IN ADDITION TO President Biden ordering the release of 180 Million Barrels of Oil from our Strategic Petroleum Reserve (SPR) to be distributed over the next six (6) months basically at a rate of about One Million Barrels per day and his decision to restart domestic oil production ASAP to counteract the current high gas prices at the pump along with other actions The Administration has taken over the past year to resolve the numerous Supply Chain Issues we’ve all experienced as a Nation as a result of The Pandemic>>>
On April 6, 2022 (the date +1 of this article), THE FED ANNOUNCED ITS INTENTION TO IMPOSE a series of Interest Rate Hikes and some VERY serious Quantitative (Belt) Tightening pulling Money-Capital out of Our Economy reversing the emergency measures it took in response to The Pandemic where it “pumped” into The Economy about $9 Trillion Dollars.) And over the next year it will take out some $1.1 Trillion Dollars at a rate of $95 Billion ($60 Billion in Treasuries and $35 Billion in MBS (Mortgage-Backed Securities) PER MONTH beginning this month.
TO BETTER HELP FIGHT INFLATION (now and possibly in the future), the Federal Government could ALSO have in place a system, a financial mechanism, one that is self-regulating based upon positive (tax) incentives which would motivate investors and the business, corporate community to “shunt” money/Capital AWAY from the Private (business and investment) Sector when the “Private Sector” becomes “over-amped” with too much Capital (Money Supply–“too many dollars”) at a time when business and/or investment opportunities (including the stock market) are “too few”, becoming “de minimis”, having been fully “played out”, “Bid-Up” with The Economy, in essence, approaching a point of Full “Economic Expansion”.
THIS PLAN TO BETTER HELP FIGHT INFLATION as The Fed “winds down” its Quantitative Easing (deficit spending aka QE) and Mortgage-based Asset Purchases would allow The Fed NOT to be SO DEPENDENT to hike interest rates as much and as often as it NOW plans to in an attempt to slow The Economy down so as TO get a “grip” on our Present Inflation Problem.
Currently, The Fed intends to raise Interest rates 1/2% X 4 times (50 basis points each hike) at their next 4 FOMC meetings, then 5 more X 1/4% rate hikes each (25 basis points each) for a total 3.25% in Interest Rate increases. And when THIS article “comes out”, there could be new information and NEW FORECASTS by THE FED as the situation develops over the next year So PLEASE READERS, please keep that in mind!
NOW getting back to the strategy for Interest Rate Hikes—Such strategy would increase the cost of borrowing money (for consumer loans–auto, home, etc. and for loans to businesses) therefore slowing down (Diminishing (or as some Economists put it “Destroying”)) Demand and would also act to curtail further attempts at expansion (business startups, etc.) in an Economy for the most part already fully Expanded and “Bid-Up”. However, THESE INTEREST RATE HIKES would be across-the-board AFFECTING ALL businesses and sectors of Our Economy regardless of a particular business’s category sub-sector ACTUAL impact on Inflation.
Interest Rate Hikes would also make the purchase of Bonds (U.S. Treasury) and simply keeping one’s money in a Bank Savings Deposit Account (provided your Bank upped their rates in step with The Fed) more attractive. However, just as an aside, such Interest Rate Hikes could also have a negative “side-effect” on our Banking System in that Demand for Loans (the way banks make their profit) would decrease and the cost of providing money for loans (Bank Savings Deposit Account Rates) would go up.
NOW GETTING BACK TO THE PLAN being suggested here, it would be IN CONJUNCTION with SOME interest rate hiking and would help MORE SURGICALLY SHUNT”/divert money Capital (Money Supply) away from those particular portions of the Private (business and investment) Sector that have ACTUALLY become “over-amped” with too much–“too many dollars” chasing “too few” business and/or investment opportunities THEREFORE REDUCING THE NEED FOR AS MANY INTEREST RATE HIKES THE FED IS CURRENTLY CONTEMPLATING.
