the government legislation that is to be submitted. Consequently, it requires the necessary time in parliament, in the finance committee, to examine these new proposals."

Pretty brilliant, if you think about it for a minute: by forcing people with a little extra cash lying around to actually go out and spend it, you accelerate future spending decisions into today. This pumps your economy up and creates jobs and other tax revenues to support the government and the nation.

It’s a little like the Fed dropping mortgage interest rates for home owners but without the mess of subprime mortgages to soak up the funds still out there, waiting to be borrowed.

We learned in 2008 that, in America, much of the Bush tax cut was literally stuffed under mattresses, pumped into bank accounts and not put back to work, mostly because despite the tax cuts, the GDP malingered and jobs were never created (President Obama in the first three years of his term created more jobs than Bush did in eight.)

So a tax on deposit accounts is an interesting idea, and I hope Cypress is able to pull it off, even from just an experimental point of view.

(Crossposted to Simply Left Behind.)

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