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J. Bradley Jansen

The Carry Tax Proposal

Austrian Scholars Conference

Mises Institute March 14, 2009

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What Is A Currency Carry Tax?

A carry tax is a penalty for anyone who prefersto hold money instead of depositing it in abank. The longer money is held, the greater

the tax burden.

In order to impose such a tax, a form of datacollection device must be attached tocurrency.

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Implementation Of Carry Tax

Tax on holdings of reserves at banks and otherfinancial institutions

Tax directly on currency notes including thoseheld by individuals

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Origin of the Carry Tax Idea

John Maynard Keynes (1883-1946), included idea inGeneral Theory

Silvio Gesell (1862-1930), German-Argentinebusinessman/monetary author

George Nordman, Swiss merchant

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Irving Fisher

Stamp Scrips

1933

http://userpage.fu-berlin.de/~roehrigw/fisher/

The Bankhead-Pettengill Bill Feb 17, 1933

http://userpage.fu-berlin.de/~roehrigw/fisher/http://userpage.fu-berlin.de/~roehrigw/fisher/

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Rebirth of Carry Tax Idea

Marvin Goodfriend, Richmond Federal Reserve(1999)

http://www.richmondfed

.org/publications/research/working_papers/2000/pdf/pdf

Expounded in a later paper

http://www.richmondfed.org/publications/research/wopdf

http://www.richmondfed.org/publications/research/working_papers/2000/pdf/wp00-3.pdfhttp://www.richmondfed.org/publications/research/working_papers/2000/pdf/wp00-3.pdfhttp://www.richmondfed.org/publications/research/working_papers/2000/pdf/wp00-3.pdfhttp://www.richmondfed.org/publications/research/working_papers/2001/pdf/wp01-1.pdfhttp://www.richmondfed.org/publications/research/working_papers/2001/pdf/wp01-1.pdfhttp://www.richmondfed.org/publications/research/working_papers/2001/pdf/wp01-1.pdfhttp://www.richmondfed.org/publications/research/working_papers/2001/pdf/wp01-1.pdfhttp://www.richmondfed.org/publications/research/working_papers/2000/pdf/wp00-3.pdfhttp://www.richmondfed.org/publications/research/working_papers/2000/pdf/wp00-3.pdfhttp://www.richmondfed.org/publications/research/working_papers/2000/pdf/wp00-3.pdfhttp://www.richmondfed.org/publications/research/working_papers/2000/pdf/wp00-3.pdf

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US Rep. Ron PaulReaction Against Goodfriend

"Currency 'Carry Tax' Prohibition Act of 1999,"HR 3399 (1999) & H.R. 2777 (2003)

Dear Colleague letter, Feb 3, 2000 Hearing on the Production and Protection of the

Nation's Money, March 28, 2000 http://financialservices.house.gov/banking/32800pau.htm

http://financialservices.house.gov/banking/32800pau.htmhttp://financialservices.house.gov/banking/32800pau.htmhttp://financialservices.house.gov/banking/32800pau.htmhttp://financialservices.house.gov/banking/32800pau.htmhttp://financialservices.house.gov/banking/32800pau.htmhttp://financialservices.house.gov/banking/32800pau.htmhttp://financialservices.house.gov/banking/32800pau.htmhttp://financialservices.house.gov/banking/32800pau.htmhttp://financialservices.house.gov/banking/32800pau.htmhttp://financialservices.house.gov/banking/32800pau.htm

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George SelginReaction Against Goodfriend

"This is going beyond taxing banks for holdingreserves. It's taxing the public for holding currency toolong. That's even more wild an idea. There aresweeping implications of these suggestions beyondwhatever role they might play in thwarting adeflationary crisis... I think it's a very dangeroussolution to what may be a purely hypothetical

problem."http://www.wired.com/politics/law/news/1999/10/32121

http://www.wired.com/politics/law/news/1999/10/32121http://www.wired.com/politics/law/news/1999/10/32121

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Lew RockwellReaction Against Goodfriend