THIS PLAN suggested here BEING TAX INCENTIVE would allow businesses, corporations, institutional investors, wealthy individuals or any taxpayer for that matter, when filing their income tax returns to get a tax deferment on taxable income profits if such (net) profits ARE USED INSTEAD TO PURCHASE U.S. Treasury Bonds THEREBY IMMEDIATELY REDUCING THE AMOUNT OF CAPTIAL IN THE PRIVATE (Business, Corporate, Investment) SECTOR—the tax on these particular profits (but used INSTEAD to buy Bonds) to be paid AT A LATER TIME (DATE OR YEAR) ONLY WHEN such business, corporation, institutional investor, wealthy individual or middle-class taxpayer (hereinafter to be referred to as TAXPAYER) decides to redeem their Bonds.
THIS BOND BUYING TAX-INCENTIVE STRATEGY could ALSO be employed AS WELL at ANYTIME throughout the year. The advantage to The Government being that because the bond purchaser is getting a tax deferment on these bonds until they are redeemed at a later date (or year), no yield would be paid on these bonds but, at the same time, there would be many tax reduction strategies available to the bondholder as to when to redeem their bonds not to mention the possibility of a good business or investment deal coming along making bond redemption and paying the tax owed worthwhile. To be later explained in more detail.
PLUS The Government would get an IMMEDIATE JOLT OF CASH to help fund their immediate Budgetary Needs specifically INCLUDING ALL those recently enacted Bills and Programs passed to give relief to and counteract the after-effects of The Pandemic and NOW The War in Ukraine. This IMMEDIATE JOLT OF CASH would ALSO mean The Government would become less dependent upon Tax Revenues ALONE (or the need for future Tax Increases) to fund its (our) increased, current Budgetary Needs.
ALSO since these extra bond purchases would decrease the amount of Capital in The Private (business-investment) Sector by shunting, diverting (these) dollars way from The Private Sector, The Fed would NOT have to raise interest rates as much or as often to get control of our Present Inflation Problem and as a FURTHER FAVORABLE consequence, those already previously holding bonds purchased at lower interest rates would suffer less loss on the principals of bonds they (presently) hold if sold in the secondary bond market.
THIS TAX-INCENTIVE PLAN would ALSO be specific to each individual taxpayer, business, corporation, investment group as to the basic decision, itself, as to whether to defer any income to purchase U.S. Treasury Bonds and, as a result, would be better able, in toto, to address AND more specifically CONTROL–money (dollars) going into specific geographic areas or communities, specific industries OR business-investment categories THAT ARE ACTUALLY THE ONES THAT ARE SPECIFICALLY becoming “over-amped” with “too many” dollars being fully “played out” or “Bid up” and therefore becoming (by consequence) less profitable and, hence, a LESS efficient use of money—in other words—Inflationary.
Again–THE ADVANTAGE to The Government from THIS tax-incentive PLAN would be that these U.S. Treasury Bond purchases would be used for Governmental Budgetary Needs and at the same time because these (bond) monies ARE NOW in the Public (governmental) Sector and NOT in the private (business-corporate, investment) sector, this, again, would HELP PREVENT a situation of “too many” dollars chasing “too few” business-corporate, investment opportunities which if left unchecked, can lead to a “bid-up” (Inflated Price-Costs) for raw materials, supplies, component parts, electronics and computer chips in short supply AND for skilled labor and entry-level employees, for stock share prices and also for business real estate and rental property which, in turn, are “passed on” to the consumer by way of higher prices and hence, Inflation.
To purchase U.S. Treasury Bonds tax-free (or partially tax-free) would diffuse THIS potential Inflation. The situation we have now, one could argue–WELL we already have safety valve alternatives in place if business-investment opportunities become few. And as “the argument” goes–There’re banks where one can deposit one’s money or U.S. Treasury Bonds that can be purchased BUT deposit rates of return NOW are hardly anything and the Ten Year Bond which had been at times way under 2% but is now at 2.65% as of April 7 and will further climb. Obviously, these investment “alternatives” had up to now NOT been a preventative deterrent to those continuing to invest in an “over-heated” market.
So to more adequately curb Inflation, there should be a FURTHER deterrent AND BETTER ALTERNATIVE by offering U.S. Treasury Bonds as a Tax-Free (or if only a Partial Tax-Free) Deterrent. SUCH would be an ideal answer to prevent FURTHER, continuing inefficient use of Capital (Money Supply), a CHIEF cause of Inflation!!
