Posted Jun 3, 2015 by Martin Armstrong
In response to questions from a major U.S. city and the debt crisis, I will not mention the names for this is sensitive and highly political. I have decided to address the question, which I would normally do privately, only because a lot of municipal governments are in trouble in many countries. The same problems are cropping up in Europe as well as North America.
REPHRASING THE QUESTION: Specifically, they wonder if the potential implications of solving the problem as I have outlined in the Solution Conference might actually hurt the city instead of helping at the local level. As they explain, their community has been cut to bare bones and it can hardly offer reasonable services to its residents, if state or federal government starves it further. Their experience is that the state decided to fix its debt problem by starving and passing the buck to local communities, which is coming out of 3 ½ years of a state government emergency takeover. They argue that current residents are now paying for money that was spent before it was even received, or money promised in the past, which decades of previous governments never provided. The city of … is paying for city services today that were provided to citizens 20 to 30 years ago, but were never paid for then. The city of … seems to be barely surviving on some kind of federal funding programs that would be cut first in the event of a major crisis. They wonder how communities like … will survive if fixing the problem means leaving … and similar local communities to fend for themselves, with the burdens they already carry.
What this boils down to, is what your message would be for the local government in …, for local civil society, for local academics, and for the citizens of … generally? What role can they play? In a place where you can buy a house for between $6,000 and $20,000, where illiteracy rates are high, salaries are low, and even providing water as a public utility is becoming impossible. Is this something they can do?
ANSWER: Municipal levels of government are in a vice between declining budgets from the federal and state/provincial government levels. Raising taxes has only sent the higher class and business fleeing elsewhere. This is the exact same pattern that unfolded in the fall of Mainz during the 15th century. Arming police and increasing fines will only further ensure the demise of the city.
The Solution I have set forth is much deeper than what meets the eye. Eliminating taxes at the federal level terminates the competition for taxes between the state and local government v the feds. Taxes will then be implements solely by local government. Now, if we take my proposal and look closer, the funding of the federal government will be capped by a percent of GDP. Now, interest expenditures will exceed defense by 2020, even if we do not raise interest rates. We can see that up to 70% of the total national debt is accumulated interest expenditures. This did not benefit anyone but bondholders.
Ending the government’s borrowing will actually free up the cost of funding the debt for the betterment of society. Socialism has failed because they borrowed, and now the cost of that borrowing is absorbent.
Furthermore, eliminating taxation will bring jobs home. In the course of advising major multinational companies that were moving into Europe for the birth of the Euro, I placed a skilled worker operations in Britain for the cost of labor that was 40% cheaper compared to Germany. This was the tax burden, not merely wages.
If we eliminate the taxes, the net income retained by labor will increase and we will begin the process of restoring the middle class. This will be vital to restoring local communities.