Really, this plan amounts to a kind of internal currency control--a tactictypical of totalitarian governments. In the case of FDR, his confiscation ofgold nullified all gold contract and nationalized the money stock. AsThomas P. Gore told FDR at the time, Why, thats just plain stealing, isnt

it, Mr. President? It would be stealing, too, if the Federal Reserve taxedand penalized Americans merely for holding on to dollars for too long at atime. In the broader context, this trial balloon is all part of a long runningwar on bank privacy and cash, as explained by Richard Rahn inThe End of Money and the Struggle for Financial Privacy. It is precisely thewar on bank privacy that causes so many Americans and people aroundthe world to want to hold and deal in cash, and long for the day when

money goes completely cyber.http://mises.org/story/324

http://www.amazon.com/exec/obidos/ASIN/0963865420/ludwigvonmisesinshttp://mises.org/story/324http://mises.org/story/324http://www.amazon.com/exec/obidos/ASIN/0963865420/ludwigvonmisesins

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Carry Tax Idea Percolating

Bruce Champ (April 2008)

Willem H. Buiter (June 2005); Willem Buiter and

Nikolaos Panigirtzoglou (Oct 2003) Evan F. Koenig and Jim Dolmas (July/Aug 2003)

Stuart Sayer (2002)

Tony Yates (October 2002)

Ralph C. Bryant (Nov 99)

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Bruce Champ

Economic Commentary

Stamp Scrip: Money People Paid to Use

April 1, 2008

http://www.clevelandfed.org/Research/commentary/2

http://www.clevelandfed.org/Research/commentary/2008/0408.cfmhttp://www.clevelandfed.org/Research/commentary/2008/0408.cfm

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Willem H. Buiter

Overcoming the Zero Bound on Nominal Interest

Rates: Gesell's Currency Carry Tax vs Eisler'sParallel Virtual Currency

June 2005

http://hi-stat.ier.hit-u.ac.jp/research/discussion/2005/

http://hi-stat.ier.hit-u.ac.jp/research/discussion/2005/pdf/D05-96.pdfhttp://hi-stat.ier.hit-u.ac.jp/research/discussion/2005/pdf/D05-96.pdf

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Evan F. Koenig and JimDolmas

Issue 4, Southwest Economy,

Federal ReserveBank of Dallas,July/August 2003

Monetary Policy in a Zero-Interest-RateEconomy

http://www.dallasfed.org/research/swe/2003/swe03

http://www.dallasfed.org/research/swe/2003/swe0304a.htmlhttp://www.dallasfed.org/research/swe/2003/swe0304a.html

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Tony Yates

Monetary Policy and the Zero Bound to InterestRates: A Review

October 2002http://www.ecb.int/pub/pdf/scpwps/ecbwp190.pdf

http://www.ecb.int/pub/pdf/scpwps/ecbwp190.pdfhttp://www.ecb.int/pub/pdf/scpwps/ecbwp190.pdf

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Ralph C. Bryant

Economic Policy When the Short-Term NominalInterest Rate is Stuck at the Lower Bound of Zero

Ralph C. Bryant, Senior Fellow, Economic Studies,Global Economy and Development, TheBrookings Institution

http://www.brookings.edu/papers/1999/11globaleco

Abstract Nov 99

http://www.brookings.edu/papers/1999/11globaleconomics_bryant.aspxhttp://www.brookings.edu/papers/1999/11globaleconomics_bryant.aspx

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Current Environment

Lack of fiscal discipline

Federal Reserve Board Chairman enamored by Great

Depression ideas President deferential to FDR

Dismissiveness of free market critiques

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Federal Reserve Notes

Potential for hoarding and not spending fastenough

Impose "carry tax" on cash Imbed a magnetic strip as a tracking device

Visibly record note when withdrawn frombanking system

Deduct tax when note deposited

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Big BrotherSurveillance Questions

Government could monitor private relationships

through currency transactions Complement to Bank Secrecy Act anti-money

laundering policies on checking, etc.

Marketed as anti-counterfeiting measure

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Why Current Concern

Advertised as solution in order to stimulate

stagnant economic growth in an environment ofstable or falling prices and nominal short-terminterest rates at or near zero

Technology now available to implement

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Glass Half Empty?

Lower reserves at banks

Increase governmental control of

economy and private sector New surveillance of money

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Glass Half Full?

Reduce desirability of FRNs

Increase skepticism of Keynesian ideas

Increase desirability of governmentmoney alternatives such as gold

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Bjansen@financialprivacy.org

202-742-5949 ext. 101www.financialprivacy.org