In the previous article, Getting Rid of Government Debt – Part 1, I have introduced a distinction between two types of public debts. One type is debts backed by assets. This part of the debts can be paid back by asset backed money generation, as described in that article. It can be passed to the next generation together with the assets corresponding to it.
In the present article, however, I am going to look at the other part of the public debts. What should we do with the parts of the public debts not backed by assets? The existence of such debts means that money was spent for things other than lasting assets, i.e. it was consumed but taxes where not high enough to cover this spending. Passing such debts to the next generation is exploitative because future people would just inherit the debts without being compensated by also inheriting anything to compensate for it. They would have to pay, but would not get anything in return.
Therefore, the running costs of communities or governments should be financed completely by taxes or, in the case of individual services to citizens or businesses, by fees (another possibility is paying for them from profits generated from publicly owned businesses).
For the future, creating public debts not backed by assets should be made illegal since it is exploitative. Each generation would have to pay its running costs alone. If the costs cannot be covered by taxes, fees or income, either spending must be reduced or taxes and fees must be increased.
If taxes where too low in the past, resulting in debts, some taxes should be raised to pay back these debts within a limited time. It is absolutely justified in this case to let the wealthy pay the larger fraction of these legacy debts: if taxes had been high enough in the past to cover the government’s running costs, these debts would not exist. In that case, people’s wealth would not have become so high. So people were able to become richer than they would have become had they been paying sufficient taxes. The additional wealth they have therefore corresponds to the additional debts of governments. People or companies were able to accumulate additional wealth by paying insufficiently low taxes or by evading taxes in an unfair way using some loopholes in the system.
Paying insufficient taxes can therefore be viewed as an instance of exploitation in which people enrich themselves by shifting the running costs of their present community or state to future people (i.e. future tax payers) instead of bearing their fair share of the costs themselves.
In order to pay back public debts, it is therefore fair to take the part of the wealth of wealthy people that they could accumulate additionally by not paying sufficient taxes in the past. Governments should therefore pass laws to charge a special tax on private assets to pay back – within a limited time – any debts not backed by assets. This tax could be paid in the form of money or by handing over some assets, e.g. business shares.
Assets taken by the government to pay debts don’t need to remain under government control. They may be passed to independent holdings or foundations whose purpose it is to pay the public debts by selling the assets back to the private sector or by using profit obtained from them. Such organizations could operate like independent foundations.
(The picture is from http://commons.wikimedia.org/wiki/File:NYC_New_York_City%27s_financial_district.JPG.)