The principles of functioning of modern states running Visible Money

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Slovenská verzia

I am the author of the Visible Money project, which ideologically draws on the text by American writer Neal Donald Walsch, who in one of his works describes an advanced modern society (one in which no one wants anything at the expense of anyone else) as a social establishment in which all finance and property of private individuals is fully transparent and visible. When you begin to develop on this idea and its consequences, you’ll come across a lot of simple solutions to the problems that have plagued human communities since the early beginnings of human society. In today’s text, I would like to address some positive changes in the functioning of the state when society gradually transitions to the system of visible money.

Financing of the state and tax collection – current situation

Pillar I – Taxes

Currently, the financing of modern states relies on two pillars. From the point of view of social stability, the first and most classic instrument, which is traditional and proven over the centuries, is the collection of taxes and their subsequent use for the payment of state liabilities. However, this traditional pillar of financing suffers from many ills that make it a very inefficient way of redistributing the value created in society. For example, the taxation of labor works in such a foggy and daunting way that it sometimes makes very little sense. When you start a job, your pay is denominated as the so-called gross salary. This number, however, has nothing to do with how much eventually lands on your account at the end of the month, and with how much your work actually costs the employer. With an initial gross salary of €1000, the employer costs in the Slovak Republic are €1352, but only around €700 is ultimately credited to the employee’s account. This amounts to a tax burden of 51.7%. But taxation does not end there. If an employee takes the net €700 and starts paying his/her expenses, he/she pays 19% VAT to the state on top of each payment for goods or services. In other words, we can easily deduce another 19% from the €700, which the poor employee pays in the price of everything he/she buys. And we have not addressed other taxes, which are paid either in the form of a mark-up in the form of excise taxes – fuel, alcohol, cigarettes, or in the form of special taxes – real estate tax, insurance tax.

The collection of VAT is a special source of problems in this poorly lubricated machine – since the entrepreneurs only pay tax on the surplus value they have generated through their business activities when purchasing the goods and services, mechanisms are needed to deduct their input VAT. The so-called VAT refund system has been introduced in which entrepreneurs request a refund of the money paid as VAT on the goods and services entering their business. This, of course, is the source of endless permutations of the infamous VAT refund fraud. Simply put, entrepreneurs have come up with ways to deceive the tax authorities (or, in the worst case, directly corrupt them) and receive VAT refunds they are not entitled to.

Pillar II – Printing of Money

The second source the states use to collect the funds for their operation is the printing of money. Or, in other words, quantitative easing by central banks. Central banks create new money in their systems, which is only covered by trust in the currency itself. Central banks then use the newly printed money to buy securities issued by the states – which in turn use the new money to finance themselves. This source of funding is a relatively innovative way to make money compared to traditional taxation – given that until the 1970s or so money had to be backed by gold.

The newly printed money in the economy causes the prices to rise and values to be redistributed in favor of those entities that are closest to the source of newly printed money in the chain – mostly the banks. The printing of money is least suitable for the end-of-the-line employees because their salary only rises as a measure of last resort. And the new higher prices are paid by old-level salaries.

However, this method of financing of the state has one major security flaw. The amount of goods and services one can produce is no match to the amount of money a central bank can print. In other words, if the central bank overperforms and prints too much money, it can result in a social frenzy accompanied by hyperinflation, the likes of which would make communism a bed of roses. Economists often compare the escapades of central banks to our trying to pour ketchup out of the bottle. You smack it, shake it – to no avail, and suddenly a deluge that makes your hamburger inedible.

How should things be done the right way?

In a society where most financial and asset flows would be largely transparent, the existence of a database of all financial flows would open the door to the unprecedented tools.

Economics would finally be a real science

For example, economics would receive a holy grail in the form of a database of all financial flows, which would allow it to predict with unprecedented accuracy how things are going to develop in society before they actually happen. Inflation/deflation would not be tracked back in time but set in advance. I’m trying to say that Pillar II of state funding would become a fully secure tool thanks to the existence of a database of financial flows. In a modern society, there is no need to pay taxes, and the state can print the money in a safe way provided that appropriate tools are in place. From a psychological point of view, I think it would be best for taxation to become part of the first pillar from the very get-go. Taxes should and could be relatively low – for example 10%. If everyone saw how much taxes other people paid, they would literally compete to pay taxes.

New methods for achieving state efficiency

The existence of a transparent database of financial and property flows, to which all state expenditures would be subject in the first place, would allow the common people to study how the state spends its money in detail. If, for example, it is declared that whoever saves a certain amount of state money by proposing some measures would receive a share of the money saved, I guarantee that ideas to improve the functioning of the state would explode. Such an activity would become a very profitable business. With benefits for all the stakeholders involved, and especially for the public.

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