>>>IF the investor and business community were to be given an “out” where they could “park” their money and not pay tax on that money until a “really good deal” came along or other good or necessary business reasons developed (an efficient use of Capital), investors or businesses could THEN instead choose this route of “parking” their cash reserves and if such a move were to also benefit the government as well–-then, this certainly would be “the best of both worlds”—A Win-Win Situation for both The Government and Private Sector!
THE BENEFIT TO THE GOVERNMENT BEING THAT WHILE THESE INVESTORS AND THE BUSINESS-CORPORATE COMMUNITY COULD DEFER A PERCENTAGE OF THEIR INCOME NOT PAYING TAX ON THAT INCOME UNTIL THEY NEEDED IT FOR A REASON OR WANTED THIS MONEY FOR A SOLID “SURE-FIRE” INVESTMENT, THE GOVERNMENT, IN EXCHANGE, WOULD BE ABLE TO FREELY USE THESE DOLLARS IN THE MEANTIME FOR THEIR PRESSING BUDGETARY NEEDS.
NOW HERE’S THE PLAN>>>
OFFER ANYONE FILING A TAX RETURN—Corporations, Businesses, Wealthy Individuals, the Working Public, would have the option to buy U.S. Treasury Bonds with a percentage of their net income (after deductions) and have that income with which they purchased such bonds deducted from their declared income for that year, the tax on such income used to purchase these bonds to paid in the year in which such bonds are redeemed or mature.
This way the Federal Government would have full use of such (bond) money and the bondholder would thereby avoid (delay) paying any income tax on such income used to purchase said bonds until redemption or bond maturity. Again—A Win-Win situation for both the Government and those participating in this program.
The advantage to the bondholder would be multi-fold. (1) The bondholder could redeem any bonds purchased in a year where there was a loss or minimal or no income. This way by combining (and declaring the income from the bond) in a year of loss, no income, or minimal income the tax paid on the income from the bond could now be less or zero when combined with a loss (negative income), no (zero) income, or minimal income.
(2) The bondholder could redeem any bonds purchased in a year where the corporation or business expended capital (income) for any legitimate business deduction—equipment purchases, work done or services rendered to the corporation or business, business startups, expansions, etc. That way, the bond income used instead for a business deduction would not be counted as net taxable income.
(3) The same analysis would work for the costs resulting from any unexpected emergencies.
NOW one would say—Wouldn’t the above scenarios result in the government collecting less taxes?? NO, NOT REALLY AND HERE’S WHY>>>
Because someone will pay the tax on that money. For example, in all the above even in years of loss, no or minimal income, these monies would STILL be paid out to employees, suppliers, creditors, independent contractors and/or other businesses rendering services to the company-corporation in question adding to THEIR (net) incomes and THEY would pay any added, additional tax on their incomes generated from the income produced from any redeemed bond.
Continuing on with advantages to The Bondholder:
(4) Even in years of income, the corporation or business may still want to redeem any of these Profit Carry Forward Tax Deferred Bonds when the corporation or business still making a profit but say a lesser profit may still want to redeem and declare such additional profit to give a healthier year-in and year-out steadier no-dips in multi-year yearly profit statement(s).
(5) And should a good (hot) business or investment opportunity arise then redeeming these Bonds (hereinafter to be formally called—Profit Carry Forward Tax Deferred Bonds) AND paying the tax on these Bonds would, IN AND OF ITSELF, make sense.
(6) AND LAST BUT NOT LEAST–The purchase of these Profit Carry Forward Tax Deferred Bonds to avoid being in a higher Tax Bracket. However, rules on Redemption in this situation would be limited. For example, an individual or business could not simply redeem bonds bought for this reason in the following year (or years to be determined by study) unless there was another reason as described in the above examples (1) thru (5).
OVERALL, IN A BROADER macro-economic money supply analysis, by providing an option for these Profit Carry Forward Tax Deferred Bonds this would allow for years or periods of time where investment and/or other business opportunities were de minimis and as a result corporations, businesses, institutional investors or wealthy individuals could simply shield part of their extra income and profits from any taxation, allow the government full use of this money where instead we would otherwise have a situation for ripe for INFLATION, a situation THAT WE CURRENTLY HAVE NOW of too many dollars chasing too few business investment opportunities.
IN OTHER WORDS, these Profit Carry Forward Tax Deferred Bonds, again, would act as a self-regulating VARIABLE “shunt” shifting large pools, billions and of billions of dollars, away from the private sector and stock market when business-investment opportunities were poor OR OVER-SATURATED. THIS STRATEGY DIRECTLY PREVENTING INFLATION.
“PARKING” large sums of cash in new temporary “holding-pattern” government tax shelters (i.e., these Profit Carry Forward Tax Deferred Bonds) and when business and investment opportunities materialized, these participating bondholding corporations, businesses, institutional investors or wealthy individuals could then “cash in” their Profit Carry Forward Tax Deferred Bonds, pay the tax due and owing and still make a profit when business and investment opportunities were more realistically available and profitable.
PLUS, with these Profit Carry Forward Tax Deferred Bonds being issued, the government instead of collecting a 21% corporate tax rate, though being a tax, such being “free and clear”, the federal government would be able, in some instances, to raise almost 5 times that amount “in one fell swoop.” This being especially important WHEN THE NEED FOR IMMEDIATE FUNDING FOR A SPECIFIC PROJECT OR BILL IS CRITICAL.
For example, if a corporation, business, institutional investor or wealthy individual paid the tax on say $100,000 net taxable income, the government would collect some $21,000 “free and clear” but if that same corporation, business, institutional investor or wealthy individual purchased a Profit Carry Forward Tax Deferred Bond for $100,000, the government would immediately get that $100,000 in spendable dollars, though, that $100K would, in the future, have to be paid back.
BUT, when these bonds mature and/or are redeemed>>>
EVERY YEAR there would be NEW AND DIFFERENT corporations, businesses, institutional investors or wealthy individuals and a multitude of middle-class income earners as well taking advantage of and purchasing into this new popular Profit Carry Forward Tax Deferred Bond Series and such new incoming Bond revenues would be used to cover any Bonds maturing or being redeemed. But remember, taxes would ALSO continue to be collected on any Bonds maturing or being redeemed.
NOW all this would have to be “finely-tuned” by experts as to what amount or percentages of incomes could be converted into these Profit Carry Forward Tax Deferred Bond Series OR, as discussed, THE AMOUNT OF TAX DEFERMENT. What the maturity dates of these bonds would be if not redeemed. Whether these special series bonds could accrue yields while being held to be applied against taxes due and owing on the tax being deferred. Whether any tax rates or progressive levels would be changed and/or POSSIBLY ENACTING A CORPORATE MINIMUM TAX REQUIREMENT FOR ELIGIBILITY TO PURCHASE these Profit Carry Forward Tax Deferred Bonds to begin with!
AGAIN, in our above example—EVEN IF the government were to offer a PARTIAL tax Deferment of say ½ of the current corporate tax rate of 21%, this, under present circumstances, would still be a “good deal.” For example, instead of getting a total tax-free determent when buying a U.S. Treasury Bond and paying the 21% tax rate upon redemption, say the corporation, instead, pays 10% in taxes to qualify for this Special Bond Purchase, then pays the remaining 11% when redeeming, that still makes sense as things stand now. Otherwise, when paying 21% on net profits that would mean to get the same benefit as paying 10% on net income used to purchase U.S. Treasury Bonds under This Plan, the corporation would have to find an investment, business-wise or stock market, making an 11% return, which under present circumstances would be a “pretty lucky find.”
EITHER WAY, THIS PLAN WOULD CERTAINLY MAKE FOR GREATER SENSE FOR CORPORATIONS AND OTHERS TO DECLARE ALL (or more of) THEIR INCOME AS PART OF THEIR PROFITS WOULD QUALIFY FOR PREFERENTIAL TAX TREATMENT/DEFERMENT thereby reducing the “need” for tax write-offs (companies investing in or starting businesses of minimal, no return or even a loss where the expenses or loss otherwise incurred would be less than the tax to be owed if no such venture was initiated) or engaging in Cayman Island type investment funneling maneuvers simply to hide or avoid declaring income or EVEN THE NEED for the IRS to employ additional tax auditors as these Profit Carry Forward Tax Deferred Bonds would, as stated, induce CORPORATIONS AND OTHERS TO DECLARE ALL (or more of) THEIR INCOME because of this TAX DEFERMENT characteristic.
In closing, these Profit Carry Forward Tax Deferred Bonds–ARE BEING DONE WITH THE SINGLE AND SOLE PURPOSE ON HOW TO BEST UTILIZE, REALLOCATE AND REDISTRIBUTE LARGE CACHE SECTORS OF MONEY SUPPLY TO MAKE OUR ECONOMY MOST EFFICIENT AND PRODUCTIVE BY AGAIN ‘parking” large sums of cash in these Profit Carry Forward Tax Deferred Bonds when business and stock market investment opportunities are “down” and when business and investment opportunities materialized, these participating bondholding corporations, businesses, institutional investors and/or wealthy individuals could then “cash in” their Profit Carry Forward Tax Deferred Bonds, pay the tax due and owing and still make a profit when business and investment opportunities became available.
Finally, This Plan would have the additional effect of propping up a presently sagging bond market because of presently low bond yield interest rates AND would give The Fed greater control over keeping interest rates low because of the sheer, greater volume of U.S. Treasury Bonds being purchased on a yearly basis and (as a result) a better handle on Our Economy and greater command AS TO WHEN to raise interest rates at the appropriate time when economic conditions dictated versus perhaps having to raise interest rates to compete for dollars (Money Supply) simply to adequately fund government expenses OR WORSE to do more deficit spending (further increasing Our National Debt along with Dollar devaluation issues) and also as it has become a reality, to now avoid further possible Debt Ceiling, Default Congressional voting controversies.
FINAL (ANALYTICAL) CONCLUSION
The ideal situation in Our (or any) Economy with regards to overall EFFICIENCY of Economy IS the EFFICIENT use of its money supply (its currency.) This would entail having Bond Yield Rates set at exactly an interest yield rate level (to be periodically adjusted) such that there would always be an equilibrium of Money Supply between the Private (Business Corporate Investment) Sector versus the Public (Governmental) Sector—this “equilibrium being defined as having the maximum flow of Money available for use for Business/Investment maintenance, capitalization and growth BUT NEVER to a point of “too many dollars” chasing “too few” opportunities and/or uses aka to a point of “diminishing returns” that begins to allow (leads to) a ‘bid-up” or price/cost increase not only affecting stock market share prices but also for “raw materials, supplies, component parts, computer chips, etc. and for skilled labor and even entry-level employees, business real estate, rental property which, in return, are “passed on” to the consumer and hence, therefore, a scenario for (compounded) Inflation” ALSO, AT THE SAME TIME, FACTORING IN THE GOVERNMENT’S BUDGETARY NEEDS.
THE WAY TO DO THIS IS TO have Bond Yield Interest Rates (i.e., their Rates of Profit Return) set at such a level that Corporations, Businesses, Institutional Investors, Wealthy Individuals and Working Public would begin to collectively, in the aggregate, start to purchase, on the average, Bonds at this (Bond Yield) “cut-off” point versus continuing to invest in the Business Corporate Investment Sector.
RIGHT NOW, Interest Rates are way too low for the above scenario to occur. And because of this, this Profit Carry Forward Tax Deferred Bond proposal would be a good way to make sure we can adequately fund Governmental Budgetary Needs until we can get interest rates up high enough. Otherwise, with our low interest and therefore, low bond yield rates, there may come a time when there may NOT be enough of a bond dollar tax revenue volume pool for the Government to adequately fund its current needs without ONCE AGAIN having to resorting to additional, further deficit spending, Asset Purchases (Quantitative Easing).
BUT Once interest rates are allowed to climb high enough by The Fed, then and only then will we begin to achieve the Ideal Economic Model. When this occurs, further interest rate adjustments can be made by The Fed to maintain adequate Bond Pool Dollar Volume to supplement Tax Revenue collected from The Private Sector (GNP) to be used for Governmental Budgetary Needs and for Interest Payment Servicing Obligations of Our National Debt, both current and past AND ALSO at the same time provide for enough Money Supply in The Private Sector for adequate Investment Capital for business and job growth also factoring in wage and cost-of-living increases.